"Lemons" refer to goods of poor quality that are mixed in with goods of high quality in a market. When buyers do not have enough information to distinguish between the high-quality and low-quality goods, they may be unwilling to pay a fair price for any of the goods, leading to a market failure. This can occur, for example, when used cars are sold without disclosing their full history or when a consumer is unable to easily compare the quality of different products.

The lemons problem can lead to a lack of trust between buyers and sellers and can result in a decrease in the overall quantity and quality of goods available in the market. It can also lead to higher prices for goods, as sellers may need to compensate for the increased risk of selling low-quality products.