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On the Third Law of Demand
Author(s) -
Razzolini Laura,
Shughart William F.,
Tollison Robert D.
Publication year - 2003
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1093/ei/cbg008
Subject(s) - economics , proposition , mathematical economics , quality (philosophy) , prime (order theory) , supply and demand , supply side , microeconomics , econometrics , neoclassical economics , mathematics , philosophy , epistemology , combinatorics
The Alchian and Allen theorem predicts that it will be harder to find “good” apples in the State of Washington, a prime apple‐growing region, than in, say, New York City, where the addition of shipping charges makes “bad” apples comparatively more expensive. We recast the theorem as a testable proposition by explicitly taking the supply side into account and identifying plausible scenarios in which a fixed cost either has no effect on the relative prices of high and low quality grades of the same good in distant markets or, indeed, causes more of the bad apples to be shipped out.