On the Third Law of Demand |
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| Authors: | Laura Razzolini William F Shughart II Robert D Tollison |
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| Institution: | Razzolini:;Associate Professor, Department of Economics, University of Mississippi, P.O. Box 1848, University, MS 38677-1848, and Program Director for Economics, National Science Foundation, 4201 Wilson Boulevard, Room 995, Arlington, VA 22230. E-mail Shughart:;Professor, Department of Economics, University of Mississippi, P.O. Box 1848, University, MS 38677-1848. E-mail Tollison:;Professor, Department of Economics, University of Mississippi, P.O. Box 1848, University, MS 38677-1848. E-mail |
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| Abstract: | 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. |
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