Title

On the Third Law of Demand

Document Type

Article

Journal/Book Title/Conference

Economic Inquiry

Volume

41

Publication Date

2003

First Page

292

Last Page

298

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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