4 Caps in title edited May 5 '16 at 11:58 BKay 12.5k22 gold badges2424 silver badges6161 bronze badges This is called the Alchian–Allen effect. The Alchian–Allen effect was described in 1964 by Armen Alchian and William R Allen in the book University Economics (now called Exchange and Production). It states that when the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product. This is true because the added per-unit amount decreases the relative price of the higher-grade product. Suppose, for example, that high-grade coffee beans are \$3/pound and low-grade beans \$1.50/pound; in this example, high-grade beans cost twice as much as low-grade beans. Now add a per-pound international shipping cost of \$1. The effective prices are now \$4 and \$2.50; high-grade beans now cost only 1.6 times as much as low-grade beans. This reduced ratio of difference will induce distant coffee-buyers to now choose a higher ratio of high-to-low grade beans than local coffee-buyers. (Prices are illustrative only). The effect has been studied as it applies to illegal drugs and it has been shown that the potency of marijuana increased in response to higher enforcement budgets, and there was a similar effect for alcohol in the U.S. during Prohibition. Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the transportation costs for the most expensive wine. From the Alchian–Allen Wikipedia page, emphasis mine. I learned about this paradox in the context of whyWhy the bestBest Washington applesApples are shippedShipped out of stateState, discussed in a chapter of a fun popular economics book Puzzles and Paradoxes in Economics which also happens to be a great source of undergraduate economics exam questions. This is called the Alchian–Allen effect. The Alchian–Allen effect was described in 1964 by Armen Alchian and William R Allen in the book University Economics (now called Exchange and Production). It states that when the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product. This is true because the added per-unit amount decreases the relative price of the higher-grade product. Suppose, for example, that high-grade coffee beans are \$3/pound and low-grade beans \$1.50/pound; in this example, high-grade beans cost twice as much as low-grade beans. Now add a per-pound international shipping cost of \$1. The effective prices are now \$4 and \$2.50; high-grade beans now cost only 1.6 times as much as low-grade beans. This reduced ratio of difference will induce distant coffee-buyers to now choose a higher ratio of high-to-low grade beans than local coffee-buyers. (Prices are illustrative only). The effect has been studied as it applies to illegal drugs and it has been shown that the potency of marijuana increased in response to higher enforcement budgets, and there was a similar effect for alcohol in the U.S. during Prohibition. Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the transportation costs for the most expensive wine. From the Alchian–Allen Wikipedia page, emphasis mine. I learned about this paradox in the context of why the best Washington apples are shipped out of state, discussed in a chapter of a fun popular economics book Puzzles and Paradoxes in Economics which also happens to be a great source of undergraduate economics exam questions. This is called the Alchian–Allen effect. The Alchian–Allen effect was described in 1964 by Armen Alchian and William R Allen in the book University Economics (now called Exchange and Production). It states that when the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product. This is true because the added per-unit amount decreases the relative price of the higher-grade product. Suppose, for example, that high-grade coffee beans are \$3/pound and low-grade beans \$1.50/pound; in this example, high-grade beans cost twice as much as low-grade beans. Now add a per-pound international shipping cost of \$1. The effective prices are now \$4 and \$2.50; high-grade beans now cost only 1.6 times as much as low-grade beans. This reduced ratio of difference will induce distant coffee-buyers to now choose a higher ratio of high-to-low grade beans than local coffee-buyers. (Prices are illustrative only). The effect has been studied as it applies to illegal drugs and it has been shown that the potency of marijuana increased in response to higher enforcement budgets, and there was a similar effect for alcohol in the U.S. during Prohibition. Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the transportation costs for the most expensive wine. From the Alchian–Allen Wikipedia page, emphasis mine. I learned about this paradox in the context of Why the Best Washington Apples are Shipped out of State, discussed in a chapter of a fun popular economics book Puzzles and Paradoxes in Economics which also happens to be a great source of undergraduate economics exam questions. 3 deleted 1 character in body edited Jan 27 '16 at 18:09 BKay 12.5k22 gold badges2424 silver badges6161 bronze badges This is called the Alchian–Allen effect. The Alchian–Allen effect was described in 1964 by Armen Alchian and William R Allen in the book University Economics (now called Exchange and Production). It states that when the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product. This is true because the added per-unit amount decreases the relative price of the higher-grade product. Suppose, for example, that high-grade coffee beans are \$3/pound and low-grade beans \$1.50/pound; in this example, high-grade beans cost twice as much as low-grade beans. Now add a per-pound international shipping cost of \$1. The effective prices are now \$4 and \$2.50; high-grade beans now cost only 1.6 times as much as low-grade beans. This reduced ratio of difference will induce distant coffee-buyers to now choose a higher ratio of high-to-low grade beans than local coffee-buyers. (Prices are illustrative only). The effect has been studied as it applies to illegal drugs and it has been shown that the potency of marijuana increased in response to higher enforcement budgets, and there was a similar effect for alcohol in the U.S. during Prohibition. Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the > transportation transportation costs for the most expensive wine. From the Alchian–Allen Wikipedia page, emphasis mine. I learned about this paradox in the context of why the best Washington apples are shipped out of state, discussed in a chapter of a fun popular economics book Puzzles and Paradoxes in Economics which also happens to be a great source of undergraduate economics exam questions. This is called the Alchian–Allen effect. The Alchian–Allen effect was described in 1964 by Armen Alchian and William R Allen in the book University Economics (now called Exchange and Production). It states that when the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product. This is true because the added per-unit amount decreases the relative price of the higher-grade product. Suppose, for example, that high-grade coffee beans are \$3/pound and low-grade beans \$1.50/pound; in this example, high-grade beans cost twice as much as low-grade beans. Now add a per-pound international shipping cost of \$1. The effective prices are now \$4 and \$2.50; high-grade beans now cost only 1.6 times as much as low-grade beans. This reduced ratio of difference will induce distant coffee-buyers to now choose a higher ratio of high-to-low grade beans than local coffee-buyers. (Prices are illustrative only). The effect has been studied as it applies to illegal drugs and it has been shown that the potency of marijuana increased in response to higher enforcement budgets, and there was a similar effect for alcohol in the U.S. during Prohibition. Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the > transportation costs for the most expensive wine. From the Alchian–Allen Wikipedia page, emphasis mine. I learned about this paradox in the context of why the best Washington apples are shipped out of state, discussed in a chapter of a fun popular economics book Puzzles and Paradoxes in Economics which also happens to be a great source of undergraduate economics exam questions. This is called the Alchian–Allen effect. The Alchian–Allen effect was described in 1964 by Armen Alchian and William R Allen in the book University Economics (now called Exchange and Production). It states that when the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product. This is true because the added per-unit amount decreases the relative price of the higher-grade product. Suppose, for example, that high-grade coffee beans are \$3/pound and low-grade beans \$1.50/pound; in this example, high-grade beans cost twice as much as low-grade beans. Now add a per-pound international shipping cost of \$1. The effective prices are now \$4 and \$2.50; high-grade beans now cost only 1.6 times as much as low-grade beans. This reduced ratio of difference will induce distant coffee-buyers to now choose a higher ratio of high-to-low grade beans than local coffee-buyers. (Prices are illustrative only). The effect has been studied as it applies to illegal drugs and it has been shown that the potency of marijuana increased in response to higher enforcement budgets, and there was a similar effect for alcohol in the U.S. during Prohibition. Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the transportation costs for the most expensive wine. From the Alchian–Allen Wikipedia page, emphasis mine. I learned about this paradox in the context of why the best Washington apples are shipped out of state, discussed in a chapter of a fun popular economics book Puzzles and Paradoxes in Economics which also happens to be a great source of undergraduate economics exam questions. 2 added 374 characters in body edited Jan 27 '16 at 12:53 BKay 12.5k22 gold badges2424 silver badges6161 bronze badges This is called the Alchian–Allen effect. The Alchian–Allen effect was described in 1964 by Armen Alchian and William R Allen in the book University Economics (now called Exchange and Production). It states that when the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product. This is true because the added per-unit amount decreases the relative price of the higher-grade product. Suppose, for example, that high-grade coffee beans are \$3/pound and low-grade beans \$1.50/pound; in this example, high-grade beans cost twice as much as low-grade beans. Now add a per-pound international shipping cost of \$1. The effective prices are now \$4 and \$2.50; high-grade beans now cost only 1.6 times as much as low-grade beans. This reduced ratio of difference will induce distant coffee-buyers to now choose a higher ratio of high-to-low grade beans than local coffee-buyers. (Prices are illustrative only). The effect has been studied as it applies to illegal drugs and it has been shown that the potency of marijuana increased in response to higher enforcement budgets, and there was a similar effect for alcohol in the U.S. during Prohibition. Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the > transportation costs for the most expensive wine. From the Alchian–Allen Wikipedia page, emphasis mine. I learned about this paradox in the context of why the best Washington apples are shipped out of state, discussed in a chapter of a fun popular economics book Puzzles and Paradoxes in Economics which also happens to be a great source of undergraduate economics exam questions. This is called the Alchian–Allen effect. The Alchian–Allen effect was described in 1964 by Armen Alchian and William R Allen in the book University Economics (now called Exchange and Production). It states that when the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product. This is true because the added per-unit amount decreases the relative price of the higher-grade product. Suppose, for example, that high-grade coffee beans are \$3/pound and low-grade beans \$1.50/pound; in this example, high-grade beans cost twice as much as low-grade beans. Now add a per-pound international shipping cost of \$1. The effective prices are now \$4 and \$2.50; high-grade beans now cost only 1.6 times as much as low-grade beans. This reduced ratio of difference will induce distant coffee-buyers to now choose a higher ratio of high-to-low grade beans than local coffee-buyers. (Prices are illustrative only). The effect has been studied as it applies to illegal drugs and it has been shown that the potency of marijuana increased in response to higher enforcement budgets, and there was a similar effect for alcohol in the U.S. during Prohibition. Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the > transportation costs for the most expensive wine. From the Alchian–Allen Wikipedia page, emphasis mine. This is called the Alchian–Allen effect. The Alchian–Allen effect was described in 1964 by Armen Alchian and William R Allen in the book University Economics (now called Exchange and Production). It states that when the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product. This is true because the added per-unit amount decreases the relative price of the higher-grade product. Suppose, for example, that high-grade coffee beans are \$3/pound and low-grade beans \$1.50/pound; in this example, high-grade beans cost twice as much as low-grade beans. Now add a per-pound international shipping cost of \$1. The effective prices are now \$4 and \\$2.50; high-grade beans now cost only 1.6 times as much as low-grade beans. This reduced ratio of difference will induce distant coffee-buyers to now choose a higher ratio of high-to-low grade beans than local coffee-buyers. (Prices are illustrative only). The effect has been studied as it applies to illegal drugs and it has been shown that the potency of marijuana increased in response to higher enforcement budgets, and there was a similar effect for alcohol in the U.S. during Prohibition. Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the > transportation costs for the most expensive wine. From the Alchian–Allen Wikipedia page, emphasis mine. I learned about this paradox in the context of why the best Washington apples are shipped out of state, discussed in a chapter of a fun popular economics book Puzzles and Paradoxes in Economics which also happens to be a great source of undergraduate economics exam questions. 1 answered Jan 27 '16 at 12:41 BKay 12.5k22 gold badges2424 silver badges6161 bronze badges