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There is a surprising phenomenon in microeconomics called the Alchian–Allen effect[1]. Quoting from Wikipedia, "[W]hen the prices of two substitute goods, such

There is a surprising phenomenon in microeconomics called the Alchian–Allen effect[1]. Quoting from Wikipedia, "[W]hen 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." The quality of Japanese produce could be due to the effect of the higher prices on consumer decision-making rather than any advantages of small-scale farming. https://en.wikipedia.org/wiki/Alchian%E2%80%93Allen_effect https://en.wikipedia.org/wiki/Alchian%E2%80%93Allen_effect

unclebucknasty 11y ago
>There is a surprising phenomenon in microeconomics I was waiting for some counter-intuitive twist, but that seems like common sense and basic math. Not really sure how the concept earned a name.
- jtolmar 11y ago
  Paying $1 extra for a better apple is worth it if you value the better flavor by at least that much. It shouldn't matter whether the choice is between $4 and $5 or between $10 and $11 - how did that dollar become less valuable, or the apple tastier? "Humans act like money is proportionate when it's actually linear," is the crux of a wide variety of "surprising" microeconomic facts. People are more likely to drive across town to save money on a fancy pen that could cost $4 or $8 than they are to drive across town to save money on a suit that could cost $320 or $324. (Yes, there are cases where there are good arguments that the utility of money isn't linear, but these are not those cases.)
  - unclebucknasty 11y ago
    Seems this would be counter-intuitive only in a vacuum; that is to say, were there no such thing as opportunity cost. Perhaps that's what you meant by "utility of money" not being linear. And, I agree with that point. Where we differ is that I don't see how you are acknowledging that in only some cases. The degree may change, but not the underlying concept.
  - venomsnake 11y ago
    It is not like that. Because there is also quantity. Lets assume that good apples are $5, great $10 - for $10 I get one kg of great and 2 of $5. The great apple have to provide twice bang for the buck to be competitive. If we slap 20$ tariff - for $30 bucks i get 1kg of great apples or 1.2 kg of good apples. (That is assuming I want to eat roughly a kg of apples)
- sooheon 11y ago
  I think the whole progression of economics has been to start out by building models on wrong assumptions about how humans make decisions, and how the world should work, then refining them as actual data is gathered and science is done.

unclebucknasty 11y ago

>There is a surprising phenomenon in microeconomics I was waiting for some counter-intuitive twist, but that seems like common sense and basic math. Not really sure how the concept earned a name.

jtolmar 11y ago
Paying $1 extra for a better apple is worth it if you value the better flavor by at least that much. It shouldn't matter whether the choice is between $4 and $5 or between $10 and $11 - how did that dollar become less valuable, or the apple tastier? "Humans act like money is proportionate when it's actually linear," is the crux of a wide variety of "surprising" microeconomic facts. People are more likely to drive across town to save money on a fancy pen that could cost $4 or $8 than they are to drive across town to save money on a suit that could cost $320 or $324. (Yes, there are cases where there are good arguments that the utility of money isn't linear, but these are not those cases.)
- unclebucknasty 11y ago
  Seems this would be counter-intuitive only in a vacuum; that is to say, were there no such thing as opportunity cost. Perhaps that's what you meant by "utility of money" not being linear. And, I agree with that point. Where we differ is that I don't see how you are acknowledging that in only some cases. The degree may change, but not the underlying concept.
- venomsnake 11y ago
  It is not like that. Because there is also quantity. Lets assume that good apples are $5, great $10 - for $10 I get one kg of great and 2 of $5. The great apple have to provide twice bang for the buck to be competitive. If we slap 20$ tariff - for $30 bucks i get 1kg of great apples or 1.2 kg of good apples. (That is assuming I want to eat roughly a kg of apples)
sooheon 11y ago
I think the whole progression of economics has been to start out by building models on wrong assumptions about how humans make decisions, and how the world should work, then refining them as actual data is gathered and science is done.