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> 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 transportati
by dfee 8y ago
> 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.
> 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.
- ashrk 8y agoMy unscientific observation has been that the opposite holds for French wine. They seem to ship the US their worst, but it hits our shelves marked up 4x what it'd be in France. Maybe it's a branding thing, and French wine's got enough power in that department that they don't need to send us good stuff to move product, at least at the lower end. Maybe with some French writing on the label low-price-shopping consumers are equally likely to buy it whether or not it tastes good, so there's no reason to send anything but the worst they have. Other European countries seem to have no trouble shipping us nice wine in the lower price tiers, but then they're not France.
- zwaps 8y agoIn reality there's a lot more in a product than just good and bad. Especially with wine, where it is not actually so clear that a true quality ordering exists, all sorts of other effects are at play. For example, we know how the signaling value of price overrides some true quality variables. In economics, its important to know these simple models and their outcomes, but it is equally important to know when other effects are at play, or when assumptions do not hold