Friday, March 27, 2009

Economic Theorum Tested

My husband and I just returned from five days of doing absolutely as little as we could during a respite to Florida. We've been visiting this particular community since 1986, and we definitely saw evidence of the recession everywhere we turned. A lot of businesses have closed.

We stopped by and chatted with a store owner who we know well. As she described the profile of the visitor she is seeing with increasing frequency--they always cook in, never eat out, and don't buy anything in the stores--it made me think of something I had read about what economists had to say about our behavior in this situation, as posed by the Alchian-Allen theorum.

The original theorum stated that adding a per unit charge to the price of two substitute goods increases the relative consumption of the higher priced good. (Example: Australians drink more higher-quality California wine than Californians which are more expensive to them, and vice-versa, even though the only difference is the shipping cost.)

But in further development of the theorum, economists now apply it not only to when the goods are shipped to the consumer, but when the consumer goes to the goods. Think vacation. When you spend a lot to get to a location, you spend more while you are there. Where does the newly profiled vacationer that my store-owner friend described fit in? Is the current economic situation bending this theorum? Time will tell; but I'm hoping that a little "A-A" (Alchian-Allen) even applies to the frugal vacationer, that at least for one dinner they are splurging on local shrimp purchased at the fish market instead of dining on fish sticks they brought from home.

My apologies in not giving credit to the individual economists whose work I liberally used.


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