Comments on: TWoN Book 3 Chapter 6

By: Seth

Seth — Wed, 13 Jan 2010 14:06:02 +0000

Erik, while that is not the general case, it applies more widely than the single case. For instance, goods from countries with VAT that is refundable upon export will often cost less elsewhere, if the VAT is more than the cost of shipping plus the taxes upon importing and sale.

By: Erik

Erik — Mon, 11 Jan 2010 19:48:32 +0000

Let me add a post-script: my comment is on the specific example, not the general case. The general case does remain true in general, but it’s also true that specific situations can produce results opposite to expectations.

Or to put it another way: In theory, there’s no difference between theory and practice. In practice, there is.

By: Erik

Erik — Mon, 11 Jan 2010 19:43:03 +0000

“Contrariwise, goods shipped from Japan to US markets must always have a certain markup compared to the price of the same item in Japan.”

Oddly and non-intuitively, this is not necessarily true. Japan is saddled with many layers of middlemen and distributors serving individual small businesses, as opposed to the large retail operations in the US that self-distribute. The total of the Japanese middleman markups is frequently notably larger than the cost of transport to the US, which until the energy shock was extremely cheap. One can sometimes buy (and I have bought) some Japanese products more cheaply in the US than in Japan.

By: Seth

Seth — Mon, 11 Jan 2010 19:04:44 +0000

Assuming people make economically rational decisions, transportation increases value. How much is pizza at your house worth to you, compared to at the restaurant? (If you didn’t prefer it at your house, you wouldn’t get it delivered; so when it’s worth more at the restaurant, it doesn’t get transported.)

If your corn has to be transported 20 miles to reach the market, how much is it worth at your farm? If it isn’t worth at least the cost of transportation more at the market, then you don’t transport it there. (So, for instance, if your neighbor buys corn to manufacture breakfast cereal, it might be worth more at your farm, because transporting it from the market to your neighbor adds value.)

The comparison with the farmer 2 miles from the market proves nothing, because we don’t know the value of corn at his farm to begin with.

Of course, I’m using “value” to mean “market value” not some abstract “true value”.