Saturday, July 31, 2010

Neoclassical Economy Theory

A map of gas prices in the U.S. from

The red is expensive, green is cheap.

When people trash neoclassical economy theory I think of graphs like this. If people are rational they will arbitrage-away the price differences save for transport costs. That pretty much explains all the variation in pricing. (States have different taxes so prices tend to change at state borders.) You don't even have to think about markets structure etc.

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