Spatial Price Theory

Spatial Price Theory explains how the prices of goods and services vary across different locations due to factors like transportation costs, supply and demand, and market access. It predicts that, in the absence of transportation costs, prices should be similar everywhere for the same product. When transportation costs are involved, prices tend to be higher where goods are produced and lower where they are consumed, creating a price gradient. This theory helps explain regional price differences and assists businesses and policymakers in understanding market behavior across geographic areas.