Next to its plant, a manufacturer of dinner plates has an outlet store that sells first- quality plates (perfect plates) and second-quality plates (slightly blemished plates). The outlet store sells a relatively large share of second-quality plates (or seconds). At its regular retail stores (located all over the world), the firm sells many more first-quality plates than second-quality plates. Why? (Assume that consumers' tastes with respect to plates are the same everywhere, the income effects are very small, and there is a cost,s, of shipping each plate from the factory to the firm's other stores.)

1. Determine how the relative prices of plates differ between the two types of stores.
2. The slope of the budget line that consumers face at the factory outlet store is;/P, where;is the price of first-quality plates, andPis the price of seconds. It costs the same,, to ship a first-quality plate as a second because they weigh the same and must be handled similarly. At its retail stores elsewhere, the firm adds the cost of shipping to the pirce it charges at its factory outlet store, so the price of a first-quality plate is;+ and the price of a second isP+ . As a result, the slopte of the budget line that consumers face at the retails stores is(;+ )/(P+ ). The seconds are relatively less expensive at the factory outlet than they are at the other stores. For example, if;= 2,P= 1and = 1, then the slope of the budget line is2at the outlet store and3/2elsewhere. Thus a first-quality plate costs twice as much as a second at the outlet store and only 1.5 times as much elsewhere.
3. Use the relative price difference to explain why relatively more seconds are bought at the factory outlet.
4. Holding a consumer's income and tastes fixed, if the price of seconds rises relative to that of firsts (as we go from the factory outlet to the other retail shops), most consumers will buy relatively more firsts. The substitution effect is unambiguous. It is possible that the income effect could go in the other direction (if seconds are an inferior good, which seems reasonable); however, as most consumers spend relatively little of their total budgets on plates, the income effect is presumably small relative to the substitution effect. Thus, we expect relatively fewer seconds to be bought at the retail stores than at the factory outlet.
5. Can you think of other real-world phenomena which behave like this?
6. In principle, many goods with transportation costs should have the result that the 'far away' consumers have a higher average quality than the 'nearby' consumers, because it is only for the better-quality products that the transportation cost is worth paying. This can be literal transportation costs as is the case, for example, with many agricultural products (e.g. the best coffee beans are exported, lower quality beans are consumed domestically). But the same phenomenon can be seen with other trade frictions, for example the average quality of an German book which has been translated into English is probably higher quality than the average German book (and vice versa).

Hi, I have struggled to understand the explanations, please elaborate, thanks