Working Paper

A shopkeeper economy

Abstract: This paper investigates the properties of an economy populated by shopkeepers who monopolistically provide differentiated services at zero marginal cost but positive fixed costs. In this setting, equilibrium output and wealth depend on consumer demand rather than available supply. The ?shopkeeper economy? is compared to a standard production-based economy in which wealth is a function only of labor supply and technology. I demonstrate that the existence of producers who face only fixed costs provides a counterexample to the notion that ?supply creates its own demand.?

Keywords: Production (Economic theory); Capital investments;

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2013

Number: 158