A shopkeeper economy

Daniel Murphy ()

No 158, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

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 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:158

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