Monday, January 21, 2013

Got milk?

Good morning economists and have a nice week. Today I would like to discuss the benefits of owning a small geographical monopoly. The concept of a monopoly seller is not unknown to us all. A monopolist is a single supplier who provides goods and services in a given market. A geographical monopoly is a more refined concept and refers to a single supplier who provides goods and services in a particular geographical region.

A couple of weeks ago, some students in my Principles of Economics class, visited a secluded mountain village with a population of only five people. The village featured a small convenience store that satisfied the grocery needs of the people living in that community. Unknown to the owner of the store, my students rented an old house and even though they were prepared as far as supplies were concerned, they soon run out of milk.

They visited the store asking to buy a bottle of their coffee supplement, but they soon discovered that the store only had five bottles of milk, each reserved for a village household. Lucky for them, however, the milkman was just about to leave the village, so they managed to secure a bottle.

This story, got me thinking of the effects of a recession on the small grocery store. Even though general demand for goods and services is decreased during times of recession, necessities are still a requirement for households. Items such as milk, bread, and other basic food items will not suffer from a decreased demand, at least not to the extent of other more luxury items.

So it is safe to say, that the impact of the recession on the grocery store is virtually zero as the demand is known and the items sold are largely necessities.

Have a milky day!

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