I think there is a common belief that the economy works in one of two ways: either it works in ways that benefit all the people in the economy, or in ways that benefit only a select few from a particular group.
You can’t just see the economy from your screen.
The first part of that is a little oversimplified. I think the second is much more accurate. But there is a certain amount of “leverage”, which we can see in real time, that can occur when businesses use their economic power to “take something away” from another business. A good example of this is when a large retailer in a particular place has a store that is a monopoly. The retailer has no competition in that spot, so they can just take away the competition.
Not only is this a good example, but it’s also a good example of the way we can see the value of economic leverage that others can’t. It’s called the “first-mover advantage.” This is the ability for businesses to take something away from another business, but they can’t compete with it. In this case, a large retailer can just take away the competition.
Just to give you an example of how this works, imagine that you’re a store owner. You want to have a store in a certain location. You can just take whatever they have, but you’re not allowed to have an expensive coffee shop or fancy restaurant. However, the new store owner wants to have an expensive restaurant. You can’t have it, so you’re going to have to take away the competition.
Because if you run out of coffee you CAN’t have coffee. Then, if you try to have coffee in a hotel, you’re going to have to take it away. You cant have coffee, so youre going to have to take away the competition.
The best way to get rid of those pesky employees is to hire them. You cant have a casino or a real restaurant. However, if you hire them they wont be able to do anything about the store. If you hire them they wont be able to do anything about the restaurant either.
In economics, “economic leverage” refers to an ability to use resources to take an advantage of competitors. In the case of the coffee/retail stores we talked about in the last chapter, having competition reduces the costs of labor and so increases the amount of labor a business can afford to pay. This is a good thing for a store, but it can be an economic disadvantage if not managed carefully.