The Internet, the Post Office, and FedEx-New Best Buds

1. Why does the creation of FedEx SmartPost increase profits for both FedEx and the USPS?

FedEx can concentrate on long-distance shipping, and the USPS can concentrate on home delivery. Each has a comparative advantage in what it does, so the profits of each increase.

2. As these synergistic relationships continue, what will happen to consumer and producer surplus?

Both consumer and producer surplus should increase. Have students draw graphs to show this.

3. Do you think that this is an indication that the USPS will always be around, even as people argue that it should be disbanded? Why or why not?

Have students focus on the impact of the telegraph, telephone, fax machine, and other innovations on the USPS over time.

Multiple Choice/True False Questions

1. True/False. While Internet communication and the USPS are substitute goods, the USPS and online merchants can be considered strategic complements.

ANS . True

2. True/False. Demand for USPS shipping is a derived demand, derived from demand for online sales.

ANS . True

3. What is the impact of the creation of FedEx SmartPost on the profitability of the USPS?
  1. Should increase because demand for USPS shipping increases.
  2. Should decrease because FedEx is expanding its reach in the market.
  3. Should increase because FedEx is giving away business.
  4. Should not change at all.
ANS . a

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