Supply is the Jizzunk

Supply and Demand. The very essence of economics is everywhere. Never have I seen it more prevelent than in knitting. Although many people knit, few knit enough to go deep into the practice. At some point in a person's knitting career, they will need to venture outside of Wal-Mart or major craft store and head to a local yarn store (or LYS for all my knitting linguists). Once there you will notice one thing that you didn't before, price. You will go from the world of $2.50-$3.00 to $18 per skein. Wow.
So what is the difference?
1. Supply. These yarns can't be found just anywhere, and LYS's know it. In most situations they are running an effective monopoly and can therefore push profits higher.
2. Demand. Because the LYS are scarce and knitters are held constant, demand can push price up.
3. Imperfect Information. Yes. We are living in the 21st century, but still, because supply is constricted, people do not know all the options available to them.
4. MC for local stores is not the same as for big chains. LYS also are dealing with overall higher costs to supply goods as they are small in comparison to big chains such as Wal-Mart. Any economist knows that to a point, there can be increasing returns to scale and reduced marginal costs. Buying that skein may cost Wal-Mart $2 but your LYS $3.
5. LYS work with less common, more expensive products to compete with larger stores. Because Wal-Mart and other large chains sell specific yarns... particularly discount yarns, your LYS most likely doesn't because it is not feasible for them to compete. Therefore, LYS usually specialize in more expensive types.

So, as a lesson. When you next venture out to your LYS, remember, there is a lot of economics in those there threads!!