Differentiating Between Market Structures Essay

579 words - 3 pages

Differentiating Between Market Structures
Nikki Branch
November 1, 2010
Alex Gialanella

Differentiating Between Market Structures
When examining market structures a basic knowledge of the types of goods offered is necessary. The four categories of goods are public goods, private goods, common resources, and natural monopolies. Public goods, private goods, and common resources can either be rival or excludable. As consumers in the market, it is necessary to know the similarities and differences between each of these categories of goods. A basic definition of what is a rivalry or nonrival good and what is excludability and nonexcludable is necessary to begin. A rivalry means that if “one person consumes a unit of a good no one else can consume it” (O'Brien, 2010). Excludability means that if a someone does not pay for a good it ...view middle of the document...

Public Goods
In contrast to a private good is a public good. At the opposite end of the spectrum, public goods are both nonrival and nonexcludable. What this essentially means is that all people can benefit from these goods simultaneously. In the text an example of national defense was given. This is not something that a consumer need pay for, it is just given.

Common Resource
A common resource is a good that is rival but not excludable [ (O'Brien, 2010) ]. These resources are overused, which is known as the tragedy of the commons [ (O'Brien, 2010) ]. If one person kills a deer in the forest, no one else can kill that deer. If no one has any property rights to the forest, there is no one that can be excluded from hunting in it. This is in contrast to a public good which all people can benefit from at the same time.

Natural Monopoly
According to Fred E. Foldvary, Senior Editor of the Progress Report (The Progress Report, Para 5), “a natural monopoly is defined in economics as an industry where the fixed costs of the capital goods is so high that it is not profitable for a second firm to enter and compete. The economies of scale require one, rather than several, firms.” An example of this would be an electric company or a natural gas company. This contrasts with a private good, there can be many firms supplying private goods. A natural monopoly has similarity with a public good. Public goods are often supplied by government and natural monopolies are often regulated by government.

Foldvary, F. E. (n.d.). The Progress Report Editorial . Retrieved October 30, 2010, from The Progress Report: http://www.progress.org/archive/fold74.htm

Hubbard, R. & O'Brien, A. (2010). Economics (3rd ed.). Boston, MA: Prentice Hall.

Watkins, T. (n.d.). The Nature of Public Goods. Retrieved October 30, 2010, from San Jose State University Department of Economics: http://www.sjsu.edu/faculty/watkins/public.htm

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