Differentiating Between Market Structures

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Date Submitted: 06/02/2012 10:09 AM

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Public Goods, Private Goods, Common Resources, and Natural Monopolies

Public goods have both non-rivalry and non-excludable consumption. Non-rivalry consumption means that a good is available to everyone and one person consuming it does not take away from another person from enjoying it as well. Non-excludable consumption means that one cannot prevent another from consuming the good. An example of a non-rivalrous non-excludable good is a state park, which is available to everyone.

A private good is just the opposite of a public good. Private goods are both rivalrous and excludable. Private goods take away from other people enjoying the good. Private goods are benefiting one person where a public good more benefits the public mass. An example of a private good is anything that one would purchase for them. A steak dinner from a popular restaurant such as Applebee’s is an example of a private good. Once the steak is consumed by the person who purchased it, it cannot be consumed by someone else. This means that it is rivalrous. It is also excludable because Applebee’s can choose whether or not to prepare and sell steaks at their restaurants.

Common resources are goods that are non-excludable and rivalrous. They are non-excludable in the fact that they are available to everyone, yet rivalrous because they are not available to everyone. Someone can enjoy the benefits of a common good, while another will not be able to enjoy the benefits. Fishing in a lake is an example of a common good. Everyone is able to go fishing, but not everyone will catch a fish of the same quality, quantity, or perhaps at all. With a common resource such as fishing, there is the concern that saturation with people fishing can eliminate the resource, or fish from the lake. This can prevent future possible fishing in the future.

“A natural monopoly occurs when economies of scale are so large that one firm can supply the entire market at a lower average total cost than two or more...