Running Head: Assignment: Supply and Demand Paper

Assignment: Supply and Demand Paper
XECO/212
University of Phoenix

Appendix C

Differentiating Between Market Structures Table and Questions

Fill in the matrix and describe differences in public and private goods, common resources, and natural monopolies. Use your book and the Tomlinson video tutorials as a tool to help you answer questions about market structures.

| |Example |Is there a rival in consumption? |Is it excludable? |
| | | | |
|Private Good |Ice-Cream Cones |Yes |Yes |
| | | | |
|Public Good |National defense |No |No, this is a non excludable item. |
| | | | |
|Common Resource |Fish |Yes |No this is a non excludable item. |
| | | | |
|Natural Monopoly |Cable TV |No |Yes |
| | | | |

1. What is the difference between a public good and a private good?

Public goods are those things which all parties need or require for safety, health, security, etc., but which are not needed all the time and which many persons would rather not pay for. As a result, public goods are normally provided for by governments. For example, while we all believe in border security, few of those who live in the middle of the country may be willing to pay for people to patrol the Mexican or Canadian borders as they do not daily affect their lives, unlike a citizen of Minnesota or Texas, whose daily life may be affected. Therefore, border patrol is left to the federal government. Public goods may create markets where price and quantity are not in equilibrium and in which producers are underfunded and consumers are not properly taxed or charged for their use of services. This may lead to a market where the costs fo production exceed the payment available and services decline.

A private good is one whose consumption by one person prevents the simultaneous consumption by another and one whose consumption price alone can prevent the consumption of. For example, diamond rings are private goods because two people cannot wear the exact same diamond ring and the ability to afford the ring determines who can own/consume it. Because price is freely set by providers this provides a large incentive for producers to enter this market, but, this market may not meet all consumer demands, leading to market inefficiency of over-pricing of goods and the creation of surpluses or shortages.

2. What is a common resource?

Common goods are those whose consumption reduces the consumption by others, like meat or chicken, but whose consumption cannot be prevented or restricted. For example, the picking of wild blueberries will reduce the number of other persons who can obtain the same product, but it does not allow a person to prevent another from also picking wild blueberries. This may create incentive for some people to try to limit or restrict consumption through legal means or ownership of certain areas, such as blueberry farms, etc. or may also lead to overconsumption, which can eventually ruin a supply of goods.

3. What is a natural monopoly?

A natural monopoly is a situation due to technology or other social factors only one provider of a good or service can exist. For example, in places where it is legal, nuclear power can only be provided by one source or plant due to the technological costs and dangers associated with nuclear production of energy. The benefit is that waste and risk are reduced, however, the negative externality is that because there is no competition the need to discover more efficient or product means of producing a good do not exist. This may lead to overpriced services or goods and to lower than efficient allocation or purchase of a good or service.