Last Updated 06 Sep 2018

Natural Monopolies

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Essay type Research
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In economics, there are two types of good which can be differentiated from each other through their distinct properties. Public goods are “non-rivaled” and “non-excludable” goods (econPort. org). This respectively means that the consumption of one individual does not diminish other people’s chance of utilizing the same good; and that no one has the power to keep others from enjoying the same good. Private goods, on the other hand, are the exact opposite of private goods. They are made to create profits, rivalrous and excludable. A consumer who pays can prevent simultaneous consumption by other non-paying consumers.

Private goods satisfy a personal demand while public goods satiate collective want. Because of its non-rivalry and non-excludability properties, provision of public goods is often criticized of how it exacerbates the free rider problem. For example, a person can benefit from a street light even if he/she does not pay the local taxes. Private goods do not exude this kind of problem. A consumer who pays for a cone of ice cream gets to eat the ice cream without being obligated to share with anyone. Common resources unlike public goods can be subject to congestion, overuse, pollution and possible destruction.

It is a pool of natural and man-made resources which size make it expensive, but not impossible, to exclude all the potential beneficiaries to take advantage from its exploitation. Common resources usually have a “core resource” which provides a limited quantity of “extractable fringe units”. For example, a forest can allow clearing in some of its area without harming the big trees which prevents erosion. Natural monopolies occur when a firm’s economies of scale allows it to supply at a lesser cost than any of its other competitors in a particular industry (tutor2u. net).

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Examples of natural monopolies are railways and provision of water and electricity. These industries are efficiently working under natural monopolies and other suppliers entry will result to wasteful duplication of cables, pipes, pipelines, among others. References Natural Monopoly. In Tutor2u. net. Retrieved July 4, 2009, from hhtp://tutor2u. net/economics/content/topics/monopoly/natural_monopoly. htm Private Goods v. Public Goods. In econPort. org. Retrieved July 4, 2009, from http://www. econport. org/content/handbook/Market-Failure/Public-Goods/PRIV-V-PUB. html

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