LABOR MARKET EQUILIBRIUM

Labor Market Equilibrium

Labor Market Equilibrium

Public and Private Goods

Public goods are goods that are consumed collectively, and it is not possible to exclude someone from consuming public good. For instance, an ocean is a public good since all people, unless restricted by an authority, can swim, sail, fish, or draw water; or, for example, radio broadcasting can reach many people via radio waves, satellite, and the Internet. Another example is the national defense: Once it supplied, it affects all citizens within the boundaries of a nation-state. There are two main characteristics of public goods that differentiate them from private goods: First, they are nonexclusive in consumption, and their benefits influence the general public. All citizens, even if they are not contributing with taxes to the provision of national defense, can benefit and cannot be excluded from the service. Second, contrary to private goods, public goods are nonrivalrous, which means that they can benefit many citizens at the same time without any extra cost or at a very low marginal cost.

The cost of the national defense to the new citizens is almost zero. Private goods can be divided among individuals and allocated by competitive and efficient markets. Pure public goods, on the other hand, cannot be divided among the users because they are non rival and nonexcludable. Because of these features, provision of public goods requires a mechanism that favors public interest rather than profit-driven markets. In fact, the distinction between private and public goods is not as strict as they were first defined. There are goods that are rivalrous and non-excludable (common-pool goods) such as natural resources and those that are nonrivalrous and excludable (club goods) such as toll roads or cable TV (Boardman, 1989). The provision of public goods that calls for collective action, thus, is under the responsibility of the government in most cases. Even the scholars who argue for a limited government advocate state provision of certain specific public goods (such as a legal system and defense).

Natural Monopoly

A monopoly considered natural if one firm can supply a good or a set of goods at a lower cost than can two or more firms. A significant characteristic of such costs is called subadditivity. Markets where goods are non rival and excludable are generally characterized as natural monopolies. Examples include electricity generation and distribution, telecommunications, cable television services, and natural gas pipelines (Besanko, 2008).

Common Resources

Common ...