Bank of America as a Natural Monopoly - Essay Example

Both of these resources can be impacted by how they are used thereby reducing the number of fishes or the quality of the environment. If a good is excludable but not rival it is a natural monopoly. Public goods like common resources are not excludable. They are available for the use of everyone free of charge. Common goods like private goods are rival goods because one person’s consumption reduces other persons’ consumption. Natural monopolies like private goods are excludable because persons can be prevented from consuming the good. According to Pashigian (1997), a natural monopoly exists when a given quantity can be produced by a single firm at the lowest cost.

Bank of America is a financial institution offering financial services. Some of its financial services are non-excludable because anyone can access them. However, customers can be prevented from accessing loans if they do not qualify in terms of their ability to pay. The services that the bank provides are also non-rival because one person’s use of the service does not reduce other persons’ use of the service. It, therefore, means that Bank of America is not a natural monopoly because it is non-excludable. Neither does the institution provide a private good because its services are non-rival. It also does not qualify as a common resource because it is a rival good. It, therefore, implies that the services of Bank of America are a Public good that all customers can benefit from in some way. The Bank does not exclude anyone from accessing its services.

According to Rittenberg and Tregarthen (2009), the demand and supply of labour are dependent on both the marginal product of labour MPL and the price of the product or service (in the case of Bank of America) the firm produces. The demand of all firms is added together to obtain the market demand for labour. The supply of labour depends on the population and their work preferences. The supply of labour in the financial industry like any other depends on the skill, knowledge and training which are required for the job as well as the wages that are available in alternative occupations. Equilibrium wages in the labour market are determined by the intersection of demand and supply. Therefore, changes in demand and supply will affect wages. An increase in the demand for labour or a reduction in the supply of labour will cause wages to increase. An increase in supply or a reduction in the demand for labour will lower wages. The equilibrium price is where demand is equal to supply. The diagrams below illustrate how demand and supply for labour work at Bank of America. The first two diagrams show how labour market equilibrium is affected by shifts in the demand curve.

Diagram 1 above illustrates the leftward shift in the demand curve from D1 to D2 has resulted in a reduction in the quantity of labour demanded from q1 to q2 and a leftward movement on the supply curve. The wage rate has fallen from W1 to W2. This change has resulted in a shift in the labour market equilibrium from E1 to E2.

Diagram 2 on the other hand illustrates that a rightward shift in the demand curve from D1 to D2 has resulted in an increase in labor demanded from q1 to q2 and an increase in wages from W1 to W2. This change has resulted in a shift in the labour market equilibrium from E1 to E2.

Diagram 3 above illustrates that a leftward shift in the supply curve for labour from S1 to S2 has resulted in a reduction in supply from q1 to q2 and an increase in wages from W1 to W2. When Supply is at S1 the labor market equilibrium is at E1 and when Supply is at S2 the equilibrium is at E2.

Diagram 4 above illustrates that a rightward shift in the supply curve for labour from S1 to S2 has resulted in an increase in labour supplied from q1 to q2 and a reduction in wages from W1 to W2. When Supply is at S1 the labor market equilibrium is at E1 and when Supply shifts to S2 the equilibrium moves to E2.

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