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Chapter 5: Q 6 (page 120)

Draw a diagram of this nation’s market for automobiles, which are a substitute for buses. Explain how the government policy you discussed in part (b) of Problem 5-5 is likely to affect the market price and equilibrium quantity in the country’s auto market. How are auto consumers affected by this policy to attain the spillover benefits of bus transit?

Short Answer

Expert verified

The diagram of the nation's market for automobiles is,

The automobile market will fall as people will be using more of public buses.

Step by step solution

01

Step 1. Define externality.

An externality is a consequence of an economic activity that affects the third party. For example, pollution is an externality.

02

Step 2. The market for automobiles

The diagram for the market for automobiles,

The government's policy was to provide subsidies to all bus commuters which would attract a greater amount of the public. Since commuting by bus will be cheap as compared to automobiles so the price and quantity will both decrease for automobiles.

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Most popular questions from this chapter

A government offers to let a number of students at a public school transfer to a private school under two conditions: It will transmit to the private school the same per-pupil subsidy it provides the public school, and the private school will be required to admit the students at a below-market net tuition rate. Will the economic outcome be the same as the one that would have arisen if the government instead simply provided students with grants to cover the current market tuition rate at the private school? (Hint: Does it matter if schools receive payments directly from the government or from consumers?)

A nation’s government has determined that mass transit, such as bus lines, helps alleviate traffic congestion, thereby benefiting both individual auto commuters and companies that desire to move products and factors of production speedily along streets and highways. Nevertheless, even though several private bus lines are in service, the country’s commuters are failing to take the social benefits of the use of mass transit into account.

(a) Discuss, in the context of demand-supply analysis, the essential implications of commuters’ failure to take into account the social benefits associated with bus ridership.

(b) Explain a government policy that might be effective in achieving the socially efficient use of bus services.

Given that even the tiniest bit of fast-traveling space junk, such as a fleck of paint, can damage a satellite or pierce the thin covering of a spaceship why might the IADC Committee experience problems determining the "appropriate level of orbital pollution?

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Many economists suggest that our nation's legal system is an example of a public good. Does the legal system satisfy the key properties of public good? Explain your reasoning.
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