Eco Problem 4 - 5-5 A nations government has determined...

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5-5. 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 product 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 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. If the social benefits associated with bus ridership were taken into account, the demand schedule would be D’ instead of D, and the market price would be higher. The equilibrium quantity of bus rides would be higher. B. Explain a government policy that might be effective in achieving the socially efficient use of bus services. The government could offer to pay a subsidy to ride the bus, thereby shifting the demand curve outward and to the right. This would increase the market price and equilibrium number of bus rides.
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