5-5. A nation's government has determined that mass transit, such as bus lines, helps alleviate traffic con- gestion, 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 into account the positive externality associated with the use of mass transit. a. Discuss, in the context of demand-supply analysis, the essential implications of commuters' failure to take into account the positive externality associated with bus ridership. b. Explain a government policy that might be effective in achieving the socially efficient use of bus services.
5-5. A nation's government has determined that mass transit, such as bus lines, helps alleviate traffic con- gestion, 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 into account the positive externality associated with the use of mass transit. a. Discuss, in the context of demand-supply analysis, the essential implications of commuters' failure to take into account the positive externality associated with bus ridership. b. Explain a government policy that might be effective in achieving the socially efficient use of bus services.
Chapter8: Market Failure
Section: Chapter Questions
Problem 10P
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