Chapter 18, Problem 5DQ

To determine

An economical reason and a political reason for which mass transit systems are heavily subsidized.

Concept introduction:

Subsidy:

Subsidy is a form of compensation given to economically backward people, either to a consumer or a producer, in order to bring them up at the same level as the main stream of the economy. It can be in the form of direct cash, compensation, and so on.

Explanation:

• The economic reason for which all the mass transit systems in the U.S. are subsidized by the tax payers lies in the fact that the major proportion of taxpaying people use transit systems. As they do not have their own vehicles and even if they have it, they do not use it for long journeys. So, it is very much essential for the government to subsidize the operation of the mass transit systems.

• Most of the people in U.S. use public transport so, it is the vote bank of the government. If the government does not provide subsidy, then the people might get offended and won’t vote for the government. As a result, the government is bound by the political reason to provide subsidy to mass transit.