Draw a diagram of this nation's market for auto- mobiles, 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 described in your answer to Problem 5-5?

Problem 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 prod- ucts 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.