Consider the market for train travel. At certain times of the day, trains are extremely crowded going
Question:
Consider the market for train travel. At certain times of the day, trains are extremely crowded going to major towns and cities, but at other times of the day carriages are virtually empty.
a. Is this an example of market failure?
b. What externalities exist on the train system if the situation described persists?
c. Can you think of a way in which the government might step in to make the market outcome more efficient?
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a The situation described where trains are extremely crowded at certain times and virtually empty at other times can be seen as an example of market failure This is because the market is not efficiently allocating resources to meet the demand for train travel During peak hours when trains are crowded there is excess demand that is not being fully satisfied due to capacity constraints Conversely during offpeak hours there is excess supply in the form of empty carriages that are not being utilized efficiently This mismatch between supply and demand indicates a market failure in terms of resource allocation b The situation described can give rise to several externalities on the train system One externality is congestion where crowded trains during peak hours lead to discomfort for passengers and reduced quality of service Additionally overcrowded trains can lead to safety concerns and increase the risk of accidents or incidents On the other hand the empty carriages during offpeak hours result in underutilization of resources leading to inefficient use of infrastructure higher operating costs and potential environmental impacts such as increased energy consumption per passenger c One way in which the government can step in to make the market outcome more efficient ...View the full answer
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