Question
A subway system such as the MBTA generates positive externalities. That is because riders on the subway leave their cars at home, and so leave
A subway system such as the MBTA generates positive externalities. That is because riders on the subway leave their cars at home, and so leave more space on the roads for those who drive to work. The drivers are then able to get to work more quickly, and benefit from the fact that some of their colleagues are using public transportation. a. Draw reasonable demand and supply curves for the market for subway rides. Indicate the equilibrium price and quantity. b. Now add a plausible curve that shows the marginal external benefit that occurs when more people travel on the subway. c. Next create the marginal social benefit curve (i.e. the private demand curve plus the marginal external benefit) and indicate the socially desirable output level for subway use. Can you please draw what these graphs would look like?
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