(e) (3 marks) While X2 is produced locally, x, is transported from a different region. Assume P2 = 1. Building a new railroad (that connects the regions) will reduce transportation cost which in turn will reduce the price of good 1 from p1 = 2 to p1 = 1. Railroad will be funded by taxes which will reduce each consumer's disposable income from m = 10 to m = 10 - T. A utility-maximizing consumer will accept higher taxes as long as TS