Question

Explain why the economic profits made by the railways may not be so bad, depending on their use of these funds. And with an appropriate model, why the deadweight loss in social welfare is the real problem

Answer 1

Dead weight loss is the situation where producers earn less than they deserve and consumers don't get enough supply of resources as per demand. Dead weight loss is created due to market inefficiency by unequal balancing of supply and demand either due to overvalued or undervalued goods or services. In this situation also a few are benefited while others are affected negatively.

Taking the railways into consideration dead weight loss isn't always bad depending on the availability and use of funds effectively. It is also known as the excess burden that is levied on the society.

A price ceiling is the maximum rate at which a product can be sold. In this pandemic situation railways are under huge loss. They have not been able to generate the estimated revenue.A major cause is pandemic and the rise in fuel cost and other expenses. Although the railways pricing has been categorized for better profit but resulted inefficiency by the services leading to dead weight loss to the society.