3. Consider the market for railroad transportation (number of railroad trips offered/produced and demanded). The two...

3. Consider the market for railroad transportation (number of railroad trips offered/produced and demanded). The two parties directly involved in a railroad transaction, the railway company and passengers, both benefit from having railroad transportation. Assume that railway engines create sparks that ignite surrounding woodlands and farmlands, thus, destroying timber and crops. (a) Use a demand-supply diagram to illustrate the market equilibrium in railroad transportation. Show the demand and supply curves. Label the market equilibrium quantity Qm and the market equilibrium price Pm. (1 pt.) (b) Use the concept of externalities to argue that the free market will not produce the socially desirable quantity of railroad transportation (Qsd). Use your demand-supply diagram to compare the free market and the socially desirable quantities of railroad trips (i.e. which one is greater?). Is this a positive or a negative externality? Is it a production or a consumption externality? Hint: Do you have two different marginal cost curves or two different marginal benefit curves? (2 pts.) (c) What kind of government policies could be used to improve upon the free market outcome in 3(a)? Discuss briefly two possible policies. (1.5 pts.)

4. (a) Define the terms Gross National Product (GNP) and Real Per Capita GNP. (1 pt.) (b) State and explain three limitations of using real per capita gross domestic product as a measure of national well-being and progress when comparing different countries. (1.5 pts.)

5. In 2017, the population of Sugarland was 200 million and its GNI (or GNP) was $80 billion. You are also told the following facts about this country: annual birth rate is 3.5%, annual death rate is 1.5%, annual net migration is 0.5 million, and GNI increases each year by $5 billion. (a) What will be the population of Sugarland in 2018? Note that net migration is given in millions, not in percentage. (1.5 pts.) (b) Calculate the per capita GNI of Sugarland in 2017 and in 2018. At what percentage rate will per capita GNI grow in this one year time period? (1.5 pts.)

Expert Solution

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Rahul Sunny answered 2 years ago

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