Assess the costs and benefits of an extension of the tube line to Croydon

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“Tube set to come to Croydon”

Assess the costs and benefits of an extension of the tube line to Croydon

Private costs can be defined as “costs internal to an exchange, which are paid by an individual economic unit (i.e. producers and consumers). Examples include the price paid by the consumer and the costs facing the producer”. In extending the tube line to Croydon, it is evident that there would be a huge cost to the government (e.g. capital, maintenance and operation costs). Furthermore, the cost of the research and development required to successfully engineer such a tube system in Croydon would also incur a hefty cost for the government.

 Private benefits can be defined as “benefits internal to an exchange, which are received by an individual economic unit (i.e. producers and consumers). Examples include the gain felt by the consumer by consuming the good/service and the revenue/profit of the producer”. The introduction of a tube line to Croydon would certainly benefit the government in that the sales of tickets and renting of space for shops in stations would generate huge levels of revenue, which could become profit over time. Another way in which this scheme could benefit the government is through the increased scope for advertising an extension in the tube system would create, meaning even more revenue would be generated for the government.

External costs (or negative externalities) can be defined as “costs from production or consumption that the price mechanism fails to take into account. They have a negative effect on a third party not involved in the economic decision and are shown by the difference between social costs and private costs”. Possible negative externalities of this development include disruption to the public during construction time (i.e. sections of roads may have to be closed off while digging occurs underneath) and the pollution generated during the construction process.

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In the case of disruption to the public during construction, the marginal private costs faced by the producers (i.e. the construction firm and the government who commissions them) are clearly far lower than the marginal social costs (costs faced by society as a whole as a result of the pollution) where the price is P1 and the quantity is Q1 on Diagram 1, resulting in losses for the community (as shown by the divergence between marginal social benefit and marginal social cost, represented by the difference between P1 and P2. At price P2 and quantity Q2, the level (quantity) of disruption has ...

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