Tube set to come to Croydon Essay
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.
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 been decreased by increasing the cost of disruption (most likely through some form of financial penalty enforced by the government). It is at this point that marginal social cost and marginal social benefit meet (i.e. are equal), as there are lower levels of disruption, and more money for the government to spend on the public.
In the case of pollution, the marginal private costs faced by the producers while polluting is lower than the marginal social costs where the price is P1 and the quantity is Q1 on Diagram 2. This is clearly not a good outcome for society, as there is a difference between marginal social benefit and marginal social cost (i.e. the social cost is greater than the social benefit, represented by the difference between P1 and P2). At price P2 and quantity Q2, the quantity of pollution produced has been decreased by increasing the cost of polluting (most probably through some form of pigovian tax or financial penalty enforced by the government). It is at this point that marginal social cost and marginal social benefit meet (i.e. are equal), as there are lower levels of pollution, and more money for the government to spend on the public.
External benefits (or positive externalities) can be defined as “benefits from production or consumption that the price mechanism fails to take into account. They have a positive effect on a third party not involved in the economic decision and are shown by the difference between social benefits and private benefits”. Possible external benefits of this development include the alleviation of congestion on existing modes of public transport (e.g. buses and trains) and the creation of employment opportunities (both short-term and long-term).
In the case of the reduction in congestion, the marginal private benefits gained by producers (i.e. the private construction and maintenance firms and he government who regulates and commissions them) are met at Q1 on Diagram 3. In order to reach the social optimum in terms of reduction in congestion, the level of congestion reduction (quantity) would have to increase to Q2, which would represent the full marginal benefit that the community gains.
The government would ensure congestion reduction up to Q1, where their marginal private benefit is balanced by the marginal cost of the development, construction and maintenance of the tube line. However, if the full social benefits received are taken into account, Q2 would be the optimum choice point: to get to this point, the government could possibly subsidise the use of public transport, the tube in particular. However, the government do not provide enough congestion reduction for the community to reach this social optimum at Q1.
In the case of employment, the marginal private benefits gained by producers are met at Q1 on Diagram 4. In order to reach the social optimum in terms of employment, the quantity of jobs available would have to increase to Q2, which would represent the full marginal benefit that the community gains. The government would provide employment up to Q1, where their marginal private benefit is balanced by the marginal cost of the development, construction and maintenance of the tube line. However, if the full social benefits received are taken into account, Q2 would be the optimum choice point: the government do not provide enough employment opportunities for the community to reach this social optimum at Q1, as this would incur a higher marginal cost.
Disruption to the public during construction may not be massive, as the majority of the construction would occur underground. However, depending on how far underground, it may not be safe for large vehicles to cross certain areas during construction. This may prevent lorries transporting goods from taking direct routes to their destinations, resulting in delays and financial losses, and mean workers find it harder to travel to work, make them more tired as they must travel for longer and thereby decreasing productivity and output. Disruption is nigh impossible to quantify and measure the cost of: the best one could do is a survey of commuters, and even this is susceptible to inaccuracies and unreliability.
Pollution is a very serious problem, especially given that the world has become so environmentally aware in the face of global warming and rising sea levels, and the amount of machinery and resources such a development as the extension of the tube line would consume is substantial, meaning a great deal of pollution would be produced. As afore mentioned, the long term effects of the pollution could be the rising of the sea level, the creation of acid rain which could ruin crops and could also pollute river systems and a vast array of the bad consequences that come with pollution. The short term effects include more polluted air after the construction and development stage, which would create a lower general quality of life. However, it is also quite hard to judge successfully the extent of the cost to society that pollution produced during the construction of the tube line brings.
The reduction in congestion on roads and in public transport (i.e. crowding of people on buses and trains) caused by the introduction of a tube line in Croydon would be highly noticeable, as long as the tube is seen as a viable alternative to buses, trams and trains in terms of cost and time: as long as the tube system complements the existing public transport infrastructure, the easing in congestion will be dramatic. Short term effects of this greater flow of transport would include greater commuter satisfaction and quicker transportation of goods on the roads.
Long term effects would include reduction in overall pollution and greater appeal to tourists (which would in turn boost the local economy and community through the multiplier effect). The overall benefit of a reduction in pollution would also have to be measured using some sort of survey: it could be said that the larger the percentage of people who recognised and appreciated that there was a noticeable reduction in traffic, the greater the public benefit. There would certainly be a large increase in employment opportunities as a result of the development of a tube line in Croydon.
Labour would be required for the construction, maintenance and operation of the tube line, meaning many people would need to be employed. The short term and long term effects of an increase in employment include more money being spent in the local area (by the new influx of workers), less government spending on benefits and more government revenue from taxes (if it is assumed the jobs spaces are filled by unemployed). However, it would be rather hard to measure the overall (not just monetary) benefit brought about by higher employment.
In conclusion, the costs are outweighed by the benefits, as disruption would cease with the completion of the construction and pollution could be kept to the minimum with government intervention, and the reduction in congestion and higher employment would make Croydon as more pleasant and prosperous place to be. Therefore, the tube line should be extended to Croydon.
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 11 July 2017
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