Economics - Transportation Module - Essay Example

Therefore, the competitive solution or the market equilibrium, is the point at which the supplier satisfies the market’s demand, at the price where the suppliers are amenable to sell and the market is comfortable to buy. Given the example of transportation, there might be instances when the competitive solution does not exactly offer the best scenario for either the market or the suppliers. If the demand for a particular mode of transportation (i.e. railway transit) is relatively low as compared to the supply, then the suppliers’ is low, and they are not able to make enough revenues to generate reasonable profit.

An example of this would be the scenario when the people’s income is low, and thus they cannot afford to use the railway transit. Another example is when the prices of substitute good or alternative means of transport, such as buses, are significantly lower compared to railway transits. There may also be cases when the supply is too low as compared to the market’s demand; in these cases, supply is scarce, causing the selling price to be significantly higher while the output level is low. An example of this would be high prices of inputs that are necessary for railway transit operations, causing a decrease in the supply of railway transits.

To replicate a more competitive solution for the given example (the railway transit), the state can stimulate more demand for by increasing the prices of substitute goods, such as buses. More realistically, it can help the railway transit industry by stimulating supply, by initiating the reduction of the prices of input materials necessary for railway transit operations. Also, the state can contribute by investing on technology that will benefit railway transit operations. State initiatives such as these will lead the market closer to a more competitive solution. B. I would take into consideration all the costs that will have to be spent in building the project. The