150-Year-Old Baltimore Tunnel Will Get $4 Billion Federal Boost

EconEye Admin

4 years ago

President Biden announced that $4 billion in federal funding will help replace the 150-year-old Baltimore and Potomac Tunnel. The tunnel is a major bottleneck for Amtrak, Maryland commuter trains, and freight rail traffic. Once completed, capacity in the tunnel will nearly triple.—washingtonpost.com

Answer the following questions to check your understanding of the story.

Is the Baltimore and Potomac Tunnel a private good, a public good, a club good, or a common resource?

The Baltimore and Potomac Tunnel is a _____________.

a) club good

b) private good

c) private good for users of the tunnel and a public good for nonusers who benefit from it

d) common resource

Wrong! - Can users of the Baltimore and Potomac Tunnel be excluded from using it? How many trains can run on a track through the tunnel at the same time? Is the tunnel rival? Is the Baltimore and Potomac Tunnel a private good, common resource, or club good for users of the tunnel?

Can you think of a nonuser who benefits from the Baltimore and Potomac Tunnel? Is the tunnel rival and excludable for this nonuser? Is the Baltimore and Potomac Tunnel a private good, a public good, a common resource, or a club good for this nonuser?

Correct! - The Baltimore and Potomac Tunnel is a private good for users of the tunnel because it is excludable and rival. If the price to use the tunnel is sufficiently high, some users can be excluded. And the Baltimore and Potomac Tunnel is rival because only a given number of trains can use it at one time. But nonusers who benefit from the service of the tunnel can’t be excluded and they don’t rival other nonusers, so for nonusers, the Baltimore and Potomac Tunnel is a public good.

If the current tunnel is a major bottleneck for rail traffic and the new tunnel will nearly triple capacity, what can we say is most likely about the marginal social benefit (MSB) and marginal social cost (MSC) of tunnel use?

MSB of current tunnel use ______________ MSC, and MSB of new tunnel use will ___________ MSC.

a) exceeds; be less than

b) exceeds; exceed

c) is less than; be less than

d) is less than; exceed

Wrong! - Trains use the current tunnel although it is a major bottleneck. Is the current tunnel overused or underused? What is the relationship between MSB and MSC? The new tunnel will nearly triple capacity, so is it likely to be underused or overused? What is the relationship between MSB and MSC?

Well done! - Trains use the current tunnel although it is a major bottleneck, so the current tunnel is underused and MSB of current tunnel use exceeds MSC. And if the new tunnel will nearly triple capacity, then it will likely be overused and MSB of new tunnel use will be less than MSC.

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