According to the evidence presented by Fish low, Fogel, and Mercer, were the rai

Question

According to the evidence presented by Fish low, Fogel, and Mercer, were the railroads built prior to the Civil War "built ahead of demand?" Be sure to provide examples of their evidence. b. According to the evidence presented by Fishow, Fogel, and Mercer, were the railroads built after the Civil War "built ahead of demand?" Be sure to provide examples of their evidence. c. Based upon the evidence, what case, if any, can be made for government subsidies to the railroads? d. Provide two economic reasons to explain why it was efficient for railroads to price discriminate.

Explanation / Answer

a) Fishlow believed that the demand for railroad lied to left of average cost curve for the firms.The rate of profits from the railroads were less and demand was not yet fully developed.Post civil war period the role of railroads increased without which west could not have experienced growth. Emperically the railroad construction was pressumed to carry grain , coal light and heavy weight goods across therefore they came to a conclusion that building railroads was important but not crucial.

b)The railroads were built before the civil war but the transformation and usage came about later with development and to analysis its use post the war. After the war their role increased vastly and contributiion of railroad to gnp increased by 10% in 1890s which is now seen as the greatest investment made by the economy during those times.

C)Subsidy was granted for railroads assuming private returns to be higher than market . When govt offered subsidies in small countries like texas and pacific results were not as expected. The aids were high like the investment cost but expectation that social rate of return would be more than marginal opportunity cost of capital was not fully true.

d)The price discrimination was studied in different periods like 1945,1980,2010.Higher rates were charged for short and long hauls. More charges for highly competitive areas along with the ones with no competition creating monopolies. But rebates were available to some consumers who would use other options to commute.

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