Problems For Section 103

O 1. The total social benefit from a railway can be divided up among separate demanders and suppliers. It is clear that each of, say, two demand curves, one for the West and the other for the East, could be faced separately with the same fall in transport costs. Can they be faced with it together, in one diagram of Western and Eastern demands added together? (Hint: Do it both ways and compare.)

11 Compare A. C. Harberger, "Three Basic Postulates for Applied Welfare Economics," Journal of Economic Literature 9 (September 19/1): 785-/97.

Surplus Has the Same Difficulties as Income

2. Prove that the Laspeyres measure of the rise in national income from the invention of railways is the cost saving on the After Railways amount of transport.

True or False

O 3. Even if the supply curves of transport were upward sloping before and after the railways, the area of social benefit would have the same definition as with flat supply curves, namely, the area bounded by the axes, the demand curves, and the lower and higher supply curves.

4. If the demand curve is a straight line, the benefit from railways measured in consumers' surplus is exactly halfway between the Laspeyres and Paasche measures of the rise in national income caused by the railways.

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