Chapter 11 extended

Question 1

Capital + disadvantages

Answer 1

• Used for replacement/expansion/rolling stock
Disadvantages:
• Vehicle manufactures may increase prices
• More purchases than needed

Question 2

Loss +Advantages and disadvantages

Answer 2

• Most used – where total cost>total income
Advantages:
• Simple and direct
• Easy admin
Disadvantages:
• Inhibits economic efficiency and motivation
• Does not address underlying issue causing loss
• Who gets the subsidies?

Question 3

Input + disadvantages

Answer 3

• Operating subsidies
Disadvantages:
• Decrease efficiency
• Suppliers may over-supply to make larger profit

Question 4

Output + advantages and disadvantages

Answer 4

• Subsidies paid according to outputs of the firm (number of pax transported)
Advantages:
• Does not lower efficiency incentive
Disadvantages:
• Records of ticket sales
• Passenger numbers decline with rise in vehicle ownership

Question 5

Tariff + advantages

Answer 5

• Targets user
• Difference between economic cost and real tariff
• Increases over distance
Advantages:
• Subsiding body involved in setting of tariff

Question 6

4 criteria of merits of subsidy system

Answer 6

1. Must achieve social aims
   • Objectives clear and effective
2. System must be chosen which will minimise costs of managing it
3. Based on equity – one group should not benefit more than the other
4. Efficiency must be stimulated - no wastage – generate own revenue

Question 7

Are subsidies valid?

Answer 7

Yes if they align to development goals of metro/country where the poor, less fortunate, excluded, healthcare are supported. BUT we are paying portion of wages