Economics: The Basics 1st Edition by Mike Mandel

Exercise 9

Amtrak, the national passenger railroad company, runs at a substantial loss on most of their routes, especially outside the Northeast Corridor. In 2006, for example, it received a subsidy of $1.3 billion from the federal government to cover its costs.
a) Suppose Amtrak were allowed to go private, and its federal subsidies were cut off. What would happen to the price of train travel?
b) Amtrak had 24 million passengers in the year ending September 2006. If the subsidies ended, would you expect the number of passengers to rise or fall?
c) What would be a reasonable justification for continuing these subsidies?