Threshold Network Exercise: how much should we spend on rail safety?
1
Scenario
A series of rail crashes which involved fatalities has led the government to
consider more investment in rail safety measures.
How should the government decide whether to invest in additional rail
safety measures?
In doing this you should:
(1) Consider an economic framework or model that you think is going to be
useful.
(2) Identify three important economic concepts from the list below you would
use in answering this question and explain why they are important in this
context.
Choice
Opportunity cost
Taxes
Monopoly
Elasticity
Economies of scale
The multiplier
Marginal social costs
Scarcity
Competition
Average social benefits and costs
Marginal social benefits
(In the list there are concepts that are irrelevant and concepts that are useful. Some are
arguably more useful than others. Although there are some ‘wrong’ answers there is not just
one ‘correct’ one. Our feedback highlights our choice of three concepts but you will find we
use others on this list as well. In making your choice try to discard the irrelevant and consider
what you think is the most important amongst the others and why.)
feedback page 2
Copyright: Embedding Threshold Concepts Project
24/08/07
This project is funded by the Higher Education Funding Council for England (HEFCE) and the Department for
Employment and Learning (DEL) under the Fund for the Development of Teaching and Learning.
Threshold Network Exercise: how much should we spend on rail safety?
2
Feedback
We need to first consider what economic framework or model is going to be
useful in analysing this question. In decision making the economics
approach is to consider maximisation of some objective (such as profit)
subject to the constraints of the resources available.
In applying this to this question we need to consider the following four
important aspects:
1. The simplifying assumption of maximisation. Here the assumption is that the
government wants to maximise social welfare in making such decisions.
2. The costs as well as the benefits of the investment need to be considered.
Since the concern is with maximising social (not private) welfare, the costs
and benefits need to take into account any externalities.
3. Marginal effects – the government is considering additional rail safety
measures, not the whole of rail safety measures.
Applying the rule for maximisation gives us:
marginal social benefit = marginal social cost
because if the benefit of an extra measure of rail safety is greater than the
cost to society it will add to our total welfare.
4. Opportunity cost is important here in determining the marginal social cost
as we would need to consider the alternative uses of the resources. It is very
difficult to measure the cost of saving a life, but we need, for instance, to
consider if we could save more lives by investing in rail safety, road safety or in
the NHS for the same money. The total resources available to the
government are limited (there is scarcity) and the government needs to
evaluate the best way of using these resources.
We have highlighted important concepts from the list in the above explanation. The
following are not important here: monopoly, elasticity, economies of scale, multiplier,
competition and average social benefits and costs. Also economists treat policies
one-by-one (at least initially) to simplify complex problems, so we would not consider
tax here. Scarcity and choice, although not irrelevant here, are part of opportunity
cost, which is the more important concept.
Reflection
1.
How much did you adopt an economics approach?
2.
Did your analysis lead you to recognise that the
application of economics may lead us to reject
more being spent on additional rail safety?
Copyright: Embedding Threshold Concepts Project
Yes
Partly No
24/08/07
This project is funded by the Higher Education Funding Council for England (HEFCE) and the Department for
Employment and Learning (DEL) under the Fund for the Development of Teaching and Learning.
Threshold Network Exercise: how much should we spend on rail safety?
3
Notes for lecturers
Objectives of the exercise and prerequisites
The threshold network exercises are designed to help students recognise the
importance of economic concepts and modelling. They are concerned with
how economics uses a range of concepts (in a connected web) in answering
applied questions and getting students to recognise which concepts are
important and how they relate to each other in the specific context.
Learning Focus: Developing understanding of the need to consider both
marginal benefits and costs in making decisions.
Threshold Concepts pivotal to this learning are marginality, and opportunity
cost.
Prior Knowledge Required
Some prior knowledge of opportunity cost and marginality is useful.
Timing
We would suggest that this exercise is likely to take students around 15-20
minutes to complete. It may be undertaken individually or in groups. This
timing does not allow for any presentation by students of their findings.
Copyright: Embedding Threshold Concepts Project
24/08/07
This project is funded by the Higher Education Funding Council for England (HEFCE) and the Department for
Employment and Learning (DEL) under the Fund for the Development of Teaching and Learning.