The Economy Tomorrow section below provides estimates of time spent in traffic d

Question

The Economy Tomorrow section below provides estimates of time spent in traffic delays.

Rebuilding America
The output of the U.S. economy depends not only on private investment but on publicinvestment as well. The infrastructure of transportation, communications, and environmental systems affects the nation’s production possibilities. As we look to the future, we have to wonder whether that infrastructure will satisfy the needs of the economy tomorrow. If it doesn’t, it will become increasingly difficult and costly to increase output. Inadequate infrastructure would not only worsen short-term macro outcomes but also impair our ability to compete in world markets.

The Cost of Delay. The failure to expand the infrastructure could prove costly. The U.S. Department of Transportation estimates that people now spend nearly 3.5 billion hours a year in traffic delays. If the nation’s highways don’t improve, those delays will skyrocket to more than 4 billion hours a year a decade from now. That’s a lot of labor resources to leave idle. Moreover, cars stuck on congested highways waste a lot of gasoline—nearly 4 billion gallons a year—and spew enormous amounts of carbon dioxide into our atmosphere.

If the average worker produces $110 of output per hour, what is the opportunity cost of

Instructions: Enter your responses rounded to the nearest whole number.

(a) Current traffic delays?

$  billion

(b) Estimated delays in 10 years?

$  billion

Rebuilding America
The output of the U.S. economy depends not only on private investment but on publicinvestment as well. The infrastructure of transportation, communications, and environmental systems affects the nation’s production possibilities. As we look to the future, we have to wonder whether that infrastructure will satisfy the needs of the economy tomorrow. If it doesn’t, it will become increasingly difficult and costly to increase output. Inadequate infrastructure would not only worsen short-term macro outcomes but also impair our ability to compete in world markets.

The Cost of Delay. The failure to expand the infrastructure could prove costly. The U.S. Department of Transportation estimates that people now spend nearly 3.5 billion hours a year in traffic delays. If the nation’s highways don’t improve, those delays will skyrocket to more than 4 billion hours a year a decade from now. That’s a lot of labor resources to leave idle. Moreover, cars stuck on congested highways waste a lot of gasoline—nearly 4 billion gallons a year—and spew enormous amounts of carbon dioxide into our atmosphere.

Explanation / Answer

(a) It has been provided that, at present, 3.5 billion hours per year are lost in traffic delays.

This implies that these 3.5 billion hours that could have been utilized in production are lost.

The value output that could have been produced during this time is the opprtunity cost of current traffic delays.

Value of output per hour = $110

Hours lost due to traffic delays = 3.5 billion hours

Calculate the opportunity cost of current traffic delays -

Opportunity cost = Value of output per hour * Hours lost in traffic delays

                         = $110 * 3.5 billion

                         = $385 billion

The opportunity cost of current traffic delays is $385 billion.

(b) It is estimated that a decade from now, 4 billion hours will be lost in traffice delays.

This implies that these 4 billion hours that could have been utilized in production are lost.

The value output that could have been produced during this time is the opprtunity cost of estimated traffic delays.

Value of output per hour = $110

Hours estimated to be lost due to traffic delays in 10 years = 4 billion hours

Calculate the opportunity cost of estimated traffic delays in 10 years -

Opportunity cost = Value of output per hour * Hours lost in traffic delays

                         = $110 * 4 billion

                         = $440 billion

The opportunity cost of estimated traffic delays in 10 years is $440 billion.

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