Which of the following statements accurately describes the economic impact of railroads on the American economy?

• A. Railroads had little effect on economic surplus because they only served rural areas.
• B. Railroads primarily benefited producers, with no significant impact on consumers.
• C. Railroads increased both consumer and producer surplus by reducing transportation costs and expanding market access.
• D. Railroads decreased economic efficiency by creating monopolies that limited market competition.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of economic surplus, which is the sum of consumer surplus and producer surplus. Consumer surplus is the difference between what consumers are willing to pay and what they actually pay, while producer surplus is the difference between the price producers receive and their minimum acceptable price.
2. Step 2: Analyze how railroads affect transportation costs. Railroads significantly reduced transportation costs by providing faster, cheaper, and more reliable means of moving goods and people across long distances.
3. Step 3: Consider the impact of reduced transportation costs on market access. Lower costs allowed producers to reach wider markets and consumers to access a greater variety of goods, effectively expanding both supply and demand.
4. Step 4: Evaluate how expanded market access and lower costs influence economic surplus. By reducing costs and increasing market size, railroads increased both consumer surplus (through lower prices and more choices) and producer surplus (through higher sales and profits).
5. Step 5: Reflect on the claim about monopolies and economic efficiency. While railroads sometimes led to monopolistic practices, the overall effect on economic efficiency was positive due to the large gains in surplus from improved transportation and market integration.