Network Rail Investment

The article shows plans by Network Rail (the government owned firm which is responsible for maintaining the railway networks in the UK) to invest £37.5 billion in infrastructure over the next 5 years.

The effect of investment is to shift long run average supply curve rightwards. Investment should improve the speed and capacity of the network, this is good for businesses and should be good for the aggregate economy. However the current investment plans are going to mean a rise in train fares (prices are assumed to rise above inflation) which will reduce consumer surplus. This also indicates that price elasticity of demand for rail travel is relatively inelastic (train firms can also use price discrimination based on peak and off-peak travelling times) to allow for a higher price. However the investment is meant to decrease the cost of the railway system in the long run, so perhaps prices will fall in the future when costs are lower. But this isn’t guaranteed and Britain already has some of the highest train fees in Europe (


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