Opportunity cost — practice question

During August 2015, the Egyptian Government opened a second Suez Canal beside the original canal so that more and larger ships could travel from the Mediterranean Sea to the Gulf of Suez. Building it cost over US$8 billion, and this involved buying land, obtaining capital equipment and paying wages to the workers constructing the canal. At the same time, there were demands for higher spending on healthcare, especially for better quality public hospitals, and on education, particularly adult literacy. The Egyptian Government thinks the canal will draw in more ships, including those carrying goods and those carrying people. A range of factors affects how many goods and people use sea transport. These factors include transport speed, the level of economic activity and the price of other transport methods. Some goods must be moved quickly, and recent years have shown that demand for sea transport is very responsive to recessions and booms. Fig. 1 illustrates how the market for sea transport has lately been influenced by a change in the market for air transport. The Egyptian Government also hopes that new industries linked to the shipping industry will be developed along the canal. Growth of infant industries may help to lower the country’s unemployment rate, which in 2015 stood at 12.5%. In 2015, the country had 90 million people, a population growth rate of 1.5% and a labour force of 28 million. Its death rate was declining. Government spending on healthcare was equal to 4% of Gross Domestic Product (GDP). In 2015, GDP was US$280 billion and the economic growth rate was 5%.