The Postal Service claims that one reason why it cannot provide services as cheaply as private firms is that it is required to provide services to rural areas but cannot charge them more than the urban areas. The private companies "skim" the low-cost markets. (Effectively, urban areas are subsidizing rural areas.) Discuss the efficiency and equity consequences of this kind of cross subsidization. Some have argued that if it is desirable as a matter of national policy to subsidize rural post offices, the subsidies should be paid out of general tax revenue, not by the other users of the postal system. Discuss the advantages and problems of such an alternative subsidy scheme.