Why do we need toy trains in a narrow gauge.

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I think the primary reason for most is the fact that it allows you to model in a larger scale within a tighter/smaller space.
Typically narrow gauge railways follow their own rules as far as track laying goes instead of a recognized standard thus allowing for very tight curves depending on what your rolling stock can handle. Also allot of narrow gauge rolling stock is made by those working the line so you get a great modellers licence to build near enough what ever you want in order to have the railroad do the job in hand.