Road Pricing
Uploaded by E on Nov 11, 2005
1. Many countries use forms of or are considering road pricing (e.g. City-center of Singapore, Autostrada in Italy) to ease congestion. What is the economic rationale behind these measures?
In an economy, people will make micro economic decisions. Above report is a mixed economy example, government and the private sector jointly solves this problem, (markets). The key problem is the loss of productivity. Slow travelling over a motorway or standing still, give a negative slope on productivity, the opportunity costs are high. To solve this time related problem of ‘excessive’ road use or in terms; Infinite demand of road usage, the idea is to charge for road usage, (prices). Does that help? It depends on several factors.
As we can see in the above-mentioned report, we can see a negative relationship between price and road use; the higher the price of the road use, the less traffic that will use that road. What are the economic frameworks behind the strategy of road pricing?
a. Infinite wants and finite resources:
Infinite wants is a term to express the limitless desires to consume goods and services. The problem is that the capacity of the road is finite. I.e., one of the desires of a car owner is to use the motorway, at any hour he wants, in terms ‘Infinite wants’. This situation will persist as long as that does not affect their finite resources. By charging for motorway use at specific hours, users will have to make financial choices. Moreover, by doing that, the rational is that one has to look for competing offers or look for lower charged times, that is an opportunity.
b. Opportunity costs:
I.e. avoiding the charged motorway by driving the ‘long and slow way’ via small streets will cost extra time. Also with taking, a bus or driving on low priced hours. Users want to minimize their opportunity costs, for the reason of their finite resources, (at least a given time).
2. What are the different elasticities that influence demand for road usage in a mixed market system?
a. Name different kinds of elasticities for demand and their underlying economic reasons with respect to road pricing.
b. Provide a reasoned assessment of the degree of elasticity or inelasticity of these elasticities.
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