Congestion Charge Flashcards
externalities
one person’s actions affect another’s well-being and the relevant costs/benefits are not reflected in market prices
e.g. air pollution, road damage, congestion etc
MSC (q)
marginal social cost
raises by more than MPC as individuals don’t take into account the increase in CC to other dirvers
MPC (q)
rises bc journey time increases with no. of drivers
how to get to q*
quantity rationing or price rationing
effectiveness
with how much certainty can it achieve q*
efficiency
which method delivers lowest social cost/biggest social benefit
equity
which is fairer?
price rationing
pigovian tax
MEC at socially optimal level
MSC(q) - c(q)
effectiveness of price rationing
depends on how well we predict MEC - may vary with time, depends on popn, easier to predict I the LR
depends on elasticity of demand for driving
efficiency of price rationing
assuming that it’s effective, it’s efficient
equity of price rationing
it’s progressive - burden of the tax is being paid by higher income ppl bc they’re more likely to have cars and drive to work
horizontal equity
are all individuals treated the same?
vertical equity
do higher income pay higher % of their income? if yes = progressive
quantity rationing
e.g. Athens - even number even days
effectiveness of quantity rationing
yes in the SR in the LR people may buy another car or different number plates - only higher income can afford to do this