PPE MICRO Congestion 25 MARKER

Question 1

What are the 2 definitions for consumption question?

Answer 1

Negative Externality

Scarce Rosources

Question 2

Define Negative externality

Answer 2

Unintended 3rd party affects of the production/consumption of a service which is a result of market failure

Question 3

Define scarce resources

Road space

Answer 3

Fewer resources to fulfil human needs

Question 4

What is the first policy?

Answer 4

Subsidies to public transport

Question 5

Write a chain of argument for subsidising public transport

Answer 5

Subsidising public transport e.g trains make it cheaper to travel by train- more people using public transport- reducing the number of cars on the road- reducing congestion

Question 6

Draw a supply/demand graph for subsidising public transport

Answer 6

Notes

Question 7

What are the problems with giving subsidies?

Answer 7

• An increase in subsidies for public transport would decrease the budget for other services e.g. NHS (opportunity cost)
  Draw a opportunity cost graph

Train companies may use subsidies to cover costs rather than reducing price and consumption

Question 8

What is the second policy?

Answer 8

Taxation- forcing a tax on drivers within the congestion zone

Question 9

Draw a demerit good graph and a graph showing the affect of a tax

Answer 9

Notes

Question 10

Explain the 2 graphs

Answer 10

Drivers have to pay the SMC (social Marginal cost of driving), increasing the price level, less cars on the road as less drivers are willing to pay the charge, supply shifts left to the socially optimum level of output at Q1

Question 11

What are the positives for a congestion charge?

Answer 11

• Since congestion charge, traffic reduced by 15% and 30% improvement on journey times according to the TFL
• Raised revenue from charge could be spent on alternatives to driving

Question 12

What are the negatives of a congestion charge?

Answer 12

• Law of unintended consequences: Business lost as consumers go elsewhere to avoid congestion
  False number plates to avoid charge.

Question 13

What is the 3rd policy?

Answer 13

Free market= Demerit good

Question 14

Draw the demerit graph or refer to fig x

Answer 14

notes

Question 15

What are the characteristics of a demerit good?

Answer 15

• Market Failure
• Misallocation of resources
• Over-consumed

Question 16

Explain the demerit graph for a congestion free market

Answer 16

MPB>MSB as individuals consume road space, they reduce the available road space and delay the space for others

Question 17

What are the positives of a free market congestion?

Answer 17

• No charge for driving into the city

- Avoids administration costs of a congestion charge

Question 18

What are the negatives of a free market congestion?

Answer 18

Doesn’t resolve congestion- proven market failure

Question 19

Evaluation: Which policy is the least effective?

Answer 19

In this situation, leaving congestion to the free market is the least effective policy as it results in market failure and can’t be resolved without government intervention

Question 20

Evaluation: What does it depend on?

Answer 20

• Whether drivers have perfect information- would effect the number of cars on the road
• Availability of alternative transport
• Government policies in terms of subsidies

Only way to resolve congestion would be a combination of subsidies in public transport and a tax on drivers