Topic 21&22: Transport

Question 1

Transport system externalities

Answer 1

Generate externalities

Individual choice of mode of transport imposes external costs on society

Roads are common property resources and therefore prone to market failure

Motorists don’t account for external costs when making travel decisions -> market failure where roads are over used and congested

Solution: road pricing

Question 2

Policy options

Answer 2

Management if mobile-source pollution: involves policies aimed at both manufacturer and owner

Point of production (manufacturer):

+few firms: easy to manage

• takes longer to achieve a reduction target

Point of use (owner-driver): choice of vehicles, choice of where to drive, choice of when to drive

Question 3

Point-of-use controls

Answer 3

Fuel taxes. Unclear if has taken consideration the external costs of transportation. Sufficient to internalise external costs?

Congestion pricing (HOV lanes, HOT lanes, area/distance/time based pricing etc)

Private toll roads

Pay-as-you-drive (PAYD) insurance

Accelerated retirement strategies. ‘Cash for Clunkers’

Question 4

Marginal cost on congestion

Answer 4

Includes social cost due to other users congestion

Question 5

Deadweight loss

Answer 5

Where road use exceeds marginal benefit of travel

Question 6

London Congestion Charge Scheme

Answer 6

Biggest source of savings: saving on cost of time

London viewed as ideal city to test technology