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? Congestion: Equilibrium versus Optimum traffic Volume

o The total cost of a commuting trip is the sum of the monetary and time cost

o The demand curve is a marginal benefit curve ~ shows how much the marginal traveler is willing to pay for the highway trip

o Congestion Externality: the marginal driver slows traffic and increases travel time, forcing other drivers to spend more time on the road ~ it increases with traffic volume

o The external trip cost equals the monetary value of the congestion externality

o External trip cost increases with traffic

o Private trip cost (average travel cost)- is the travel cost incurred by the individual commuter, defined by the sum of the monetary cost and the private cost (trip time * opportunity cost of travel time)

o Social Trip Cost ( marginal travel cost): is the sum of the private cost and the external trip cost

o On graph: the social-cost curve lies above the private-cost curve with the gap between the 2 curves equal to the external trip cost

? Equilibrium?

o Driver uses the highway if the marginal benefit of a trip (demand curve) exceeds the private trip cost

? Optimum number of drives?

o Efficiency rule: is that an activity should be increased as long as the marginal social benefit exceeds the marginal social cost ~ at the optimum level, the marginal benefit equals the marginal cost

? The equilibrium exceeds the optimum volume b/c drivers do not consider the costs they impose on other drivers~ an additional driver slows traffic forcing other drivers to spend more time on the road

? Government can impose a congestion tax to generate the optimum traffic volume~ a tax that is equal to the external trip cost would internalize the congestion externality, generating the optimum number of drivers

? b/c of the tax which closes the gap b/w private and social costs, the individual driver bases his travel decision on the social cost of travel thus the highway is used efficiently

? people who continue to use the highway after the tax is imposed pay the tax but also have a lower time cost, the tax decreases traffic volume which then decreases travel times

? people who stop using the highway avoid the tax but then forgo the benefits associated with using the highway, thus there are costs ad benefits for both types of people

? the govt uses the tax revenue to finance public services or to decrease other local taxes

? the total revenue from the congestion tax is just enough to pay for the optimum highway thus they can use it to substitute for gasoline tax which is used currently to finance highways

? Net gain for society after the tax is shown as the area b/w the demand curve and the social trip cost

? Implementing the tax by installing toll booths on every road BUT this is impractical b/c the collection process slows traffic which causes more congestion

? The high technology- VIS- vehicle identification system~ every car is equipped with a transponder which allows sensors along the way to identify the car as it passes then sends a bill to the driver at the end of the month

? Alternative would be to install a device which decreases the value of a cash card or a debit card ? insert card into device in the car when passing a checkpoint

? A HOT lane is a lane that can be used both by high occupancy vehicles and other vehicles that pay a toll (high occupancy and toll)

? Alternatives to a congestion tax:

o Gasoline tax, parking taxes and congestion-zone tax

o Discourages auto use by increasing the cost of auto travel

? Changes to travel modes, times, routes and distances all cause a change in the travel demand curve

? Gasoline is inefficient b/c it would also increase the cost of off peak travel and it does not encourage drivers to switch to other travel times or routes

? 3 potential problems with the parking tax:

o Taxes must be imposed during high peak times and exempted from off peak periods

o It does not depend on the distance traveled thus there is no incentive for commuters to economize on travel cost by living closer to their workplace

o Much of the congestion problem is caused by the cars that do not park in congested areas, the tax does not force all peak period travelers to pay for the congestion they cause

? Congestion: Equilibrium versus Optimum traffic Volume

o The total cost of a commuting trip is the sum of the monetary and time cost

o The demand curve is a marginal benefit curve ~ shows how much the marginal traveler is willing to pay for the highway trip

o Congestion Externality: the marginal driver slows traffic and increases travel time, forcing other drivers to spend more time on the road ~ it increases with traffic volume

o The external trip cost equals the monetary value of the congestion externality

o External trip cost increases with traffic

o Private trip cost (average travel cost)- is the travel cost incurred by the individual commuter, defined by the sum of the monetary cost and the private cost (trip time * opportunity cost of travel time)

o Social Trip Cost ( marginal travel cost): is the sum of the private cost and the external trip cost

o On graph: the social-cost curve lies above the private-cost curve with the gap between the 2 curves equal to the external trip cost

? Equilibrium?

o Driver uses the highway if the marginal benefit of a trip (demand curve) exceeds the private trip cost

? Optimum number of drives?

o Efficiency rule: is that an activity should be increased as long as the marginal social benefit exceeds the marginal social cost ~ at the optimum level, the marginal benefit equals the marginal cost

? The equilibrium exceeds the optimum volume b/c drivers do not consider the costs they impose on other drivers~ an additional driver slows traffic forcing other drivers to spend more time on the road

? Government can impose a congestion tax to generate the optimum traffic volume~ a tax that is equal to the external trip cost would internalize the congestion externality, generating the optimum number of drivers

? b/c of the tax which closes the gap b/w private and social costs, the individual driver bases his travel decision on the social cost of travel thus the highway is used efficiently

? people who continue to use the highway after the tax is imposed pay the tax but also have a lower time cost, the tax decreases traffic volume which then decreases travel times

? people who stop using the highway avoid the tax but then forgo the benefits associated with using the highway, thus there are costs ad benefits for both types of people

? the govt uses the tax revenue to finance public services or to decrease other local taxes

? the total revenue from the congestion tax is just enough to pay for the optimum highway thus they can use it to substitute for gasoline tax which is used currently to finance highways

? Net gain for society after the tax is shown as the area b/w the demand curve and the social trip cost

? Implementing the tax by installing toll booths on every road BUT this is impractical b/c the collection process slows traffic which causes more congestion

? The high technology- VIS- vehicle identification system~ every car is equipped with a transponder which allows sensors along the way to identify the car as it passes then sends a bill to the driver at the end of the month

? Alternative would be to install a device which decreases the value of a cash card or a debit card ? insert card into device in the car when passing a checkpoint

? A HOT lane is a lane that can be used both by high occupancy vehicles and other vehicles that pay a toll (high occupancy and toll)

? Alternatives to a congestion tax:

o Gasoline tax, parking taxes and congestion-zone tax

o Discourages auto use by increasing the cost of auto travel

? Changes to travel modes, times, routes and distances all cause a change in the travel demand curve

? Gasoline is inefficient b/c it would also increase the cost of off peak travel and it does not encourage drivers to switch to other travel times or routes

? 3 potential problems with the parking tax:

o Taxes must be imposed during high peak times and exempted from off peak periods

o It does not depend on the distance traveled thus there is no incentive for commuters to economize on travel cost by living closer to their workplace

o Much of the congestion problem is caused by the cars that do not park in congested areas, the tax does not force all peak period travelers to pay for the congestion they cause

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