Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

ECON3000

Practice Questions 3

Question 1

Assume that as traffic density increases along a given stretch of road, there comes a point when traffic begins to slow down. The following table gives the times taken for a car to travel the stretch of road (in minutes) according to the number of cars entering the road per minute.

(a)          Copy out the table and add the following rows: (i) total journey time for all cars; (ii) extra journey time as traffic increases by one more car (marginal social time cost);

(iii) additional time cost imposed on other road users for each additional car entering the road (marginal external time cost).

(b)         Assume that time is valued at 10p per minute. On a graph, plot the marginal private time cost (journey time) and the marginal social time cost.

(c)          Assume that electronic road pricing is introduced. What charge should be levied

when traffic density reaches (i) 6 cars per minute; (ii) 8 cars per minute; (iii) 11 cars per minute?

(d)         What additional information would you need in order to work out the socially efficient traffic density on this particular stretch of road?

Question 2

Assume that there are several chemical firms in an industry, each one producing different levels of an effluent, whose damage to the environment depends on the location of the firm. Compare the relative merits of using green taxes (which is a Pigou tax on the output of a product that imposes adverse effect on environment), tradable permits and controls (regulations) as means of achieving the socially optimum levels of effluent from these firms.

Question 3

Make out a case for adopting a policy of individual tradable carbon permits, allocated to all citizens within a country. Could such a policy be extended globally?