Why traffic congestion is a classic example of the problem of externalities - Essay Example

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This paper endeavors to explain why traffic congestion is a classic example of the problem of externalities and to consider the ways in which private motorists will respond to road charges and comment on the private motorists' price elasticity of demand for road use…
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Why traffic congestion is a classic example of the problem of externalities
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Download file to see previous pages This research will begin with the statement that traffic congestion is the most significant problem in a large number of cities of the world. Traffic congestion is regarded as an example of consumption externality. It is reported by the experts that negative externalities do take place when consumption or production of a good or service by one person imposes a burden of cost on the other people. The result which is achieved from such a scenario does damage the environment. Traffic Congestion produces negative externalities. The present research has identified that various external costs are imposed upon by journeys through cars in the forms of air pollution, traffic congestion, noise pollution, change in climate and accident.  Peaking is responsible for creating traffic congestion. Suppose that a road network is already running at its full capacity. At this kind of situation, if an additional car joins the network, then it is quite evident that it would result in the fall of an average speed of all the cars in that road network that in turn would increase the time of journey for all.  Beyond the full road capacity, the cost that a journey through a private car has to bear gets increased due to congestion as it creates more delays in time as well as larger costs of fuel. If an individual takes the decision to drive his/her car at the time of going to work, the ability of the decision actually makes the same road a bit more crowded....
All the additional costs are taken into account, such as extra costs of fuel. Negative externalities are always considered by the economists as undesirable because they help in creating inefficiencies. It simply implies that people indulge in driving even if they should not do so from a societal perspective. For instance, if one estimates that all the benefits of going for a drive including more comfort and more flexible journey surpass the costs of driving in the form of fuel costs and costs of maintenance, then the person would choose driving through personal car as the best mean for going out to work. But, in this calculation, the person has surely neglected some vital component: the costs for longer period which the person would impose on other commuters inadvertently. Thus traffic congestion becomes a classic example of the problem of externality. (Litman, 2003; Lindsey, 2006) 2. Consider the ways in which private motorists will respond to road charges and comment on the private motorists' price elasticity of demand for road use. According to the theory of demand, an increase in price of a normal good/service will cause a fall in the quantity demanded for that good. This logic holds true for the road use by private cars as well. Imposition of road charges implies that costs of road use will increase for private motorists. Given the same benefits derived from going out with a private car, road charges cause the average costs to rise. It will simply result in a fall in the road use by private motorists. They would now prefer to go with a bus or travel in some other time when congestion is lower. Thus the private motorists respond to a road pricing either by reducing the same road usage at peak ...Download file to see next pagesRead More
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