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Explain the economics problems that result from allowing vehicles to use roads in towns and cities free of charge.

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Introduction

Mark Roper S01Q5 EXPLAIN THE ECONOMIC PROBLEMS THAT RESULT FROM ALLOWING VEHICLES TO USE ROADS IN TOWNS AND CITIES FREE OF CHARGE Allowing vehicles to use roads free of charge in towns and cities means that motorists do not have to pay when they enter or leave towns of cities. An example of charging is road pricing. The first major problem that will be caused from allowing people to use their vehicles free of charge is people will more than likely only consider his or her marginal cost (change in total cost when extra distance is travelled) of the journey they are making. Having no charge is likely to mean that people will find it cheaper to travel a short distance by car than to use public transport. Because of this and the fact that cars are usually more convenient and more comfortable, more people are going to use their cars in cities and towns. This means that that marginal social costs are going to be greater then marginal private costs, meaning negative externalities are gong to exists. The negative externalities that may be caused if it is free to use towns and cities free of charge are as follows. ...read more.

Middle

If left to the market as showed below in the diagram, people would use their cars to the point where marginal social benefits equal marginal private costs. To make MSC equal MSB the road users would have to bear the cost of internalising the externalities. On the diagram this is shown by the line in red. The first policy that a government could adopt is that of road pricing. This means that vehicle owners would have to pay to use the roads in urban areas. This could be in the form of motorists purchasing a licence which could be displayed in there windows and then policed by traffic wardens. The other way and possibly more effective solution is an electronic system. This could be in the form where cars are fitted with electronic devices which would be activated by beacons that are places as you enter the towns or cities. You could be sent a bill monthly. The first problem road pricing is setting a price that would actually reduce the use of cars in urban areas. The price elasticity of car journeys is hugely inelastic. This has been proved in terms of taxes. ...read more.

Conclusion

The high taxes could cause firms to have to raise their prices or if they couldn't do that, they may have to lay workers off. Also if firms are bearing the costs of the taxes it is unlikely that workers would car and so still use their cars. It would then be down to the firms to enforce workers not bringing their cars to work. Taxing car parking spaces could encourage firms to move out of the urban areas and out increased pressure on the controversial development of the countryside. For both policies the government would almost certainly have to improve public transport, this would have to be done before the new policies could be used. This means that a huge amount of money would have to be used to pay for the improvements without having any additional revenues coming in. The successfulness of these policies in both cases depends on getting either the road price and taxes at a high enough level to discourage people and firms using their cars. Too low will mean that it will basically have no affect on traffic in urban areas and so the cost of setting it all up would have been a waste of money but also set too high it could have a huge consequence for firms and especially on small businesses. ...read more.

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