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

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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. Probably the most significant is pollution. Heavy traffic flow in the towns and cities is going to cause heavy emissions such as carbon monoxide to be given off. This may lead to more people being diagnosed with asthma or more people having to use doctors and hospitals because of breathing difficulties due to the pollution from the cars. This puts and extra strain on the health services in the towns and cities and means that they will probably require more money from the government to help these people. If this is happening in several towns and cities, the government may have to increase taxes so they can pay for the extra health services required due to the pollution. This would be hugely unpopular with the people. The government may not have to raise taxes by a large amount; they may enforce tax cut incentives if people use low emission cars and marginally raise car taxes on cars that give off a lot of emissions. This may be more popular but it also may place an extra burden on poorer people who can’t afford to buy newer ‘cleaner’ cars.

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A second externality that will lead to economic problems are if there are more cars on the road in towns and cities due to it being free to use the roads, then it can be argued it is more likely for people that there will be more road accidents. If this is the case then it is more than likely that insurance premiums will have to go up because of the compensation the insurance companies are paying out. If the insurance premiums go up by a substantial amount then I could have the affect of increasing cost for businesses. ...

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