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MPE781 | Economics for Managers Trimester 2 | Economics

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Question 1: (10 marks)

In your own words, summarize the article, “Road Congestion in Australia” by the Australian Automobile Association, October 2018, 

In particular, what are the main messages of the article? [Hint: Please link your summary with relevant economic theories wherever you can]

Question 2: (10 marks)

Suppose there is a competitive market for road space. The demand for road space falls as the price rises (due to the income and substitution effects). The supply for road space is fixed, which means that the supply curve is vertical. Use appropriate diagrams to answer the following questions:

(a) What is the market price of road space in a competitive equilibrium?

(b) Suppose that road space is a public good, which is freely available to individuals. How much is the excess demand for road space?

(c) Suppose we measure congestion by the amount of excess demand for road space. Can a rise in fuel taxes and car taxes reduce congestion?

(d) Can building more roads reduce congestion? Would your conclusions change if, with more roads, individuals were encouraged to drive more?

Question 3: (10 marks)

Do you think a road-pricing system by charging the use of road space is a good policy to reduce traffic congestion in Australia? Why or why not? Use appropriate diagrams to support your answer. [Hint: Please do a literature review to find out the pros and cons of the road-pricing system in terms of economic efficiency and social equity, etc.]

Question 4: (10 marks)

Find two other cities that are among the most congested cities in the world. Give a brief description of the congestion-easing policies in these cities. [Hint: If possible present concrete facts and figures]. Provide your views or suggestions on the best measure/policy to reduce road congestion in Australia.

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