Question
Smallville's mayor has just returned from an extended trip to Tiny Town, where she learned all about that city's successful program to reduce traffic congestion
Smallville's mayor has just returned from an extended trip to Tiny Town, where she learned all about that city's successful program to reduce traffic congestion - which is just an negative externality associated with driving. Tiny Town uses a congestion pricing system to properly price traffic jams, thereby resulting in a more even flow of traffic throughout the day. The program makes it much more expensive to drive into the center of the city, especially during daylight hours. Air pollution in Tiny Town dropped to a very low level once traffic congestion subsided. Smallville's mayor wants introduce a similar program to manage the city-state's (far smaller) traffic problem. What is the effect of the congestion pricing system on the rents for apartments in the center of the city as compared to outlying districts? (5 points) Given your answer in (a) above, what is the effect of congestion pricing on the rates (5 points) of return on apartments in the city center and the outlying districts? Given your answer in (b) above, what is the effect on congestion pricing on the net worth of apartments in the outlying districts?
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