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The government of Rosenia is considering the construction of a highway. This highway costs $8 million to build and once built it is non-rival in
- The government of Rosenia is considering the construction of a highway. This highway costs $8 million to build and once built it is non-rival in consumption and has no maintenance costs. The government can either finance its construction by charging a toll for the use of the highway or by doubling the existing tax rate in the market for books (and not charging a toll). The demand curve for highway use is given below.
- Now suppose the government uses a toll to finance the highway.
- What toll does the government need to charge?
- How many drivers will cross the bridge? What is the resulting consumer surplus?
- Which financing method is more efficient? Explain.
Price (toll in S) 3 2 1 0 2000000 4000000 D 6000000 8000000 Number of trips
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