Why are we able to say there is too much traffic congestion?

2. (5 points) What reasons are there for subsidizing mass transit? The best answers will include a graph.

3. (4 points) When the number of vehicles on the road grows too large, they create frictions which reduce road throughput. What are two reasons this reduction in throughput occurs? (You need to have an explanation, not just a title for the reason).

4. (2 points) When there are no tolls, what induces some drivers to be willing to arrive at 5 am? Page 3/14

5. (6 points) When adding tolls increases capacity and all drivers are identical, why does adding optimal tolls make all drivers better off before using the revenue?

6. (6 points) When some drivers are rich and some are poor, adding tolls to all of the lanes is likely to hurt some drivers. Why? Page 4/14

7. (8 points) How would a 200% sales tax on vehicles affect the six types of choices we discussed in class?

8. (2 points) What are two causes of socially inefficient parking? Page 5/14

9. In this problem we will analyze the effects of traffic congestion graphically. Assume we have a downward sloping demand curve, D(q), and an upward sloping travel time function T(q) which tells us what travel time is as a function of the number of people using the road (q). Everyone values their time at the same dollar amount.

(a) (6 points) Draw a figure that illustrates the equilibrium when there is no toll and when a socially optimal toll is charged. To be clear, your goal is to recreate the figure discussed in class. Label the following:

q0 - the quantity of road users when there is no toll

q1 - the quantity of road users when there is a toll

p0 - the total cost of traveling on the road when there is no toll

p1 - the total cost of traveling on the road when there is a toll

- the amount of the toll

The dead weight loss when there is no toll.

The amount of total toll revenue

The amount of toll revenue that comes from converting travel time into toll revenue

The amount of toll revenue that comes from converting consumer surplus into toll revenue Page 6/14

(b) (3 points) Why is the dead weight loss as you labeled it?

(c) (3 points) For those who are still using the road after the toll is added, are they better or worse off? Why?

11. (5 points) Is the following statement true, false, or uncertain, and why? When you graduate and enter the labor market, you will increase the supply of workers and push down wages a small amount. Thus you are imposing an externality on the other workers, and so the government should tax employment (perhaps via an income tax) in order to internalize this externality, and doing so would increase social welfare. Page 8/14

12. (6 points) What are three costs of rent control? The very best answers will include a graph.