Wednesday, September 21, 2016

Costs for a scarce good - toll


Consider a highway with a hot lane and a lane that has no toll. Assume that the toll must be paid by all cars that use the hot lane, no matter how many people are riding in them. What can you predict about the average occupancy of vehicles in the hot lane compared to vehicles in the other lane during rush hour?

Compared to the occupancy of vehicles in the lane that has no toll, there would be fewer vehicles on the hot lane. Accordingly, the hot lane would enables drivers to succeed in arriving at their destination in given time period. It is the fact that a lot of cars are jammed and people would be stuck without moving during the rush hour. However, road tolls allows the number of cars on the hot lane to be reduced, limiting the user of the lane.

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