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Definitions:
Please select externalities negative externalities private costs fixed costs variable costs external costs demand inelastic

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Please select roads road pricing externalities

Worksheet on Road Pricing

Step 1 - Pay for the roads? We already do!

To run a car on the roads means paying various costs. Depending on the sort of car you have, these may be quite high! Fill in in the table below, all the general costs that have to be paid to run a car. In each case label the cost as fixed (doesn't vary with mileage) or variable (varies with mileage).

All of these costs are known as private costs - that is costs that you have to pay yourself. However, by driving you also generate external costs - that is costs which affect others in society. Try to classify each of the costs of driving below as either a private or external cost:-

Motorists pay towards these costs through two types of tax. What are the two taxes that motorists pay? (N.B. One is a fixed amount, and one a variable amount that depends on how much you drive.

1. ____________________________________
   
   
2. ____________________________________

1.Show the effect of the tax on the diagram below. Draw in the following:-

• a new supply curve
• the new equilibrium price and quantity after the tax
• the area on the diagram that represents the government's tax revenue

THE MARKET FOR PETROL

Why has the demand curve for petrol been drawn as very inelastic?

Do you think that these taxes adequately cover all the costs of driving, that is including all the external costs? Justify your answer.

Step 2 - The Mystic Meg of the roads!

The Department for Transport (DFT) is the government department that is responsible for the roads. They have always tried to forecast what is likely to happen to traffic levels. Trying is exactly the right word here as it is a very imprecise science!

Go to the DETR web-site (http://www.detr.gov.uk/) and find the following:-

1. Go to the section of the site on the roads
2. Look under the section about the road network
3. Find the detail about the "Road Traffic Reduction Act '97"

In the act there is a section outlining forecasts. Outline below the main forecasts for road traffic.

This increase in demand could just be met, as in any other market, with an increase in the supply of roads. What problems could you foresee with this policy?

Step 3 - So what do we do?

For some of the possible solutions, we need to check again with the fount of all road wisdom - the Department for Transport (http://www.detr.gov.uk/). Go once again to the "Road Traffic Reduction Act" and find out some of the policies they suggest. You may need to look at Annex C of the Act. What possible policies are there available?

Rank these policies according to how effective you think they would at reducing the growth of traffic. Start with no.1 - the one you think is most likely to reduce the amount of traffic on the roads:-

1. ________________________________________

2. ________________________________________

3. ________________________________________

4. ________________________________________

5. ________________________________________

6. ________________________________________

7. ________________________________________

Step 4 - What about pay as you go?

One solution to our traffic problems that is rapidly gaining in credibility is "electronic road pricing". There are various technical methods by which this can be done, but they all involve cars paying for the use of the roads. Some involve tolls, but most possible systems would not mean the cars having to stop. They would be charged as they passed over or under electronic sensors and billed later.

What advantages would road pricing have over our current system of paying for the roads? (N.B. Consider the extent to which people actually pay for the mileage they use at the moment)

Transport 2000 is a pressure group that campaigns for changes in our transport system. Go to the web page of the British Columbia (Canada) Transport 2000 group (http://www.vcn.bc.ca/t2000bc/debate/issues/road_pricing.html). Read the report on road pricing. Use that to answer the following questions:-

(See hint by the asterix below to make this easier)

Why does public transport have trouble competing with cars?

What two examples of possible pricing systems do they give?

1. ________________________________________
2. ________________________________________

Write a brief summary of the way in which each of these systems works:

System 1

System 2

What advantages will there be from this form of electronic pricing? (N.B. Think about both private and external benefits)

What disadvantages might there be?

Do you think a system of this sort could work in your nearest town? Justify your answer.

* Hint: You may want to download the text to your own computer to do this. You can do this easily as follows - click and drag over the text to select it; choose copy from your browser's edit menu; open up you word processor; select paste and save the file to your local hard drive or network.