Question 2: Public policy solutions
(a) Perform an economic analysis of congestion charges as a public policy instrument. (Inyour answer, consider: what sort of public policy instrument is a congestion charge?How does it work in economic terms?) (6 marks)
(b) What other public policy instruments can the government employ to combat traffic congestion on busy public roads, and how do these differ from congestion charges? (6 marks)
Question 3: Efficiency of public policy solutions
(a) Based on your analysis in Question 2(a) above, how should congestion charges be setin order for congestion problems to be corrected in a way that maximises the overall welfare of society? Explain . (4 marks) (b) Do you think that the government will be successful in employing congestion charges to correct congestion problems and restore efficiency? Why or why not? (6 marks)
Prices & Markets
Semester 1, 2016
ECON1020 ASSIGNMENT 2
Value: 35% of total course assessment.
Word limit: 1300 words, in total.
Assignment due date: 5 pm, Friday 29th April 2016. Please be aware of RMIT?s penalties
for late submission, as they will apply to you.
Submission: This assignment must be submitted electronically via Blackboard. As it is
RMIT policy that all assignments be submitted electronically, hard copies or emailed copies
will not be accepted.
When submitting, please make sure you attach and upload your assignment as a one file
(either .doc, .docx or .pdf format). Please do not paste as text or upload a folder or zipped
IMPORTANT: On the Blackboard system, you can only upload and submit the assignment
once. So, make sure you read and understand the student guide on How to submit your
assignment on Blackboard before you submit.
Marking: Marks will be awarded based on how well you: (a) understand the economic
concepts from the lectures; (b) apply the concepts to the questions; (c) conduct systematic
economic analysis using the concepts (this includes the use of appropriate graphs and
diagrams); (d) engage in critical discussion; and (e) draw conclusions. Note that general
layman discussions (for example, broad-brushed, journalistic information from the media)
do not constitute sufficient economic analysis.
Presentation: Assignments should be typed, using 10 ? 12 sized font and 1.5 ? 2 line
spacing. Graphs and diagrams can be hand drawn and scanned in, but must be clearly
drawn and clearly labelled.
Read the news article Radical road charges urged to fight Australia?s traffic troubles
(news.com.au 23/10/15) attached, about proposed traffic congestion charges on Australian
Then use economic analysis to answer the following questions. In your answers, ensure
that you use relevant economic concepts and diagrams covered in this course. Note that
general layman or journalistic discussions do not constitute sufficient economic analysis.
Question 1: Reasons for government intervention
The imposition of congestion charges on motorists is a form of government intervention into
the issue of traffic congestion on busy public roads. With reference to economic theory
covered in this course, why do you think the government needs to intervene in this issue?
Question 2: Public policy solutions
(a) Perform an economic analysis of congestion charges as a public policy instrument. (In
your answer, consider: what sort of public policy instrument is a congestion charge?
How does it work in economic terms?)
(b) What other public policy instruments can the government employ to combat traffic
congestion on busy public roads, and how do these differ from congestion charges?
Question 3: Efficiency of public policy solutions
(a) Based on your analysis in Question 2(a) above, how should congestion charges be set
in order for congestion problems to be corrected in a way that maximises the overall
welfare of society? Explain.
(b) Do you think that the government will be successful in employing congestion charges to
correct congestion problems and restore efficiency? Why or why not?
Question 4: Private solutions
How can each of us as private individuals contribute to the reduction of traffic congestion in
the absence of government intervention? Are such private solutions likely to be effective?
Radical road charges urged to fight Australia?s traffic troubles
OCTOBER 23, 2015
Benedict Brook news.com.au
IN THE fashion capitals of the world it?s all the rage. But it?s not the latest catwalk
look, it?s a congestion toll.
Charging car owners to use roads in central London and Milan a fee of $26 a day or
more is part of everyday life.
With traffic jams costing Australia almost $14 billion a year, some experts are calling
for similar solutions to solve our car chaos.
But motoring groups have said drivers are already being slugged by motorway tolls
and shouldn?t be charged more.
Meanwhile, Sydney motorists are steeling themselves for more misery as George
Street, which currently carries a quarter of the CBD?s north-south traffic, starts to
progressively close from Friday night to enable construction of the city?s new light rail
Committee for Sydney chief executive Tim Williams said now was the right time to
introduce a fee similar to London?s city centre traffic charge, ?Congestion in Sydney
can?t be solved by building more roads. You can?t control congestion unless you
have road pricing or congestion charging,? he said last week.
The price to drive had to be high enough to deter motorists, Mr Williams said, citing
the Harbour Bridge toll, ?For a while it did reduce traffic but of course the price was
never kept high enough to keep the downward pressure on congestion,? he told
City of Sydney Lord Mayor Clover Moore said the light rail would transform the CBD
but traffic snarl ups would cost the city $8 billion a year by 2020. ?A congestion
charge on traffic through the city centre makes a lot of sense but we have to get
public transport right first,? she said.
In 2011, the Victorian government rejected a proposal that would have seen
motorists charged $10 to enter the Hoddle grid, near central Melbourne.
TRAFFIC DOWN 10 PER CENT
A forest of CCTV cameras monitors all roads into central London, snapping number
plates and deducting the equivalent of $26 from the accounts of any driver passing
through. London?s transport bosses have hailed congestion charging, which is also in
place in Stockholm and Singapore, for cutting traffic by more than 10 per cent and
bolstering investment in public transport by $1.2 billion over 10 years ? more than
the cost of Sydney?s new light rail.
A University of Sydney survey from 2012 found 80 per cent of drivers would accept
some sort of charge for using roads with 62 per cent open to an $8 fee to enter the
CBD in rush hour if all the proceeds went towards public transport.
However, Professor David Hensher, a transport expert at the University of Sydney,
told news.com.au a congestion charge was not the answer, ?Congestion based
charging works in London but our CDB is infinitely smaller, we won?t get the same
Indeed, a report this year by Infrastructure Australia found Australia?s most
congested roads were outside of CBDs with the busiest stretch of asphalt being
Pennant Hills Road in suburban Sydney. The organisation said congestion cost
Australia $13.74 billion in 2011 and could rise to $53 billion by 2031.
A TOLL BOX IN YOUR CAR
Prof Hensher advocates a system where all cars would be fitted with a charging
device activated by distance and time of day. Driving in the rush hour would cost 5c
per kilometre with a daily return trip between Parramatta and Sydney?s CBD in both
peaks costing about $2.30 or around $500 per year.
Inevitably, most drivers would seek to avoid the expensive peak which could mean
Sydney would see a similar reduction in congestion seen in London.
National Roads and Motorists? Association President Kyle Loades said that while the
organisation was open to a congestion charge, it would not support its introduction
while motorists were subject to the current range of tolls.
?Many people have no choice about when and where they drive and for them there
must be an alternative in the form of a first class public transport system,? he told
A far easier fix, he said, would be to axe the tolls on Sydney?s Cross City Tunnel
while George Street is closed. ?Dropping the tunnel toll, which is already too dear at
$5.27, would encourage drivers to avoid the CBD. Likewise, allowing free travel on
City Circle trains would reduce pedestrian traffic as footpaths are narrowed to allow
further traffic lanes.?
However, there?s no compulsion for the tunnel?s private operators to change the toll.
Transport for NSW?s CBD Co-ordinator General, Marg Prendergast, said that during
light rail construction, the road network would be under far more pressure and urged
drivers to travel outside of peak hour or use the city outskirts.
But, despite the jams, a fee for entering the city centre is unlikely, ?The introduction
of a CBD congestion charge or any new tolls for drivers travelling into the CBD is not
Government policy and is not under consideration,? she said.
This question was answered on: Oct 07, 2020
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