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Table of Contents

  1. Topic pack - Microeconomics - introduction
  2. 1.1 Competitive Markets: Demand and Supply
  3. 1.1 Competitive Markets: Demand and Supply - notes
  4. 1.1 Competitive markets - questions
  5. 1.1 Competitive markets - simulations and activities
  6. 1.2 Elasticities
  7. 1.2 Elasticities - notes
  8. Section 1.2 Elasticities - questions
  9. Section 1.2 Elasticities - simulations and activities
  10. 1.3 Government intervention
  11. 1.3 Government Intervention - notes
  12. 1.3 Government intervention - questions
  13. 1.3 Government intervention - simulations and activities
  14. 1.4 Market failure
  15. 1.4 Market failure - notes
    1. The meaning of externalities
    2. Types of externalities
    3. How do externalities affect allocative efficiency?
    4. Negative externalities of production
    5. Negative externalities of consumption
    6. The economic theory of traffic congestion
    7. Demerit goods
    8. Government responses - demerit goods
    9. Possible government responses to externalities
    10. Direct government provision
    11. Extension of property rights
    12. Taxes and subsidies
    13. Tradeable pollution rights
    14. Regulation, legislation and direct controls
    15. Positive externalities of production
    16. Positive externalities of consumption
    17. Merit goods
    18. Why might merit goods be underprovided by the market?
    19. Government responses - merit goods
    20. Public goods
    21. Common access resources & sustainability
    22. The tragedy of the Commons
    23. Common access resources in practice
    24. Sustainability
    25. Threats to Sustainability
    26. The threat to sustainability from the use of fossil fuels
    27. The threat to sustainability from poverty
    28. Government responses to threats to sustainability
    29. Cap and Trade Schemes
    30. Promoting Clean Technologies
    31. The 'dirty side' of cleaner technologies
    32. International responses to threats to sustainability
    33. Asymmetric information
    34. Abuse of monopoly power
    35. Inequality
  16. Section 1.4 Market failure - questions
  17. Section 1.4 Market failure - simulations and activities
  18. 1.5 Theory of the firm
  19. 1.5 Theory of the firm - notes (HL only)
  20. Section 1.5 Theory of the firm - questions
  21. Section 1.5 Theory of the firm - simulations and activities
  22. Print View

The economic theory of traffic congestion

Danger!!! This involves thinking

In this market we are only considering the decision whether or not to take a car trip (ie NOT the production and consumption of cars or just petrol). Therefore the axes need labelling accordingly.

Figure 1 below shows how the analysis of externalities that we looked at in the previous section can be applied to the problems of traffic congestion.


Figure 1 Road transport, congestion and economic theory

Economic theory can be used to analyse the issues involved in traffic congestion as shown here. Figure 1 indicates the relationship between the cost of each car journey and the flow of traffic along a particular route (Marginal in Sao Paulo).

When deciding to make a journey by car, a motorist only considers the marginal private cost (MPC) at C1. This is the cost directly attributable to him/herself, such as time, fuel and the maintenance of the vehicle and it is constant up to F0 number of cars, when the road begind to become congested. However, the full cost of the journey, may include external costs such as pollution, noise and time lost due to congestion and these begin to bite at F0.

For simplicity assume that congestion is the only cause of externalites.

The graph (Figure 1) represents the Marginal Benefit (demand) for travel along a particular stretch of road (For example The Marginal in Sao Paulo) over a period of time. Up to a certain flow of traffic F0, there is no congestion (think early Sunday morning), thus there is no divergence between MPC and MSC, although in reality, such a situation only applies to extremely low volumes of traffic.

As the flow of traffic increases above F0, congestion is apparent and there is a divergence between MSC and MPC. Note that the MSC is equal to the MPC, plus the external cost of congestion.

If the demand for travel on this particular route is of the normal shape (represented by D on the graph) and is a measure of the marginal benefit, then the flow of traffic will be determined by the intersection of the demand curve and the MPC curve at F1 and the private cost to the motorist will be b (but on the axis remember). At a flow of F1, the external cost, not taken into account by the drivers, is ab (the difference between the MPC and MSC). This means that resources are not being allocated efficiently and that more individuals are making journeys than they would if they were aware of the full social costs.

Since more drivers are using the road than the Social Optimum there is greater traffic congestion than there would be if drivers considered the full cost to society of each trip. Armed with this analysis perhaps you can begin to suggest ways to reduce traffic congestion on the marginal? What is already in place? Is it successful?