Suppose there is a Competitive Market
for road space the demand for road space falls as the price rises( due to income and substitution effects) the supply for road space is fixed which means that the supply curve is vertical. Use the appropriate diagrams to answer the following questions. 1 what is the market price of road space in a competitive equilibrium. 2 suppose that road space is a public good which is freely available to individuals, how much is the excess demand for road space. 3 suppose we measure congestion by the amount of excess demand for road space can a rise in fuel taxes and car taxes reduce congestion. 4 can building more roads reduce congestion, would your conclusion change if with more roads individuals were encouraged to drive more. 2 Do you think a road pricing system by charging the use of road space is a good policy to reduce traffic congestion in Australia why or why not? Use appropriate diagrams to support your answer ( Hint do literature review to find out the pros and cons of the road pricing system in terms of economic efficiency and social equity.
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