Road traffic congestion has become an increasingly important issue in recent years. The only way to completely eliminate congestion would be a complete ban on road traffic, but this would not be a socially efficient solution.
Why are people driving more?
Why is road congestion and example of market failure?
What are the private and external costs of congestion?
Evaluate three alternative remedies for road congestion.
Should the London congestion charge be applied to other UK cities?
Why would a complete ban on road traffic be socially inefficient?
The price mechanism works to allocate scarce resources in three main ways: to ration scarce resources; to send a signal to consumers and producers and; to provide incentives to reward certain kinds of behaviour and penalise other types.
Using these three concepts explain how road pricing works to reduce traffic congestion.