To determine an appropriate congestion tax, an economist has to assume that people respond to incentives.

Question

Quizplus · Accepted Answer

This is true because the effectiveness of a congestion tax depends on how people will react to it. If people are not responsive to the tax, it may not be an effective tool for reducing congestion. Economists use the principle of incentive response to determine the optimal rate for the congestion tax.

To Determine an Appropriate Congestion Tax, an Economist Has to Assume