In London,any motorist entering a particular area in the city centre during certain specified times must pay a congestion fee equal to £11.50 per day,with fines for noncompliance rising to as high as £130.The congestion fee is:
A) a Pigouvian subsidy aimed at encouraging the use of city streets.
B) an attempt to internalize the costs of traffic delays and congestion.
C) the wrong policy tool for solving the problem of congestion;instead,motorists should be allowed to make deals to determine when and where they are permitted to drive.
D) likely to cause marginal private benefit from road use to decrease.

Question

Quizplus · Accepted Answer

The congestion fee is an attempt to internalize the costs of traffic delays and congestion. By imposing a fee on motorists entering a congested area, the policy aims to encourage people to use alternative modes of transport or travel at less busy times, thereby reducing traffic and congestion. This is a classic example of a Pigouvian tax or policy, which seeks to correct market failures, such as externalities, by making sure that the social cost of a good or service (in this case, driving on congested streets) is reflected in its price. The congestion fee is not a subsidy, and allowing motorists to make deals would not solve the problem of congestion, as it would only result in a race to the bottom and more congestion. The policy may cause some motorists to reduce their use of the congested area, causing a decrease in private benefit, but this is not necessarily a bad thing if it leads to a better allocation of resources and a reduction in negative externalities.

In London,any Motorist Entering a Particular Area in the City