Word limit: 1300 words Marking: Marks will be awarded based on how well you: (a) understand the economic concepts from the lectures; (b) apply the concepts to the questions; (c) conduct systematic economic analysis using the concepts (this includes the use of appropriate graphs and diagrams); (d) engage in critical discussion; and (e) draw conclusions. Note that general layman discussions (for example, broad-brushed, journalistic information from the media) do not constitute sufficient economic analysis. Presentation: Assignments should be typed, using 10 – 12 sized font and 1.5 – 2 line spacing. Graphs and diagrams can be hand drawn and scanned in, but must be clearly drawn and clearly labelled. Read the news article Radical road charges urged to fight Australia’s traffic troubles (news.com.au 23/10/15) attached, about proposed traffic congestion charges on Australian public roads. Then use economic analysis to answer the following questions. In your answers, ensure that you use relevant economic concepts and diagrams covered in this course. Note that general layman or journalistic discussions do not constitute sufficient economic analysis. 2 Question 1: Reasons for government intervention The imposition of congestion charges on motorists is a form of government intervention into the issue of traffic congestion on busy public roads. With reference to economic theory covered in this course, why do you think the government needs to intervene in this issue? (8 marks) Question 2: Public policy solutions (a) Perform an economic analysis of congestion charges as a public policy instrument. (In your answer, consider: what sort of public policy instrument is a congestion charge? How does it work in economic terms?) (6 marks) (b) What other public policy instruments can the government employ to combat traffic congestion on busy public roads, and how do these differ from congestion charges? (6 marks) Question 3: Efficiency of public policy solutions (a) Based on your analysis in Question 2(a) above, how should congestion charges be set in order for congestion problems to be corrected in a way that maximises the overall welfare of society? Explain. (4 marks) (b) Do you think that the government will be successful in employing congestion charges to correct congestion problems and restore efficiency? Why or why not? (6 marks) Question 4: Private solutions How can each of us as private individuals contribute to the reduction of traffic congestion in the absence of government intervention? Are such private solutions likely to be effective? (5 marks) Radical road charges urged to fight Australia’s traffic troubles OCTOBER 23, 2015 Benedict Brook news.com.au IN THE fashion capitals of the world it’s all the rage. But it’s not the latest catwalk look, it’s a congestion toll. Charging car owners to use roads in central London and Milan a fee of $26 a day or more is part of everyday life. With traffic jams costing Australia almost $14 billion a year, some experts are calling for similar solutions to solve our car chaos. But motoring groups have said drivers are already being slugged by motorway tolls and shouldn’t be charged more. Meanwhile, Sydney motorists are steeling themselves for more misery as George Street, which currently carries a quarter of the CBD’s north-south traffic, starts to progressively close from Friday night to enable construction of the city’s new light rail network. Committee for Sydney chief executive Tim Williams said now was the right time to introduce a fee similar to London’s city centre traffic charge, “Congestion in Sydney can’t be solved by building more roads. You can’t control congestion unless you have road pricing or congestion charging,” he said last week. The price to drive had to be high enough to deter motorists, Mr Williams said, citing the Harbour Bridge toll, “For a while it did reduce traffic but of course the price was never kept high enough to keep the downward pressure on congestion,” he told Central. City of Sydney Lord Mayor Clover Moore said the light rail would transform the CBD but traffic snarl ups would cost the city $8 billion a year by 2020. “A congestion charge on traffic through the city centre makes a lot of sense but we have to get public transport right first,” she said. In 2011, the Victorian government rejected a proposal that would have seen motorists charged $10 to enter the Hoddle grid, near central Melbourne. TRAFFIC DOWN 10 PER CENT A forest of CCTV cameras monitors all roads into central London, snapping number plates and deducting the equivalent of $26 from the accounts of any driver passing through. London’s transport bosses have hailed congestion charging, which is also in place in Stockholm and Singapore, for cutting traffic by more than 10 per cent and bolstering investment in public transport by $1.2 billion over 10 years — more than the cost of Sydney’s new light rail. A University of Sydney survey from 2012 found 80 per cent of drivers would accept some sort of charge for using roads with 62 per cent open to an $8 fee to enter the CBD in rush hour if all the proceeds went towards public transport. However, Professor David Hensher, a transport expert at the University of Sydney, told news.com.au a congestion charge was not the answer, “Congestion based charging works in London but our CDB is infinitely smaller, we won’t get the same benefits.” Indeed, a report this year by Infrastructure Australia found Australia’s most congested roads were outside of CBDs with the busiest stretch of asphalt being Pennant Hills Road in suburban Sydney. The organisation said congestion cost Australia $13.74 billion in 2011 and could rise to $53 billion by 2031. A TOLL BOX IN YOUR CAR Prof Hensher advocates a system where all cars would be fitted with a charging device activated by distance and time of day. Driving in the rush hour would cost 5c per kilometre with a daily return trip between Parramatta and Sydney’s CBD in both peaks costing about $2.30 or around $500 per year. Inevitably, most drivers would seek to avoid the expensive peak which could mean Sydney would see a similar reduction in congestion seen in London. National Roads and Motorists’ Association President Kyle Loades said that while the organisation was open to a congestion charge, it would not support its introduction while motorists were subject to the current range of tolls. “Many people have no choice about when and where they drive and for them there must be an alternative in the form of a first class public transport system,” he told news.com.au. A far easier fix, he said, would be to axe the tolls on Sydney’s Cross City Tunnel while George Street is closed. “Dropping the tunnel toll, which is already too dear at $5.27, would encourage drivers to avoid the CBD. Likewise, allowing free travel on City Circle trains would reduce pedestrian traffic as footpaths are narrowed to allow further traffic lanes.” However, there’s no compulsion for the tunnel’s private operators to change the toll. Transport for NSW’s CBD Co-ordinator General, Marg Prendergast, said that during light rail construction, the road network would be under far more pressure and urged drivers to travel outside of peak hour or use the city outskirts. But, despite the jams, a fee for entering the city centre is unlikely, “The introduction of a CBD congestion charge or any new tolls for drivers travelling into the CBD is not Government policy and is not under consideration,” she said.