Victoria and Albert are quarreling over a proposed plan by the government to put a demand-based toll on all the interstate highways in the state. Such a toll fluctuates according to the demand for the right to drive in dedicated, high-speed lanes. For instance, on a 4-lane interstate, those driving in the right lane face no toll but those wishing to drive in the left lane pay a toll which depends on the time of day and general demand to drive in that lane. Victoria is against the proposal, citing the tolls as unfair—favoring those with money at the expense of the less well-off drivers. Albert believes the tolls are entirely fair—if someone is willing to pay more to drive faster, why shouldn’t they? As they are your two best friends in the world, you are interested in ending their argument and propose a compromise: suppose the toll is put into effect but it also is capped at some reasonable amount. Wouldn’t that solve everything? Based solely on the information given, who has the strongest economic argument for the efficient use of an interstate, Victoria, Albert, or you? Choose one person and support your claim in under 1 page.
Albert and Victoria seem to be correct in their respective points of view and to come to a reasonable agreement between them, we need to identify what category of goods do these interstate highways fall into. As per the information provided, interstate highways are public goods. By definition, public goods are those goods which are characterized by two significant feature:
1. Non-Excludable: This feature states that once the public good is provided; we cannot exclude any user from consuming it.
2. Non-Rivalrous: This feature states that the consumption of public goods by one consumer will not reduce its availability to others.
Therefore, it can be concluded that public goods are available freely and in abundance. Most importantly the provision of public good by the government is with the objective of improving utility levels of the general public. When the available public good is overexploited and is not able to satisfy the wants and requirements of the general public, the collective authorities my think of converting it into Quasi Public Goods or Semi-Public Goods. This conversion ensures a reasonable distribution of goods on the basis of the ability to pay, but the charge for the usage being set at an economically justifiable and viable price.
In the given case, interstate highways are public goods that are overexploited and hence in order to avoid the exploitation of the government property, the idea of toll is imposed. There is nothing unjustified in charging a nominal price for the usage of specified lanes. This would also ensure the easy movement of traffic. If considered form another angle, people are not being charged for using the highway but they are paying for waving for the traffic from their driving routes. They can pay according to their paying capacities and use the desired lanes. The government should ensure that charged levied upon these public goods should be justified for the usage and not for the profit-earning motive for the highway authority. Also, charges should be completely waived off during the low traffic hours.
I hope this explanation would satisfy both Albert and Victoria and they would come to a settlement.
Victoria and Albert are quarreling over a proposed plan by the government to put a demand-based...