Prior to 2003, the city of Boston was often one big parking lot. Traffic jams were common, and it could take hours to travel a couple of miles. Each additional commuter contributed to the congestion, which can be measured by the total number of cars on Boston roads. Although each commuter suffered by spending valuable time in traffic, none of them paid for the inconvenience they caused others. The total cost of travel includes opportunity cost of time spent in traffic and any fees levied by the Boston authorities. Draw a graph illustrating the overuse of Boston roads, assuming there is no fee to enter London in a vehicle and that roads are a common resource. Put the cost of travel on the vertical axis and the quantity of cars on the horizontal axis. Draw a typical demand, private cost and social cost curve and label the market equilibrium. In February 2003, the city of Boston began charging a $5 congestion fee on all vehicles travelling in central Boston. Illustrate the effects of this congestion charges on your graph and label the new equilibrium point. Assume the new equilibrium is not the optimal/efficient number of cars (that is the $5 charge is too low relative to the efficient charge).

Prior to 2003, the city of Boston was often one big parking lot. Traffic jams were common, and it could take hours to travel a couple of miles. Each additional commuter contributed to the congestion, which can be measured by the total number of cars on Boston roads. Although each commuter suffered by spending valuable time in traffic, none of them paid for the inconvenience they caused others. The total cost of travel includes opportunity cost of time spent in traffic and any fees levied by the Boston authorities.

1. Draw a graph illustrating the overuse of Boston roads, assuming there is no fee to enter London in a vehicle and that roads are a common resource. Put the cost of travel on the vertical axis and the quantity of cars on the horizontal axis. Draw a typical demand, private cost and social cost curve and label the market equilibrium.
2. In February 2003, the city of Boston began charging a $5 congestion fee on all vehicles travelling in central Boston. Illustrate the effects of this congestion charges on your graph and label the new equilibrium point. Assume the new equilibrium is not the optimal/efficient number of cars (that is the $5 charge is too low relative to the efficient charge).