1Prices & MarketsSemester 1, 2016ECON1020 ASSIGNMENT 2Value: 35% of total course assessment.Word limit: 1300 words, in total.Assignment due date: 5 pm, Friday 29th April 2016. Please be aware of RMIT’s penaltiesfor late submission, as they will apply to you.Submission: This assignment must be submitted electronically via Blackboard. As it isRMIT policy that all assignments be submitted electronically, hard copies or emailed copieswill not be accepted.When submitting, please make sure you attach and upload your assignment as a one file(either .doc, .docx or .pdf format). Please do not paste as text or upload a folder or zippedfile.IMPORTANT: On the Blackboard system, you can only upload and submit the assignmentonce. So, make sure you read and understand the student guide on How to submit yourassignment on Blackboard before you submit.Marking: Marks will be awarded based on how well you: (a) understand the economicconcepts from the lectures; (b) apply the concepts to the questions; (c) conduct systematiceconomic analysis using the concepts (this includes the use of appropriate graphs anddiagrams); (d) engage in critical discussion; and (e) draw conclusions. Note that generallayman 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 linespacing. Graphs and diagrams can be hand drawn and scanned in, but must be clearlydrawn 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 Australianpublic roads.Then use economic analysis to answer the following questions. In your answers, ensurethat you use relevant economic concepts and diagrams covered in this course. Note thatgeneral layman or journalistic discussions do not constitute sufficient economic analysis.2Question 1: Reasons for government interventionThe imposition of congestion charges on motorists is a form of government intervention intothe issue of traffic congestion on busy public roads. With reference to economic theorycovered 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. (Inyour 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 trafficcongestion 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 setin order for congestion problems to be corrected in a way that maximises the overallwelfare of society? Explain.(4 marks)(b) Do you think that the government will be successful in employing congestion charges tocorrect congestion problems and restore efficiency? Why or why not?(6 marks)Question 4: Private solutionsHow can each of us as private individuals contribute to the reduction of traffic congestion inthe absence of government intervention? Are such private solutions likely to be effective? (5 marks)Radical road charges urged to fight Australia’s traffic troublesOCTOBER 23, 2015Benedict Brook news.com.auIN THE fashion capitals of the world it’s all the rage. But it’s not the latest catwalklook, it’s a congestion toll.Charging car owners to use roads in central London and Milan a fee of $26 a day ormore is part of everyday life.With traffic jams costing Australia almost $14 billion a year, some experts are callingfor similar solutions to solve our car chaos.But motoring groups have said drivers are already being slugged by motorway tollsand shouldn’t be charged more.Meanwhile, Sydney motorists are steeling themselves for more misery as GeorgeStreet, which currently carries a quarter of the CBD’s north-south traffic, starts toprogressively close from Friday night to enable construction of the city’s new light railnetwork.Committee for Sydney chief executive Tim Williams said now was the right time tointroduce a fee similar to London’s city centre traffic charge, “Congestion in Sydneycan’t be solved by building more roads. You can’t control congestion unless youhave road pricing or congestion charging,” he said last week.The price to drive had to be high enough to deter motorists, Mr Williams said, citingthe Harbour Bridge toll, “For a while it did reduce traffic but of course the price wasnever kept high enough to keep the downward pressure on congestion,” he toldCentral.City of Sydney Lord Mayor Clover Moore said the light rail would transform the CBDbut traffic snarl ups would cost the city $8 billion a year by 2020. “A congestioncharge on traffic through the city centre makes a lot of sense but we have to getpublic transport right first,” she said.In 2011, the Victorian government rejected a proposal that would have seenmotorists charged $10 to enter the Hoddle grid, near central Melbourne.TRAFFIC DOWN 10 PER CENTA forest of CCTV cameras monitors all roads into central London, snapping numberplates and deducting the equivalent of $26 from the accounts of any driver passingthrough. London’s transport bosses have hailed congestion charging, which is also inplace in Stockholm and Singapore, for cutting traffic by more than 10 per cent andbolstering investment in public transport by $1.2 billion over 10 years — more thanthe cost of Sydney’s new light rail.A University of Sydney survey from 2012 found 80 per cent of drivers would acceptsome sort of charge for using roads with 62 per cent open to an $8 fee to enter theCBD 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 basedcharging works in London but our CDB is infinitely smaller, we won’t get the samebenefits.”Indeed, a report this year by Infrastructure Australia found Australia’s mostcongested roads were outside of CBDs with the busiest stretch of asphalt beingPennant Hills Road in suburban Sydney. The organisation said congestion costAustralia $13.74 billion in 2011 and could rise to $53 billion by 2031.A TOLL BOX IN YOUR CARProf Hensher advocates a system where all cars would be fitted with a chargingdevice activated by distance and time of day. Driving in the rush hour would cost 5cper kilometre with a daily return trip between Parramatta and Sydney’s CBD in bothpeaks costing about $2.30 or around $500 per year.Inevitably, most drivers would seek to avoid the expensive peak which could meanSydney would see a similar reduction in congestion seen in London.National Roads and Motorists’ Association President Kyle Loades said that while theorganisation was open to a congestion charge, it would not support its introductionwhile motorists were subject to the current range of tolls.“Many people have no choice about when and where they drive and for them theremust be an alternative in the form of a first class public transport system,” he toldnews.com.au.A far easier fix, he said, would be to axe the tolls on Sydney’s Cross City Tunnelwhile 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 onCity Circle trains would reduce pedestrian traffic as footpaths are narrowed to allowfurther 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 duringlight rail construction, the road network would be under far more pressure and urgeddrivers 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 introductionof a CBD congestion charge or any new tolls for drivers travelling into the CBD is notGovernment policy and is not under consideration,” she said.