XSU is located in the middle of a residential neighborhood. The residents of the

Question

  XSU is located in the middle of a residential neighborhood.   The residents of the surrounding 4 blocks notice that street parking is a problem while classes are in session (i.e. Monday through Friday 8am to 4PM, mid August through mid-May except for breaks) or during special events (athletic contests, etc….). Students and staff can be viewed driving around looking for parking spaces, even though there are spaces available in some of the parking lots on the edge of campus.

   Residents complain that the extra traffic leads to more small accidents, and that their visitors (personal or service related) cannot park near their intended visit sites.    Students and staff complain that there are not enough parking spaces.   

   A task force is constituted, and comes up with the following recommendation – either XSU builds sufficient parking spaces or the city institute a permit parking system. If XSU builds more parking lots, the construction and maintenance would have to come from parking fees.   The recommended parking permit system that requires permits for street parking within the 4 block radius.   There would be set number of permits with each household getting one permit, and the rest to be sold to anyone who wishes to buy them.   The revenue from the permit sales would be used to fund a parking officer who would enforce the permit system where any violator’s vehicle is towed and assessed a fine of $2,000 plus towing.

1. Explain whether there is a shortage or a surplus of parking spaces in XSU lots..

2. Explain whether there is a short or a surplus of parking spaces on the street

3. Is parking an externality? Explain.

Explanation / Answer

As mentioned above there are some parking lots available on the edge of campus, so there is a surplus of parking spaces in XSU lots, whereas there is a shortage of parking spaces on the street, as it is evident from staff & students looking around for parking spaces. This problem arises because most people try to find parking slots near their intended visit sites.

Externality is the cost borne (or profit) by an entity who did not choose to incur it. So parking here is not an externality, as the households would be getting 1 permit without any cost.

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