The table shows the marginal benefit and marginal cost of driving a private car

Question

The table shows the marginal benefit and marginal cost of driving a private car into central London in 2009 In 2009, the congestion charge was set at £10 per car per day. How many cars a day entered London before the congestion charge was levied and how many entered after the congestion charge was levied? What was the reduction in congestion and how much revenue did the congestion charge raise for the city? Before the congestion charge was levied cars a day entered London. After the congestion charge was levied cars a day entered London. The reduction in congestion was cars a day. The congestion charge raised f a day. Marginal Marginal Number of cars benefit cost (per day) (pounds per ca (pounds per car) 10,000 30,000 60,000 12 90,000 16 16 120,000 10 20

Explanation / Answer

It is determined by following the principle that equilibrium is attained were marginal cost = marginal benefit and marginal cost is increasing after equilibrium.

Before the congesion charge was levied, 90000 (16=16) cars entered London.

After the congesion charge was levied, 60000 (add 10 at alllevels of marginal cost (22=22) cars entered London.

The reduction in congestion is 30000 cars per day (90000-60000)

Increase in revenue in the city is 6,00,000 (60000*10)

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