Page 99 - Krugmans Economics for AP Text Book_Neat

fyi

Beating the Traffic
All big cities have traffic problems, and many proach: reducing congestion by raising the price
local authorities try to discourage driving in the of driving. So it was a shock when, in 2003,
crowded city center. If we think of an auto trip London imposed a “congestion charge” on all
to the city center as a good that people con- cars entering the city center during business
sume, we can use the economics of demand to hours—currently £8 (about $13) for drivers who
analyze anti-traffic policies. pay on the same day they travel. NICOLAS ASFOURI/AFP/Getty Images
One common strategy of local governments Compliance is monitored with automatic
is to reduce the demand for auto trips by lower- cameras that photograph license plates. People
ing the prices of substitutes. Many metropolitan can either pay the charge in advance or pay it
London’s bold policy to charge cars a fee to
areas subsidize bus and rail service, hoping to by midnight of the day they have driven. If they
enter the city center proved effective in reduc-
lure commuters out of their cars. pay on the day after they have driven, the ing traffic congestion.
An alternative strategy is to raise the price of charge increases to £10 (about $16). And if they
complements: several major U.S. cities impose don’t pay and are caught, a fine of £120 (about charge. In February 2007, the British government
high taxes on commercial parking garages, both $192) is imposed for each transgression. (A full doubled the area of London covered by the con-
to raise revenue and to discourage people from description of the rules can be found at gestion charge, and it suggested that it might in-
driving into the city. Short time limits on parking www.cclondon.com.) stitute congestion charging across the country by
meters, combined with vigilant parking enforce- Not surprisingly, the result of the new policy 2015. Several American and European municipal-
ment, is a related tactic. confirms the law of demand: three years after the ities, having seen the success of London’s con-
However, few cities have been willing to charge was put in place, traffic in central London gestion charge, have said that they are seriously
adopt the politically controversial direct ap- was about 10 percent lower than before the considering adopting a congestion charge as well.

Module 5 AP Review

Solutions appear at the back of the book.
Check Your Understanding

1. Explain whether each of the following events represents (i) a c. People buy more long-stem roses the week of Valentine’s
change in demand (a shift of the demand curve) or (ii) a movement Day, even though the prices are higher than at other times
along the demand curve (a change in the quantity demanded). during the year.
a. A store owner finds that customers are willing to pay more d. A sharp rise in the price of gasoline leads many commuters to
for umbrellas on rainy days. join carpools in order to reduce their gasoline purchases.
b. When XYZ Telecom, a long-distance telephone service
provider, offered reduced rates on weekends, its volume of
weekend calling increased sharply.

Tackle the Test: Multiple-Choice Questions

1. Which of the following would increase demand for a normal 2. A decrease in the price of butter would most likely decrease the
good? A decrease in demand for
a. price. a. margarine.
b. income. b. bagels.
c. the price of a substitute. c. jelly.
d. consumer taste for a good. d. milk.
e. the price of a complement. e. syrup.

module 5 Supply and Demand: Introduction and Demand 57