Q.1) In your own words, summarize the article, “Road Congestion in Australia” by the Australian Automobile Association, October 2018 Q.2)Suppose there is a competitive market for road space. The...

MPE781 – ECONOMICS FOR MANAGERS
Table of Contents
Q1.    3
Q2.    4
(a)    4
(b)    5
(c)    5
(d)    6
Q3.    7
Q4.    9
References    10
Q1.
According to the paper of Road Congestion in Australia posted by Australia Automobile Association, road congestion occurs, when road space is occupied by more vehicles than it can contain (Australian Automobile Association, 2018). This leads to congestion and traffic jam. It is beneficial for neither the citizens nor the government. The worst part is that this issue is only increasing every year and making the situation more difficult to handle. As per the government, only smart moves can solve it at this point. The major cities and capitals such as Melbourne and Brisbane have the worst of it.
The average speed limit of vehicles has declined drastically. This is known as slow-down. It wastes a big part of the time of each citizen on a daily basis. It does not only decrease the quality of lives but also affects other aspects like the environment and the country’s economy. When a car is stuck in jam, it emits a great percentage of carbon in the air, which is bad for the environment. It leads to air pollution, which is a direct cause of global warming (Elaurant, Wang & Currie, 2017).
It is also bad for the business as it declines the rate of productivity. The workers and the materials are often stuck in traffic, which causes the product prices to go up. Therefore, the customers ultimately pay the higher price. It also lays impacts the economy as low productivity means the market demands have not been met. The association is analysing the issue partly to come up with effective solutions. As the Bureau of Infrastructure, Transport, and Regional Economics has reported, the cost of road congestion has already reached 16.5 billion dollars (Elaurant, Wang & Currie, 2017).
In the next ten years, this amount may skyrocket to more than 35 billion dollars if no measure is being taken. The capital cities require to be targeted at first for implementing the solutions (Robson, 2018). The road networks will be discussed and developed in the near future. In order to do this, traffic management and the road infrastructure department need huge investments. For a better understanding of the issue, the problem needs to be divided into parts. The parameters are the average speed limit, free flows, disparity of average speed, percentage of free flow and speed limit.
Figure 1: Average Free Flow Speeds
(Source: Australian Automobile Association, 2018)
The above graph shows the free flow speeds from 2014 to 2018. It clearly presents that the road structures, road space, quality, network, configuration, and primary infrastructure are not sufficient (Guzman, Young & Peszynski, 2018). These parameters do not meet the demand of road users. The road performance can be measured by the average time of travel predicted for a certain distance. The association published report also contains a brief analysis of the major cities of Australia like Sydney, Brisbane, Melbourne, Adelaide, Canberra, Hobart, Perth, and Darwin. The analysis is conducted with respect to percentage time loss for travel per 5 km, change in travel speed, and the change in variations. The major roads and highways are taken as case studies to carry forward the research in the paper (Porteous, 2016).
Q2.
(a)
The supply for road space structures is limited and fixed. Therefore, the supply curve is always vertical. The competitive market is a competitive equilibrium. A road pricing means when a rider utilises a public facility for a certain period, the amount enacted on other factors impact the price of road congestion. This amount usually does not vary as the road pricing stays fixed. The highways, tunnels, roads, and bridges have a physical limit of carrying the vehicles. This directly lays impacts the road infrastructure and the amounts to be expensed to improve it. Although the costs spent by the rider r enacted on others do not help or change the road pricing (Dablanc & Beziat, 2015). The average price of road space in the market is calculated using road pricing, congestion prices, and location prices.
(b)
The term public good means a facility built for public use, which does not make profits for the government or each member of a society or a person or by any private organisation. If these roads were available to all users for free, the demand for road space will surpass the supply (Aasness, & Odeck, 2015). The average income of citizens and the prices of consumer goods have an effect on the number of road users. If the price of road space increases, more riders will be unable to use the roads.
Figure 2: Road Space
(Source: Economics Online, 2019)
When private individuals use road space using private vehicles, they leave less space for others like public transports. This causes congestion, which can also be a peripheral cost.
(c)
The percentage of congestion directly affects the demand for road space. Roads are used by riders who pay fees and charges in several areas. The most common is the price of fuels. Moreover, car users also have to pay taxes for utilising the public service. There is also a license charge to be paid every...