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Congestion

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Using the data and your economic knowledge, assess which is the best policy that the UK government could adopt to reduce congestion on the roads (25 marks)

Market failure is where there is a misallocation of resources in the economy, either completely failing to provide a good or service or providing the wrong quantity. A negative externality, which is the same as an external cost, occurs when the consumption or production of a good causes costs to a third party, where the social cost is greater than the private cost.
There are a several reasons why roads have become increasingly congested, including the following: The real cost of driving has fallen because motor cars, and even petrol, are relatively cheaper than they used to be in real terms - that is when taking inflation into account. Public transport is seen by many as an inferior good, which means that as incomes rise, people switch away from inferior goods. Roads are a common property resource, and as such, people are free to use them with little restriction. The fixed cost of buying and owning a car, including the price, motor insurance, car tax, and depreciation, encourage drivers to use their cars as often as possible. Information failure also has an influence on the amount of driving that happens. No single driver knows the full impact they have on others, and even if they know, they are unlikely to take it into account. Road-space is a scarce resource, which means that the more private individuals use road space the less is available for use by others.
By creating the concept of road-space, policy makers are viewing roads, which were previously considered a public good, as a private good which can be charged for. The application of new technologies, like GPRS, can be used to create systems for charging for the use of road-space.
Congestion creates external costs including; extra

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