Question

The answers that’s already posted is not correct so i need a new one, please

There used to be a toll of 50 cents on both the inbound and outbound tunnels leading to Logan airport. They were replaced by a $1 on the inbound side and no toll on the outbound lane. Assume that vehicles cause almost no wear and tear to the tunnels as they pass through.

a. Show that if collection costs are trivial, it is preferable from a welfare point of view to collect the 50-cent tolls in both directions. [Hint: Draw separate graphs for outbound and inbound traffic. What will the supply curve (for spaces to drive through the tunnel) look like?]

b. Suppose that the inbound lane is always congested. Explain why the removal of the toll would not lead to any benefit to consumers, and indeed would lead to greater social cost overall.

Answer 1