A city in a European country has encouraged the use of hired electric scooters for short journeys. Users pay the hire charge and value the convenience, but ...
Question 1 Report
A city in a European country has encouraged the use of hired electric scooters for short journeys. Users pay the hire charge and value the convenience, but some pedestrians experience noise, blocked pavements and a higher risk of accidents. The demand curve is the marginal private benefit (MPB) of scooter trips. The existing supply curve represents marginal private cost (MPC). The city estimates that, at the market quantity of 100,000 trips per week, the marginal external cost from congestion and accidents is €0.80 per trip. The socially efficient quantity is 75,000 trips per week. The local government wants to reduce the external costs while preserving useful low-emission travel options. It is considering a charge on scooter operators, designated parking zones and an information campaign asking users not to leave scooters on pavements.
(a) What is meant by marginal external cost? [1]
(b) Which curve would be above MPC when scooter trips create negative externalities? [1]
(c) Draw the MPC curve if it is not already clearly labelled, and label it. [2]
(d) Which quantity, 75,000 or 100,000 trips, represents overconsumption? [2]
(e) Which charge per trip could be used to internalise the external cost? [2]
(f) What is meant by deadweight welfare loss in this market? [2]
(g) Draw the socially efficient equilibrium, showing the relevant curve and quantity. [2]
(h) Which group, apart from the government, is most likely to gain from designated parking zones? [2]
(i) Explain why an information campaign alone may be insufficient to solve the problem. [3]
(j) Which evidence should the government use before deciding whether to introduce the charge? [3]
Answer Details
(a) Marginal external cost is the additional cost imposed on third parties by one extra scooter trip. [1]
(b) MSC lies above MPC when trips create negative externalities. [1]
(c) MPC is the upward-sloping supply curve.
[2]
(d) 100,000 trips is overconsumption because users and operators ignore external costs and market output exceeds the social optimum. [2]
(e) A charge of €0.80 per trip internalises MEC by raising private cost towards social cost. [2]
(f) Deadweight welfare loss is the net social-welfare loss from trips between 75,000 and 100,000, where MSC exceeds MSB. [2]
(g) Draw MSC above MPC and locate its intersection with MPB at 75,000 trips.
[2]
(h) Pedestrians, especially people with mobility impairments or parents with pushchairs, gain from clearer, safer pavements. [2]
(i) Information alone does not change users’ or operators’ financial incentives. Users may ignore messages, have no convenient parking alternative or continue careless parking, so external costs remain. [3]
(j) Use accident and injury data, pedestrian complaints and surveys, locations of obstructed pavements, demand responsiveness to a charge, operator costs and estimates of MEC. This helps set a proportionate charge and compare it with parking zones. [3]
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