In: Economics
The situation suggests that the marginal social cost curve for parking is above the marginal private cost curve and it would be socially preferable to consume less parking and travel to campus by alternative means.
Use your knowledge of supply and demand and your creative and critical thinking skills to propose four actions that would reduce total demand for parking on campus. Test your understanding of this module’s material by trying to explain each action using the terminology that we’ve become familiar with in the first four weeks. For example: relate your proposed action to movements along a demand curve in response to price, shifts in the demand curve due to changing tastes and preferences or the availability and costs of substitutes etc. Now you’re thinking like an environmental economist!
Answer. As marginal social cost (MSC) is higher than the marginal private cost (MPC). That means people are paying less cost of parking than it costing to environment atually. the following course of actions can be followed to reduce such loss of revenue.
MSC> MPC
MSC - MPC = Loss of revenue (POSITIVE)
(1) Free bicycle parking passes- this initiative will have supply side effect on bicycle parking. this will encourage people to buy bicycle (demand side effect). hence social cost reduced to level of marginal private cost.
MSC - MPC = 0
(2) Increase in cost of parking in successive order- increase in cost of parking for successive vehicle will incure highest cost on last parking entry. This will obviously diminish demand and will shift the demand curve for parking rightward , due to increase in marginal private cost hence MSC=MPC.
(3) Attractive discount coupon for non parking users will also have same effect on demand curve for parking.
(4) Make people pay for full social cost of parking this will atleast decrease social cost of parking.