Question

Describe how congestion charges should be structured to offset congestion externalities in economics.

Answer 1

In congestion charging the consumers of public goods are subjected to congestion with excess demand like higher charges for bus services, electricity, metros, railways, telephone and road pricing to reduce the high charges by the companies. This pricing strategy will regulate the demand through make congestion over the companies to control over their supply. This makes the users more aware about the impact of the environment. This charging system will reduce the congestion in urban areas. But this congestion pricing is not equitable for everyone and also create an economic burden on neighbouring countries. It also increases the tax levying rate.
In urban areas the congestion charges over road will ensure road safety and efficiency in the public policies also. The transportation and road congestion are considered as the most growing challenge for sustainable mobility, transport policy and urban governance. Congestion produce several externalities like pollution, noise accidents etc. The implementation of this type of charges will economically affect the middle income people. This will leads to economic slowdown and sustainability of the economy also. This congestion pricing system emerged due to the shortage which creates exceeding demand over supply.