Answer to Question #60985 in Economics of Enterprise for florence

Question

The price to drive on a freeway is $0 at all times of the day. This price establishes equilibrium at 3 a.m. but is too low to establish equilibrium at 5 p.m. There is a shortage of freeway space at 5 p.m.

Graphically show and explain how carpooling may eliminate the shortage.
Graphically show and explain how building more freeways may eliminate the shortage.

Answer 1

The carpooling and implementing the charge using the road will decrease the quantity demanded (number of cars), which may eliminate the shortage and create new equilibrium.
The building more freeways may increase the supply of the roads (more space for cars), which will shift the supply curve rightwards, create new equilibrium and eliminate the shortage.