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 at 5 p.m.

(a) Graphically show &explain how carpooling may eliminate 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.