Answer to Question #241999 in Microeconomics for ankithaerrolla

Question

Undertake additional research and create a report on congestion pricing practices and peak time pricing for any Indian sector of your liking. You can state examples in your report where it has been done.

Answer 1

Solution:

Congestion pricing refers to a pricing strategy designed to regulate demand by increasing prices without increasing supply. It is a method for controlling the power of the market to minimize the wastes associated with traffic congestion.

Peak-time pricing is a type of congestion pricing where consumers pay additional charges during periods of high demand in order to discourage congestions.

 

Congestion and peak-time pricing strategies have been employed by the transport sector in the city of Bangalore in New Delhi, India. The main reason for the implementation of these pricing strategies in Bangalore is due to chronic traffic congestion witnessed in the city that has adverse effects on the city’s economic performance. Drivers impose externalities such as a cost on society by slowing down traffic and generating too much pollution. Charging these costs is, therefore, paramount to control them from causing unnecessary traffic congestions and pollution of the environment due to extra costs they will incur. Consumers will adjust the times for boarding buses and trains accordingly to avoid peak times where they will incur additional charges they are not willing to part with.

 

The project has really assisted the efforts of Bangalore city by minimizing traffic congestions and improving travel times.