Category: Essential Economics for Business: Ch 09
In a surprise move, the Tories have announced plans to tax air travel as part of their environmental policy. It was no surprise to hear the airlines criticise this, but disquiet about this policy has been expressed in traditional Tory circles and it amounts to a significant departure from the past for the party. Are they just flying a kite, or is this a serious policy initiative?
Tories reveal plans for green tax hike on air travel Guardian (11/3/07)
Tory plan for sky-high flight taxes Scotsman (11/3/07)
Airlines shoot down Tory ‘tax on fun’ Telegraph (12/3/07)
Green tax won’t help the planet or the Tories Telegraph (11/3/07)
Tories plan green tax on flights BBC News Online (11/3/07)
Questions
| 1. |
Why might a free market in air travel not result in an optimal number of flights. |
| 2. |
Discuss the likely effectiveness of the tax on flying for reducing the demand for air travel. (You should consider the likely value of the price elasticity of demand in your answer.) |
| 3. |
With the use of appropriate diagrams, assess the likely impact of the tax on flying on the equilibrium level of price and output in the market for air travel. |
The issue of road pricing has been simmering in the background of the environmental debate for many years and has, this month, gained greater prominence with the publication of a draft version of the Road Transport Bill that will allow local authorities to run pay-as-you-drive trials in their local areas. A number of local authorities will be interested, though all will be wary of the policy given the recent petition on the Downing Street website against road pricing that got nearly two million signatures! London Mayor, Ken Livingstone, has meanwhile extended the reach of the London congestion charge with his plans to create a low emission zone (LEZ) in the capital and charge more for older, and therefore dirtier, vehicles to enter the zone.
Draft bill starts Britain down the road to pay as you drive Guardian (21/5/06)
Livingstone to charge older, dirtier lorries £200 per day Guardian (8/5/06)
Questions |
| 1. |
What are the external costs and benefits resulting from increased use of the roads? |
| 2. |
Discuss the extent to which the policy of charging more for older, dirtier vehicles is likely to reduce the external costs of driving. |
| 3. |
Using diagrams as appropriate, show the likely impact of pay-as-you-drive schemes on the social equilibrium in the transport market. |
Ever keen to boost his environmental record, Ken Livingstone, the Mayor of London, has decided to extend the London congestion charge westwards into areas like Kensington and Chelsea. Residents are up in arms, but will the larger congestion zone help further with the management of traffic and carbon emissions in London?
Congestion zone could fuel voter revolt against Livingstone Guardian (19/2/06)
London congestion zone (interactive map) Guardian
London congestion zone (podcast) Guardian
London C-charge zone spreads westwards Times Online (19/2/06)
Livingstone praises congestion zone extension Guardian (19/2/06)
Bigger new congestion zone launched Guardian (19/2/06)
London’s Lefty Mayor Fights Traffic Guardian (18/2/06)
Leafy Kensington shows its anger BBC News Online (17/2/06)
Questions
| 1. |
Using diagrams as appropriate, show the impact of the extended congestion zone on traffic levels in London. |
| 2. |
Discuss whether the implementation of a larger congestion zone will help move closer to a socially optimal position in this market. |
| 3. |
Assess other measures that the Mayor of London could introduce to meet emissions targets for the city.. |