Demand and supply analysis can be applied to a multitude of markets. When there is a disequilibrium in a market, prices will tend to adjust to eliminate any shortage or surplus. But, what of road space? There is a demand and a supply of road space and when there are too many cars for the road space available, congestion is the consequence.
When an additional car enters the road network, there is a cost and a benefit to the driver. However, there are not only costs/benefits to the driver, but there are also costs/benefits to other road-users. When one car drives on the M25 it adds to the number of cars on the road. Once we reach the point where there are too many cars given the road space and thus the flow of cars per minute begins to fall, congestion starts to build up. There is a negative externality involved here – the actions of one person (the driver) impose an additional cost on other drivers (the congestion). It takes every other road user a little bit of extra time to get from A to B the more cars there are on the road.
Congestion is a problem in many parts of the country and various solutions have been suggested. Policies to reduce demand will help the congestion problem by reducing the number of cars on the road. Numerous strategies have been tried, such as restrictions on parking; improvements in public transport; an integrated transport policy; higher parking charges; work place parking levies; higher taxes on petrol, higher car taxes and congestion charging schemes.
Alternatively, building more roads will directly increase the supply of road space, but this can (and has) simply led to more cars using the additional road space and thus the problem of congestion remains. Bus/taxi lanes are in use across the country and allow the users of public transport to benefit from faster journey times, thus encouraging them to forgo their cars and use buses. However, does this add to the congestion for other people?
In Liverpool, a nine month trial is taking place, where bus lanes will be removed to find out if they have a positive effect on reducing congestion. By increasing the amount of road space available to all road users, Liverpool City Council will be able to see if directly increasing the supply of road space will help to meet the existing demand. The possibility, however, is that by increasing the supply of road space, more individuals will choose to use their cars, thus fuelling demand. Many argue that this trial is a step backwards and will add to congestion, reduce the appeal of travelling by bus and impose further costs on the environment. The following articles consider the debate surrounding congestion.
Liverpool City Council will scrap bus lanes for nine months BBC News (27/9/13)
Liverpool bus lanes plan criticised by government Liverpool Daily Post (9/10/13)
Calls for single 30% income tax rate BBC News (21/5/12)
Liverpool scraps bus lanes in trial BBC News (including video) (21/10/13)
Government warning over Liverpool council plans to axe bus lanes in the city Liverpool Echo (9/10/13)
- Explain why congestion is a negative externality. What other externalities exist with regard to car usage?
- Using a diagram, show the point at which congestion occurs and explain why there is a difference between the marginal private and marginal social cost.
- What will happen to the difference between the marginal private and social cost curves before and after congestion sets in?
- Think about the different solutions to the problem of congestion. In each case, explain whether it is a demand-side or supply-side solution and how it will aim to combat congestion. You should also consider whether it is a short or long term solution and how feasible it actually is.
- How will the abolition of bus lanes aim to reduce congestion?
- There are supporters for bus lanes and supporters for the abolition of them. Justify the arguments on each side of the debate. You should consider the wider implications as well as the impact on congestion.