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Question about Market Failure and the Role of Government

Subject Economics

Economics

Source Originais Teachy

Originais Teachy

Topic Market Failure and the Role of Government

Market Failure and the Role of Government

Difficulty Easy

Easy

(Originais Teachy 2023) - Question Easy of Economics

The city of Metropolis has been experiencing severe traffic congestion during peak hours. The city government is considering implementing a congestion charge, where drivers would have to pay a fee to drive in the city center during these peak hours. If the government's goal is to reduce traffic congestion, explain how the implementation of this congestion charge can be seen as a means to correct a market failure. What is the economic rationale behind this proposed policy?

The congestion charge is a way to subsidize public transportation by using the fees collected from drivers during peak hours.

The congestion charge is a way to promote carpooling and the use of public transportation by making driving during peak hours more expensive.

The congestion charge is a way to correct the market failure caused by traffic congestion by making drivers consider the full social cost of their decision to drive during peak hours, thereby reducing congestion to the socially optimal level.

The congestion charge is a way to increase the government's revenue by charging drivers who contribute to traffic congestion during peak hours.

The congestion charge is a way to punish drivers who choose to drive during peak hours, thereby reducing congestion by discouraging driving altogether.

Answer sheet:

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