Traffic congestion is a form of externality imposed on drivers by other drivers.

Question

Traffic congestion is a form of externality imposed on drivers by other drivers. Methods of "internalizing" the externality might include: (Select all that apply.)

Tolls that vary depending on the amount of congestion on the road.

Increasing the number of lanes on the freeway.

Road rage.

Laws to restrict inessential trips during rush hour.

Tolls that vary depending on the amount of congestion on the road.

Increasing the number of lanes on the freeway.

Road rage.

Laws to restrict inessential trips during rush hour.

Explanation / Answer

The externalities can be either positive or negative, and if there is a negative externality the cost to the society will be greater than the cost the consumers pay for it. And there is positive externality if the social cost is less than cost which the consumers pay. Here it is a negative externality so the internalizing the externality means shifting the burden of the negative externality from outside to inside.

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