Question

Congestion Pricing for San Francisco

San Francisco, among other cities, is examining congestion pricing as a way to reduce traffic congestion that has been successfully used in European and Asian cities. In London, for example, drivers were initially charged an $8 fee that has since increased to $14 every time they enter London’s central business district. Before the congestion fee was implemented, traffic congestion was a major problem in central London. The effect of the congestion fee was to reduce traffic congestion by nearly a third in three years, as measured by traffic speeds. Traffic speed has nearly doubled from about 5 mph during business and rush hours to about 10 mph as a result of a decrease in the number of motor vehicles entering central London. Use of public transportation into the area increased significantly after the fee went into effect.

QUESTION: Does the decrease in the number of vehicles entering central London represent a decrease in demand or

a decrease in quantity demanded for the use of central London’s streets?

Answer 1

Decrease in demand vs. decrease in quantity demanded

The former is a shift in demand curve indicating lower demand for the same price points, whereas the latter means movement along demand curve (as the price goes up quantity demanded goes down).

In this case, clearly the price for entering the central business district went up over time, and teh number of vehicles entering central business district went down, and hence it represents a decrease in quantity demanded in response to an increase in price.