Question

uppose a freeway connects a busy port to a railroad yard (like the I-710 linking the ports of Long Beach). Trucks use the freeway to carry freight from the port to the railroad yard, where it is loaded onto trains for shipping to cities around the country. Suppose that no other traffic aside from these trucks uses the freeway, and that the freeway is congested. If all the trucks using the freeway are owned by a single trucking company (Ace Hauling), should the government levy a congestion toll on the freeway?

a)No, since all external damage generated by trucks are internalized by the single trucking company.

b)Yes, since trucks generate negative externalities.

c)Yes, since trucks internalize part of its externalities.

d)No, since there are no externalities in this case..

PART B)

Now, if two trucking companies (Ace Hauling and Best Hauling) share the freeway, should a congestion toll be levied?

A) Yes, since not all externalities are internalized in this case.

B) Yes, since there is no internalization of externalities.

C) No, since there are no externalities.

D) No, since all external damaged are internalized by each trucking company.

PART C)

How does the toll (per truck) in Question 33 compare in size to the one that would be charged if each truck on the freeway were owned by a different company? In this situation, the number of companies would equal the number of trucks. Would the toll (per truck) in Question 33 be smaller or larger than if each truck were owned by a different company?

A)Smaller, since we don’t need to charge for the part of externalities that are internalized.

B) Larger, since each truck would generate a larger external damage.

C)Ambiguous, since there are two effects operating toward opposite direction.

Answer 1

1> a)No, since all external damage generated by trucks are internalized by the single trucking company.

The reason being the loss due to the congestion is harming the same company. There is an internalization of externality, so there is no point of a toll.

2> A) Yes, since not all externalities are internalized in this case.

The reason is that now, the congestion due to a truck of company A is causing congestion to trucks of company A and B both. So, externality is there. Thus, toll can be levied.

3> B) Larger, since each truck would generate a larger external damage.

Now, there is no internalization of the externalities, so there should be a higher toll.