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The government of Rosenia is considering the construction of a highway. This highway costs $8...

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Accounting

  1. The government of Rosenia is considering the construction of a highway. This highway costs $8 million to build and once built it is non-rival in consumption and has no maintenance costs. The government can either finance its construction by charging a toll for the use of the highway or by doubling the existing tax rate in the market for books (and not charging a toll). The demand curve for highway use is given below.

image

  1. Now suppose the government uses a toll to finance the highway.
    1. What toll does the government need to charge?

  1. How many drivers will cross the bridge? What is the resulting consumer surplus?

  1. Which financing method is more efficient? Explain.

Price (toll in S) 3 2 1 0 2000000 4000000 D 6000000 8000000 Number of trips

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