Gce Model Questions Vol1 2021 Economics Question 24

Practice objective / multiple choice question 24 from the 2021 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2021 Economics Objective / Multiple Choice Hard Difficulty
Question 24 GCE_MODEL_QUESTIONS_VOL1 • 2021 • ECONOMICS • objective

A city road currently carries 100,000 vehicle trips per year. The marginal external cost of congestion is £2 per trip. The demand for road trips has a price elasticity of \(-0.5\). The average private cost (including road maintenance) is £5 per trip. The local authority is considering a uniform toll equal to the marginal external cost. Determine (i) the percentage change in the number of trips after the toll is introduced, (ii) the new annual number of trips, and (iii) the net change in total welfare (sum of consumer‑surplus change, external‑cost saving and toll revenue). Express the welfare change in pounds.

Answer Options

A. Quantity falls 20 %; new trips = 80,000; welfare loss = £5,000
Correct Answer B. Quantity falls 20 %; new trips = 80,000; welfare gain = £20,000
C. Quantity falls 25 %; new trips = 75,000; welfare gain = £30,000
D. Quantity falls 15 %; new trips = 85,000; welfare gain = £15,000
Correct Answer
B
Correct Option:
Quantity falls 20 %; new trips = 80,000; welfare gain = £20,000

About This Question

This is Gce Model Questions Vol1 2021 Economics Question 24. It is one of the objective questions from the 2021 Gce Model Questions Vol1 Economics examination.

Difficulty level: Hard .

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