Economics for Managers: Analysis of Road Congestion in Australia

This report, focusing on economics for managers, analyzes road congestion in Australia. It begins with a summary of an article on the subject, examining the impact of congestion on daily life and the economy. The report then delves into market dynamics, exploring the concept of competitive equilibrium in road space and the implications of treating road space as a public good. It investigates the effectiveness of fuel and car taxes in reducing congestion and discusses the impact of building new roads. Furthermore, the report examines the benefits and drawbacks of a road pricing system, using diagrams to illustrate its effects. Finally, the report identifies and discusses congestion-easing policies in two of the most congested cities globally, offering a comprehensive overview of the economic and policy considerations related to road congestion and its management.

Economics for
Managers

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
QUESTION 1...................................................................................................................................1
1. Summarize the article of “Road Congestion in Australia”......................................................1
QUESTION 2...................................................................................................................................4
1. Market price of road space in competitive equilibrium...........................................................4
2. Excess demand of road space if it is public good and available for individual.......................5
3. Measure congestion in terms of excess demand for road space and can fuel tax & car tax
reduce the congestion...................................................................................................................6
4. Building more roads will reduce the congestion......................................................................6
QUESTION 3...................................................................................................................................7
1. Is Road pricing system beneficial to reduce traffic in Australia and it will demonstrate with
supportive diagrams.....................................................................................................................7
QUESTION 4.................................................................................................................................10
1. Identify two cities that are most congested in the world and discussion about congestion-
easing policies in these cities.....................................................................................................10
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Economics help the manager to develop strategies regarding project planning, controlling
and budgeting. It plays huge role in the organization at the time of taking decision and it will
provide accurate results which further helps in achieving business goals & objectives. With the
help of various economic theories, manager able to develop production and inventory policies for
the future (Beaudoin, Farzin and Lawell, 2015). Under this project, this report include the
information regarding road space this one also known as alternate day travel.
This report include various topics such as summery of an article which is about “Road
Congestion in Australia”. Competitive market for road space where price will fall which impact
market price of road space in competitive equilibrium. Along with this, how demand will
affected, fuel tax and car taxes reduce congestion. In addition, this report include road pricing
system and it will be justified with the help of appropriate diagram. Identify two cities which are
most congested cities in the world and it will also justify with the help of diagram.
MAIN BODY
QUESTION 1
1. Summarize the article of “Road Congestion in Australia”
According to “Road Congestion in Australia” article (2018), road congestion is not
beneficial for anyone even it will impact the individual's daily life. It become bigger problem in
the Australia where government has to identify exact problem in order to address them. Before
providing various solutions for the congestion they have to identify problems traffic crowding
will increase year after year and become worse. Driving speed in Australia will averagely reduce,
3.6% in Sydney and 3.7 % in Brisbane. Due to traffic jam, it increases the emission and air
pollution which damage public health as well as environment.
Because of traffic congestion business face the huge loss due to decline in the production
level. Workers are stuck in the traffic which impact production and automatically reduce
profitability (Croson and Treich, 2014). As per the Bureau of Infrastructure, Transport and
Regional Economics estimated that congestion cost of Australia is $16.5 billion in the year of
2015. without any change in the congestion policy it will be estimated that cost will be reached
between $27.7 to $37.3 billion in 2030. It is the first report of Australian congestion and they
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wanted to set an benchmark for the capital cities. This report helps in measuring traffic which
further help the government to address growing traffic congestion.
Illustration 1: Average free flow speeds
Above mention picture represent that Adelaide has the lowest free flow over night speeds
(Goldthorpe, 2014). Brisbane is the city which has higher free flow speed and on the other hand
Melbourne had the greatest decline in free flow speed - a fall of 12.3 % over the period.
Illustration 2: National congestion measurements, 2017 - 30 June 2018
According to the national congestion measurement average speed of cars will 63.5
KM/H, congestion (POFF) is 94.8% which reduced approx 0.3% in the period of 2017 to 2018.
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Main objective of this report to prepare is to make individual as well as government
aware regarding congestion and it will impact them because traffic become worse as the year
passes (Berck, 2018). So Australian government need to shift their concern on road performance
where they have to develop various strategy to reduce traffic in order to make city free to move
from one place to another without facing huge traffic which take lots of time and impact the
organization as well. Congestion cost become expensive for individual as well as for
organization because people will stuck in the traffic and late for their work which impact
organizational productivity. There are various way to reduce congestion from the city which
discussed below:
 Optimize effective traffic lights
 CCTV monitoring
 Extend parking zone in the public area
 Parking will be chargeable for working area places
 Improve cycling instruction
 Strategic Road Network resilience
There are other strategies also available that is one hit solution which helps the cities to
reduce traffic or manage in effective manner (Isaga, Masurel and Van Montfort, 2015). It will be
often suggested road congested ideas and some of them discussed below:
 Wind road
 Build tunnels
 Remove bus lane
 Develop ring roads
 Ban cars to entered into city centres
 Increase car parking
 Introduce road pricing or congestion charges
Above mention suggestion will help the government to reduce congestion in the Australia
and most of the cities are facing huge traffic so they have to adopt road pricing strategy which
create fear in intraindividual regarding fine.
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In the above picture, Darwin get the rank 1 in the free flow where congestion not stable
because people drive more then their vehicle limit according to the traffic rules (Dittmar and
Field, 2015). Along with this, Sydney is the last ranked city which maintain their free flow from
2014 to 2018.
From the above discussion, it has been summarised that road congestion article help the
Australian government to analysis their traffic performance which impact the economy and
environmental as well.
QUESTION 2
1. Market price of road space in competitive equilibrium
Competitive equilibrium is the traditional concept where producer try to maximise profit
with the help of optimum utilization of resources for competitive market. Equilibrium is the
process where supply and demand of the product is equal. In other words, buyers and sellers
satisfied with fear deal. In context of road space, supply is inelastic and demand will fall because
raise in the market price (Dyer, Lang and Stice-Lawrence, 2016). There are various factor impact
the demand such as income and other substitutional factors such as traffic congestion. Below
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mention curve shows the equilibrium point where supply is fixed and demand will change
according to the price.
Above mention curve represent that, demand of road space is reduce due to increase in
the market price (Lewis and Rao, 2015). But supply of road space is fixed which is vertical and it
clearly mention that. So basically, change in the demand and price does not impact the supply if
it is inelastic.
2. Excess demand of road space if it is public good and available for individual
If it is assumed that road space is public good and it was freely available to all and than
demand increased but it reduce the market price. In this case, individual demand more but supply
is inelastic then it generate the situation of supply shortage (Peaucelle, 2015). Below mention
curve show the relationship between, market price, demand and supply.
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Above mention graph shows that supply is inelastic which presented with S, Demand
with D and market price with P. Road space consider to be public goods which demand increases
freely that reduce the price of product (Richter, 2015). In result, it will generate the case of
shortage which represented between D1 to D2. It will happen because supply is fixed in this
situation.
3. Measure congestion in terms of excess demand for road space and can fuel tax & car tax
reduce the congestion
It is possible that, if measurement of excess demand of road space will be considered as
congestion than it is possible to done various actions in order to reduce congestion. Increase in
tax rates on fuel & cars will generate possibility to reduce congestion. Because increase in the
fuel price will reduce the demand and it automatically reduce the use of car that avoid traffic.
Along with this, increase car tax will reduce the ability of individual to purchase. Basically
purchasing power of consumer will reduce which directly impact the demand because it also
decrease (Grafton, Kirkley and Squires, 2017). Use of vehicle also decrease which minimise the
congestion and it is beneficial for the country. Australian government need to think about these
aspects where increase in the tax rates will reduce congestion.
4. Building more roads will reduce the congestion
There are both possibilities can be happen because building new roads will reduce
congestion and it also encourage individual to drive more which create more traffic. Both
possibilities required deep analyses and research then its findings helps the government to take
their decision accordingly. There is one action can be taken where building more space reduce
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congestion and not encourage the individual to drive more. Because they have to build train
lines, cycle, walking instead of building car lane (Taylor, Schroeder and Meyer, 2014). Because
if number of lanes are less then people are less willing to travel or drive for the few distance. As
per personal opinion, building more space is good but not for car lanes. They have to increase for
other vehicles which maintain transport facility along with reducing congestion.
QUESTION 3
1. Is Road pricing system beneficial to reduce traffic in Australia and it will demonstrate with
supportive diagrams
Road pricing system is the process where government charge levied for the use of road
and it include the tolls, fees on the basis of time or distance, congestion charges etc. This strategy
will used to reduce traffic and make environment safe for the humans. Australian government
follow this strategies in order to reduce congestion (Martin and Moser, 2016). There are various
pros and cons which impact the social, economic and environmental factors and some these
discussed below:
Advantage of road pricing system:
 Less car on the road will generate less traffic.
 Low pollution as well which is safe for environment as well as for individuals.
 This system positively impact on economy where individual spending less time on traffic
and pay more time on their work (Advantage or disadvantage of road price system,
2016).
 Earning from this road pricing system will help the government to spend for the social or
economic development.
 Due to less population people live healthier and it reduce the number of visiting to the
doctors. Low use of car will save the fuel and reduce the wastage as well as traffic jam.
Disadvantage of road pricing system:
 People think that, it is unfair because using free service will become habit and after
knowing that it is chargeable people get offensive.
 It is kind of unfair because charges are same but the level of income is not (Taylor,
2015). Every individual have to pay same fees.
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 It is nominal charges for the high class people but lower income people have to pay big
amount of their earnings.
 In case of highway, it will reduce the earnings of highway shops
 Due to decrease in private vehicles, road pricing increase the rush in public transport.
Implementation of road pricing system will provide some advantage as well as
disadvantage. But it is required to reduce in order to maintain congestion which impact the
economy ans environment as well. Reducing traffic jam will provide economic efficiency as well
as social equity (Mussone, Grant-Muller and Laird, 2015). For example: every class of people
have to pay toll charges, fine, congestion charges etc.
Road pricing system is a good policy to reduce traffic congestion in Australia because it
helps the country in various aspects which discussed below:
 Reduce congestion: It will save the time as well as business cost which is very important
for the economic stability.
 Reduce pollution: Lower the traffic jam will reduce the pollution which is good because
it is very harmful for the human body as well as environment.
 Make city more attractive: When congestion will reduce then it increases the value of
life (Teubner and Flath, 2015).
 Increase revenue: Due to road price system, government earn extra revenue that used for
social or economical development.
 Reduce journey time: Less traffic jam will reduce the time of journey which is very
important and increase the business cost because before that individual spend more time
in the traffic rather then in the office.
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Illustration 3: Congestion charge, 2016.
Above mention curve represent that SMC which is social marginal cost, when traffic
increase then marginal cost automatically increase which reduce the demand of space but it
increases the price. Demand of road space will shift from Q1 to Q2 because it reduced and
market price will increase from P1 to P2. Congestion charges needed to be high because it will
encourage individual to visit more from their places or out of town. Collection of congestion
charges are high because petrol charges more then road price collection (Sweet, 2014). After
introducing congestion charges, government find many cases where false number plates will be
identify. Most of the people consider it under inequality because higher part of their income will
be used to pay congestion charges.
Road pricing system is good method to reduce congestion and traffic jam, it further
beneficial for the Australian environment because pollution will damage economy as well as
individual health (Abernethy and Wallis, 2018). This system also has various pros & cons which
discussed above in details and it justify the statemented that why road pricing system required to
implement because of various advantages they provide. This system will increase economic
efficiency as well as social equity because everyone has to pay these charges.
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QUESTION 4
1. Identify two cities that are most congested in the world and discussion about congestion-
easing policies in these cities
Newcastle and Gold Coast are two most congested cities of Australia where it has 269 &
215 world wide rank of traffic index respectively. Different country follow different policies
where they to reduce driving speed and it was adopted by Jakarta. They have to reduce their
driving speed was about 19 to 28 KM/H in the morning to reduce rush. Their is another strategy
too which adopt by the Delhi city that is Even- Odd experiment where vehicles are divided as per
their number plate digits. Even number for specific days and odd number on specific. It will be
happen on alternate days (Tirachini, Hensher and Rose, 2014). But, it is the fail strategy because
people have to face many problems and rush of passengers also increased. There are two cities
which is discussed below along with some facts & figures. Along with this, it include some
congestion easing policies which reduce the traffic and beneficial for the individual as well as for
whole environment.
Gold Coast City:
Illustration 4: Gold Coast congestion level, 2019
Above mention graph data represent the traffic congestion which required to control or
minimise for safer environment (D'Onza, Lamboglia and Verona, 2015). For this, Gold Coast
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