Imagine that Salt Lake City is now considering spending tax revenue to build and operate a public wireless network (there would be no user fee) that extends coverage to the entire city (currently, some public areas like libraries have free Wi-Fi). The cost estimate is about $18 per year per resident. The City Council conducts a survey of 80,000 residents who are likely to vote in the next Council election and determines that they fall into roughly three groups: 10,000 people who say they are willing to pay $25 for the service, 25,000 who say they would pay $18 and 45,000 who have internet access through private providers and say they would pay only $5-$10 annually for the incremental efficiencies to be gained by providing wireless access to mobile workers. a) Explain why, if the precepts of public choice theory hold and there is a referendum on the expenditure, the network will not be built. b) Offer one argument for why a public Wi-Fi network should be built despite the survey results (Hint: think about price determination, voting behavior, externality effects, and the distribution of wealth).
Before the imposition of the congestion charge in 2003, approximately 200,000 drivers entered central London each weekday. After the imposition of the $8 charge, the volume of drivers entering central London each weekday fell to 130,000. Other than the congestion charge, transportation economists estimate the daily cost of entering and parking in central London at $20 per day (including gasoline, parking, and congestion wait time). One effect of the reduced traffic volumes has been to reduce average congestion wait times from 10 minutes to 5 minutes, which works out to a savings of about $2 per driver. a) Determine the price for a driver of entering and parking in central London in the aftermath of the congestion charge. b) Estimate the price elasticity of the demand for driving into central London as evidenced by drivers’ behavior, and explain