Question: Q2. Suppose a road condition in a town creates a congestion every day causing residents to experience extra travel times. Assume residents' private marginal benet

Q2. Suppose a road condition in a town creates a congestion

every day causing residents to experience extra travel times. Assume residents' private

Q2. Suppose a road condition in a town creates a congestion every day causing residents to experience extra travel times. Assume residents' private marginal benet is given by PM B = 100 Q and private marginal cost related to provision of road travel is PMC 2 it? Where Q is the number of travels made by residents on the road. (a) If an external cost to residents caused by congestion is $5 for each travel, what is the socially,r optimal consumption of the road? If the market is operated by itself, what will be the outcome? Will there be any deadweight loss? Explain. [7] (b) If the government wants the deadweight loss of congestion, if there is any, to be eliminated, What is the marketabased approach? Show it on a. diagram and explain. [7]

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