What is meant by marginal social-cost pricing

Reference no: EM131234333

Read the text, then answer the questions which follow.

Charging the motorist

Until recently, the idea of charging for scarce road space was dismissed as political suicide, but some politicians have advocated road pricing and lived to tell the tale. Ken Livingstone, London's mayor, for instance, introduced road pricing in the capital in 2003. Now a new study for the European Commission takes the argument further. Enticingly entitled ‘Revenues for Efficient Pricing', it argues that current transport taxes should be replaced by charges to reflect the true marginal costs of different forms of transport - not only the additional cost of each journey, but also the costs of pollution, congestion and accidents. On this basis the London car driver and truck driver should be charged three times as much than Ken Livingstone's £5 daily congestion charge for rush-hour journeys. Marginal social-cost pricing, the economic jargon for this form of charging, would produce 50% more revenue than current taxes on fuel and vehicles. It would also recover the full costs of transport infrastructure. The cost burden would shift from rail to road because the marginal cost of each additional car journey is greater than that of an additional rail journey.

Questions

1 What is meant by marginal social-cost pricing?

2 Outline the benefits and problems of introducing a comprehensive scheme of marginal social cost pricing.

Reference no: EM131234333

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