Suppose the local government decides to reduce traffic congestion on a bridge by imposing a toll.The toll will be most effective if the price elasticity of demand for the bridge is:
A) Inelastic.
B) Elastic.
C) Unitary.
D) Either unitary or inelastic.

Question

Quizplus · Accepted Answer

The toll will be most effective if the price elasticity of demand for the bridge is elastic. This is because an elastic demand means that a small change in price will result in a significant change in the quantity demanded. Therefore, a higher toll will result in a significant decrease in the number of cars using the bridge, which will effectively reduce traffic congestion. In contrast, an inelastic demand would mean that even with a higher toll, the quantity demanded would not significantly decrease, and traffic congestion would remain high. Unitary elasticity means that the percentage change in price and quantity demanded is the same, so it is not clear whether the toll would be effective or not in this case.

Suppose the Local Government Decides to Reduce Traffic Congestion on a Bridge