An increase in congestion costs associated with a public good provided through clubs will _____.
A)lead to new clubs being formed
B)lead to a reduction in the optimal size of the club
C)be unrelated to congestion costs
D)lead to fewer clubs being formed

Question

Quizplus · Accepted Answer

Congestion costs are the costs associated with a public good that arise when too many people use it. An increase in congestion costs will make it less attractive for people to join the club or continue to use the public good. This may lead to a reduction in the optimal size of the club, as the cost of providing the good to each member may increase with congestion. Thus, option B, i.e., "lead to a reduction in the optimal size of the club" is the correct choice.

An Increase in Congestion Costs Associated with a Public Good