Crossing the San Francisco Bay] There are 2 main ways to enter San Francisco from Berkeley. The Bay Bridge provides access by car and takes 10 minutes if it is not crowded (it is not crowded if there are fewer than 10,000 cars per hour). For every 1,000 cars above 10,000, the travel time increases by 1 minute. Bay Area Rapid Transit (BART) provides access via train and takes 20 minutes, regardless of the number of riders. There are two times during the day in which trac ows vary, with the following volumes per hour: Peak hours: 40,000; O -peak hours: 16,000.
1. In this problem, explain what externality arises from the use of the Bay Bridge? If all individuals value their time at $0.25 a minute, what is the marginal external cost of another motorist when there are 6,000 motorists on the bridge? What is the cost when there are 16,000 motorists? What is the cost when there are 20,000 motorists?
2. Assuming that BART is free and that only one person rides in each vehicle (not a bad assumption, unfortunately), how many people take the Bay Bridge during each travel period? How many people ride BART?
The California Department of Transportation (CALTRANS) decides to place a toll- booth on the Bay Bridge. Assume that there are two types of Bay Area residents: executives at new internet startup rms who value their time at $0.50 per minute and hippies who need to travel between Berkeley and the Haight-Ashbury district of San Francisco and value their time at $0.20 per minute. One-fourth of the travelers at each time are executives and three-fourths are hippies. These ratios are well-known, but no one can tell an executive from a hippie just by looking at them (things are pretty laid back in the Bay Area).
3. What toll should CALTRANS charge during peak hours in order to implement the socially ecient use of the transportation network? In this case, who uses the Bay Bridge and who takes BART?
4. What should the toll be during off-peak hours? Who uses the Bay Bridge and who takes BART during off-peak hours?
5. From an equity point-of-view, in each of the above cases, should the government compensate either hippies or executives for putting a toll in place? In other words, is either group substantially better or worse off than before? If government compensation is necessary in either case, how could this compensation be done using the prices of the transportation system itself?