1 Name Professor Course Date

Base version on car parking at Deakin Question 1 a) Expected return Revenue= 75 dollars 0.7 fines are issued in an hour Expected return = (0.7 $ 75) = $ 52.5

b) Marginal cost for an extra hour of ticket inspecting= $ 35 Marginal benefit for an extra hour of ticket inspecting= $ 52.5 The marginal benefit is greater than marginal cost of an extra ticketing hour by $17.5 ($ 52.5$35). The parking inspectors should increase the frequency of their checks as the marginal benefit supersedes the marginal cost (Arnold 2008, p.42). Consequently, it is profitable increase than to reduce for the number of checks.

2 c) With 100% likelihood of being fined for lack of permits, the revenue from permits and fines will increase. This is because individual will prefer to have permits rather than being fined. As most people get permits, income will increase. The income from fines will increase too as the probability of being fined is 1. However, after some time, with everyone getting permits the income from fines would decline, with no one to be fined. The increase of probability of fines from 70% to 100% increases the overall income.

Costs of enforcing the restrictions pertaining to parking would remain constant as the inspectors are paid on an hourly basis and not on the amount of the job done. However, if there is a need to increase the number of parking inspectors, consequently, the cost of enforcing restrictions increases (Chrest 2001, p.180). With a 0% probability of fines imposition incase of lack of permits, the revenue would decline. This is because many car drivers would not seek permits, as there are no consequences for not having one. This implies that no income from fines would be collected. The costs incurred on enforcement of restrictions will remain constant or decline. The reduction in costs occurs when the number of inspectors is reduced. There is no need of employing many inspectors if there is no enforcement required (Rusmore, Spangle & Crowder 2001, p.94). However, if the number of investors were maintained, then the cost would remain unchanged.

Question 2: Prices and revenue a) Council Market S1 Fee D S

P1 P*

Q1 Q** Q*

Q2

No. of permits

Reduction of permits is illustrated by the shift in the supply curve from S to S1. Consequently, the reduction is represented by difference of Q*- Q** and the price increases from P* to P1. Revenue is a product of price and quantity (Arnold 2008, p.42). Since there is a decrease in quantity, the council experiences a decline in revenue. ii.Deakins Market

Fee S

P*

MR AR Q* No. of permits

Average revenue (AR) is equated to price (Daly & Farley 2010, p.102). Since Deakins is the only provider of parking space in the institution, it acts as monopoly. With the price increase, revenue still increases as owners of private vehicles owners have no other option but to pay the increased price as demand would be high. The revenue is calculated from the area ACBP*.

b) For Deakin, reducing the number of permits results to an increase in revenue. This is because the shortage of supply and excess demand leads to price as Deakins exhibit monopoly market conditions whereas the council exhibits the perfect market conditions. With the council reducing the number of permits, individuals can resort to private parking spaces or resort to public means of transport. However, in case of Deakin, being the sole provider of parking space, it would experience increased revenue (Rusmore, Spangle & Crowder 2001, p.184).

Question 3: Changing conditions a

Fee D1 P** D2

S2 S1 e**

e* P*

S1 D2 Q1 Q* Q2

D1

No. of parking lots

Prior to loss of parking spaces, the equilibrium quantity, Q* and price, P* are determined by demand and supply forces. With the reduced supply, of parking spaces from S1 to S2 represented by the difference (Q*-Q1). With the price constant at P*, the demand for parking spaces increases from D1 to D2 represented by the (Q2-Q*). The new demand for a parking space is Q2, and the supply is Q1. The difference of supply and demand (Q2-Q1) represents excess demand and limited supply. The equilibrium price rises from P* to P**, but the equilibrium quantity reduces. b)

Deakin will experience a shortage of parking spaces as with the reduction of the parking lots without replacement. Prior to this loss of parking spaces, there were adequate spaces for

6 everyone. However, after the loss of the spaces not everyone who wants a parking space will continue having access.

This shortage is not only dependent on the parking prices. With the prices of parking permit constant, the shortage depends on the excess of demand (Keohane & Olmstead 2007, p.16). Many individuals demand the parking spaces though the supply of spaces to meet this excessive demand is limited.

The other determinant factors of access to the car park spaces include reserves, availability of space and promptness. Even with a shortage of parking spaces, there are spaces set aside for some staff and students. Reserving of parking lots is mostly because of an individual's rank in the institution (Rittenberg 2008, p.76). Student leaders and head of departments of institutions usually get reserved parking spots. Another factor is the availability of spaces. An individual can get a parking space as long as the spaces are available. Students and staff who reside in the institution tend to have an advantage as the availability factor favors them as their vehicles would be parked at night, to avoid scrambling for parking spaces in the morning. Lastly, the parking spaces are accessible on a basis of first available, first served. Promptness determines who gets parking spaces. When an individual arrives early and finds a parking space, he or she parks the vehicle.

With limited parking spots, many individuals will miss parking spaces. Cheaper and convenient public transport provides a solution to this shortage. Many individuals will resort to public transport because of inadequate parking space for their private vehicles. The shortage in

7 supply of parking spots land excess demand lead to a rise in equilibrium prices from P* to P**. Increase in the parking fees makes individual resort to cheaper public transport reducing the demand for private parking spaces and in the long term, the equilibrium in restored in the price and quantity of parking spaces (Megginson & Smart 2009, p.111).

c)

Fee D1 D2 P**

S2 S1

e1 P*

e*

S1 D2 Q1 Q* Q2

D1

No. of parking spaces

With limited parking spots, many individuals will miss parking spaces. Cheaper and convenient public transport provides a solution to this shortage. Many individuals will resort to public transport because of inadequate parking space for their private vehicles (Rusmore, Spangle & Crowder 2001, p.32). The shortage in supply of parking spots land excess demand lead to a rise in equilibrium prices from P* to P**.Increase in the parking fees makes individual

8 resort to cheaper public transport reducing the demand for private parking spaces and in the long term, the equilibrium in restored in the price and quantity of parking spaces.

Question 4: Other methods of allocation:

The allocation of parking spaces in other universities is aimed at reducing congestion in and around the institution. This is because the closer an individual park near the institution, the higher the cost incurred. This price discrimination provides a range of options for both the staff and students (Damodaran 2005, p.115). Individuals seeking to cut on costs park in the distant zones. The price discrimination enables the university to increase its revenue, as individuals previously locked out due to higher parking charges, can access parking at distant zones at affordable costs. The variations in prices are effected to ensure maximization of revenues. The price is discriminated on the location of packing (Taylor & Weerapana 2009, p.189). Everyone who parks at the distant parking zone pays the same amount of parking fee regardless of the individual. This applies to individuals who park at a closer zone as they also pay the same amount of parking fee. However, when two people say, students, park at the different location, they pay different parking fees. The Deakins approach of parking entails staff and students parking in the same zone although they pay different parking fees. The staff pays a fee that is relatively higher than the amount paid by students. This is third degree price discrimination (Kolstad 2000, p.156). Unlike the other universities, Deakin charges different parking fee for the same zone parking but discriminates on individuals based on their purchasing power. The staffs are presumed to have a

9 higher purchasing power than the students do. In the Deakins method of allocation, the price is dependent on the individual.

Question 5: A further case study

Fee D P1 10 P* S

Q1

Q*

Q2

No. of vehicles

The law of demand states that there is a negative relationship between price and demand. Higher prices lead to lower levels of demand. Imposition of 10- fee for vehicles entering the Londons centre increases the cost of accessing the city. Prior to the fee, imposition the cost of accessing Londons centre was determined at equilibrium P* and the demand of vehicles accessing the centre was Q*. With the fee imposed, the number of people demanding to access the centre declined. Supply has a positive relationship with price implying that, with an increase of price, there is subsequent increase in supply (Cornes, & Sandler 2001, p.123). Therefore,

10 increase of cost or price leads to increase in quantity supplied. The number of parking spaces in the centre will increase as the number of individuals accessing the centre declines. The fee decongests the City as with the decline of the number of vehicles with access. From the graph above, an increase in fee of city access by vehicles, from P* to P, leads to demand decline to access the city centre from Q* to Q1. Enforcing the pricing in Deakin University, would decongest the institution. With the increase of parking fee, many individuals would opt for alternative parking zones or avoid accessing the institution in personal vehicles (Deem 2005, p.123). This would reduce the vehicle congestion as demand for parking spaces decline with an increase in parking fees. The demand for substitute transport mode to the university like public means increases. This pricing mechanism of decongesting city and institutions parking spaces from several vehicles is an effective way of managing traffic.

11 List of References Arnold, R., (2008). Microeconomics, Mason, Ohio, South-Western/Cengage Learning. Chrest, A. P., (2001). Parking structures: planning, design, construction, maintenance and repair. Boston, Mass. [u.a.], Kluwer Academic Publ. Cornes, R, & Sandler, T., (2001). The theory of externalities, public goods, and club goods. Cambridge [u.a.], Cambridge Univ. Press. Daly, H. E, & Farley, J. C. (2010). Ecological economics: principles and applications. Washington, DC, Island Press. Damodaran, N., (2005). Customer acceptance of water main structural reliability, Denver, CO, Awwa Research Foundation and American Water Works Association. Deem, J, M., (2005). Bodies from the ash, Boston, Houghton Mifflin. Ehrenberg, R, G., (2002). Tuition rising: why college costs so much, Cambridge, Mass, [u.a.], Harvard Univ, Press. Frank, R, H., & Bernanke, B. (2003). Principles of microeconomics. Beijing, Qing hua da xue chu ban she. Hackett, S,C., (2010). Environmental and natural resources economics: theory, policy, and the sustainable society. Armonk, NY, M.E. Sharpe. Keohane, N. O., & Olmstead, S. M. (2007). Markets and the environment. Washington, DC, Island Press. Kolstad, C, D., (2000). Spatial environmental and resource economics: the selected essays of Charles D. Kolstad. Northampton, Mass, E. Elgar.

12 Megginson, W, L., & Smart, S. B. (2009). Introduction to corporate finance, Mason, OH, SouthWestern Cengage Learning. Rittenberg, L., (2008). Principles of microeconomics, Nyak, New York, Flatworld Knowledge. Rusmore, J., Spangle, F., & Crowder, B., (2001). South Bay trails: outdoor adventures around the Santa Clara Valley, from the Diablo Range to the Pacific, Berkeley, Calif, Wilderness Press. Taylor, J, B., & Weerapana, A., (2009). Economics. Boston, Mass, [u.a.], Houghton Mifflin.