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Suppose a government-provided good/service; specifically, an interstate highway, is a congestible public good. A toll on the highway with a user charge (p > $0) would be allocatively inefficient

1. true
2. false

User Abhijith M
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1 Answer

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Final answer:

Imposing a toll on a congestible public good like a highway is not allocatively inefficient; rather, it helps manage demand and provide funding for maintenance, fostering more efficient use and mitigating the free rider problem.

Step-by-step explanation:

It is false that imposing a toll (with a user charge greater than $0) on a congestible public good like an interstate highway would be allocatively inefficient. This assertion may seem counterintuitive, but when public goods become congestible, they begin to exhibit characteristics of private goods because usage by additional individuals can reduce the quality or availability of the service to others (in this case, leading to congestion).

Toll goods are distinct from public goods because they require users to pay a fee, which can help to manage demand and finance the maintenance of the goods, such as roads. By charging a toll on congestible resources like highways, the government can reduce congestion and allocate usage more efficiently to those who value it the most, thus approaching allocative efficiency. This mechanism helps to mitigate the free rider problem and ensures that those who benefit from the good contribute to its costs.

User Cadell Christo
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