Consider a set of commuters N, with N a very large number. Each commuter has the
ID: 1182211 • Letter: C
Question
Consider a set of commuters N, with N a very large number. Each commuter has the choice between commuting by train or by car. Commuting by train takes 40 minutes regardless of the number of individuals who commute by train. Commuting by car however takes less time if few people commute by car and vice versa. In particular, the time it takes to commute by car is given by m=20+50x where x gives the proportion of car users. (i) What will be the equilibrium if each individual makes her decision to minimise her own transportation time? (ii) Will the result be Pareto efficient; that is will the total commuting time be minimised? If not, what is the efficient proportion of car users? (iii) Identify the reason behind the above results. (iv) Discuss briefly whether and how the efficient outcome can be achieved.Explanation / Answer
i) In such a case, equilibrium will be 20+50(1/N) in commuting by car since if the car is being used by fewer people, it will take less time. ii) No, it will not be a Pareto efficient since transportation time by car can only be minimized if fewer people use it. Therefore, efficient proportion of car users will not be more than 40% of users. iii) Since uses of car is defined by 20+50x which can only be minimized if x is less than 40%. iv) It has already been answered.