Question 22M.3.HL.TZ0.b
| Date | May 2022 | Marks available | [Maximum mark: 10] | Reference code | 22M.3.HL.TZ0.b |
| Level | HL | Paper | 3 | Time zone | TZ0 |
| Command term | Recommend | Question number | b | Adapted from | N/A |
Traffic congestion is a major problem in India. It is estimated that congestion in four major cities costs the Indian economy approximately US$22 billion annually. According to a 2019 survey, India has four of the eight most congested cities in the world. People in these cities pay higher fuel costs, inhale toxic gases, and waste up to 11 days a year stuck in traffic.
In New Delhi, India’s capital city, 45 % of workers use cars to travel to work, while 89 % of workers indicate plans to purchase a car in the next five years. However, 80 % of car users say they would change their plans if ridesharing businesses such as Uber could meet their requirements on price, timeliness and availability.
Taxes on fuel
India is said to have the highest taxes on fuel in the world. At the current market equilibrium, the price of petrol (gasoline) in New Delhi is comprised of the components shown in Table 4 (approximate figures).
Table 4
Figure 2 illustrates the market for petrol in New Delhi. D represents the demand for petrol in millions of litres per day. S + t represents the supply (incorporating the effect of indirect tax) of petrol in millions of litres per day.
Figure 2
The causes and costs of congestion
In the last 10 years, India’s road network has increased by 34 % while vehicle registrations have increased by 200 %. Additionally, India’s strong rate of economic growth has resulted in increased demand for motor vehicles.
Traffic congestion involves slower speeds and increased journey times, which impose higher costs on the economy. Congestion has a range of indirect impacts including environmental harm, inefficient use of resources and reduced quality of life.
Figure 3 shows the growth in road passenger traffic in India and China from 2000 to 2017.
It can be seen that there has been a huge increase in the use of road passenger traffic in India. It has been argued that Indian workers who implement rational consumer choice would assess the costs and benefits of using cars and, as a result, many would switch to alternative forms of transport.
Figure 3
[Source: © The Times of India, Dash, D.K., 2018. ‘Traffic congestion costs four major Indian cities Rs 1.5 lakh crore a year’
[online] Available at: https://timesofindia.indiatimes.com/india/traffic-congestion-costs-four-major-indian-cities-rs-1-5-lakh-crore-a-year/articleshow/63918040.cms [Accessed 20 April 2020]. Source adapted.]
Using the text/data provided and your knowledge of economics, recommend a policy which could be introduced by the government of India in order to address the problem of traffic congestion in New Delhi.
[10]
Refer to paper 3 markbands, available under “your tests” tab > supplemental materials.
Possible policies may include (but are not restricted to):
- Indirect taxation on vehicles
- Increased indirect taxation on petrol
- Investment in public transport
- Investment in transport infrastructure
- Subsidized ride-sharing services
- Rationing the use of motor vehicles (e.g. even/odd number plate days)
- Behavioural economic policies, such as, choice architecture e.g. Nudge theory
- Legislation
- A congestion charge
- Any other valid policy.
N.B. If more than one policy is recommended, only the best policy should be rewarded, unless the policies are shown to be complementary or if they are compared/contrasted with the student’s one chosen policy.
Generally, candidates were able to suggest an appropriate policy (or more) to address the market failure resulting from traffic congestion. However, responses often focused only on pollution, with suggestions for subsidizing e-vehicles, arguably having little impact on congestion. Stronger responses used market failure theory well to support the recommendation.
