Assuming no pollution, explain why a road is only an example of market failure when it is congested. When a road is not congested and the traffic can move freely along it, the private cost is equal to the social cost. The road is non-rivalrous because everybody who wants to use it can. For every user that uses the road above the amount that makes the road rivalrous, they have to pay the externality of …
showed first 75 words of 292 total

showed last 75 words of 292 total
…cars at all. There is market failure when the Marginal Social Cost (MSC) is greater than the Marginal Private Cost (MPB). This only happens when the road is congested (we can see this from the diagram). This is why a road is an example of market failure only when it is congested. The additional motorists that wish to use a congested road should pay the external cost, we can see this also on the graph.