Chapter 2, Problem 3UM

To determine

To Explain:

Whether toll should be increased keeping in mind that it reduces traffic and air pollution but causes financial hardship for frequent commuters.

Concept Introduction:

Marginal Social Cost:

Marginal Social Cost: It is the sum of marginal cost or marginal private cost and the marginal external cost, which is defined as the increase in cost imposed externally when a firm increases its output by one unit.

Marginal Social Benefit:

It is the sum of marginal private benefit and marginal external benefit, which is defined as an increased benefit that accrues to other parties when a firm increases its output by one unit.