Economics for Management

Time of Day Tolling on Sydney Harbour Tunnel On 27 January 2009, the New South Wales government introduced a new time of day tolling system for southbound traffic on the Sydney Harbour Bridge (SHB) and Sydney Harbour Tunnel (SHT). Previously, passenger vehicles paid a flat $3 toll to travel south on both these harbour crossings.

The new system introduced the following tolls on weekdays for these two harbour crossings:

From 6:30am to 9:30am: $4.00

From 9:30am to 4:00pm: $3.00

From 4:00pm to 7:00pm: $4.00

From 7:00pm to 6:30am: $2.50

Table 1 below shows average weekday southbound traffic volumes on the Sydney Harbour Tunnel for the 12 months before and after the new tolling system was introduced:

Table 1:

Sydney Habour Tunnel Traffic Before Traffic After

5:30am to 6:30am 2103 2539

6:30am to 9:30am 10161 10123

4:00pm to 7:00pm 8192 8104

7:00pm to 8:00pm 1782 1781

7:00pm to 6:30am (inclusive) 7709 8587

There is no toll on the Ryde Bridge to the west of the Sydney Harbour Bridge and Tunnel.

Table 2 below shows southbound traffic on the Ryde Bridge before and after the new tolling system was introduced for the Sydney Harbour Bridge and Tunnel:

Table 2:

Ryde Bridge Traffic Before Traffic After

6:30am to 9:30am

4:00pm to 7:00pm 9954 10380

9892 10106

Based on the data in Tables 1 and 2, answer the following questions:

1. Based on the information given in Table 1, calculate the absolute value of the price

elasticity of demand for southbound journeys on the Sydney Harbour Tunnel for each of the time periods shown in Table 1. (Note: use the midpoint formula and show your calculations)

(2 marks)

2. Based on your calculations in question 1, indicate whether the price elasticity of demand is elastic, inelastic or unit elastic for each time period given in Table 1. What factors might explain the price elasticity of demand for private car travel on this harbour crossing?

(2 marks)

3. For each of the time periods given in Table 1, what was the change in average daily

revenue following the introduction of time of day tolling? (2 marks)

4. Are the percentage change in price and percentage change in quantity you calculated for 7:00pm to 8:00pm on the Sydney Harbour Tunnel consistent with economic theory? Why “yes” or “no”? (2 marks)

5. Provide an economic explanation for the answer you gave in 4? (2 marks)

6. Calculate the cross-price elasticity of demand for travel on the Ryde Bridge between 6:30am and 9:30am? (Note: use the midpoint formula and show your calculations) (2 marks)

7. Calculate the cross-price elasticity of demand for travel on the Ryde Bridge between 4:00pm and 7:00pm? (Note: use the midpoint formula and show your calculations) (2 marks)

8. Based on the cross-price elasticities of demand you calculated in questions 6-7, what is the relationship between travel on the Ryde Bridge and the Sydney Harbour Tunnel? Explain your answer. (2 marks)

9. The New South Wales government claimed that the new tolling system would raise

additional revenue. Based only on your calculations for question 3, what was the change in daily average total revenue following the introduction of time of day tolling? (2 marks)

10. The New South Wales government also claimed that the new time of day tolling system would lead to an easing in traffic congestion. Based only on the data you have been given and your previous calculations, can you support this claim? Explain your answer. (2 marks)