1. Traffic Congestion
If a city council faces severe problems with traffic congestion, a knowledge will benefit all parties. It is this I will debate in the lines to come. When traffic is a problem in a city, all sorts of means of transportation can be included, but it is mainly cars which seem to be the problem. Therefor raising gasolin prices (by putting an extra tax on them) should instinctively reduce car usage, seeing that costs for the driver would go up.
This is though only the case, if demand for gasolin is inelastic (fig. 1). Here a tax on gasoling has moved the supply curve to S2 and the price to P2, which has lead the quantity demanded from Q to Q2. The difference between Q and Q2 is the essential of the diagram, and it is clear that there has only been a very little decrease in quantity demanded. On fig. 2 demand is elastic, and again a tax on gasolin has been introduced, moving the supply curve to S2 and incresing the price to P2, which then has decreased the quantity demanded to Q2.
Here the difference on quantity is great.
It is now easy to conclude that if demand for gasolin is inelastic, almost the same will be bought, and there will be hardly any decrease in traffic congestion. If demand is elastic, quantity demanded will go down and so will caruse in general leading to a fall in traffic congestion in the city centre.
3. Gondomar and Bayona
If maximum growth rate is a desired goal, the proportion a country spends on consumer goods or investment is highly relevant. In the following I will outline the differences between the two countries Bayona and Gondomar.
Gondomar has chosen to have a high proportion of its N.I. spend on investment. If this investment goes into factories and businesses, the investment could turn out to benefit Gondomar in a very positive way. N.I.
will go up, and therefor the average GDP pr head will go up as well. This leads to better standard of living. Drawbacks which must also be kept in mind is worsening of nature, pollution, and other external social costs the society will have to live under. Bayonas approach is much more passive, in the sense that she does not strive to achieve growth in the same way as Gondomar. The spending on money here is mainly spend on consumption, which means the economy is more focused on import. If relatively is being produced, N.
I. will go down and standards of living will go with it.
Overall it is clear that a policy which focuses on investment rather than consumption, is more likely to benefit on long terms.
4. National Income
Several problems occur when trying to meassure national income. Even if many factors have to be considered before arriving at a result.
The first problem which comes to mind, when considering problems, is the fact that the data collected could easily be unexact. For example is there a very large informal sector in many underdevoped countries. This informal sector includes everything from theft to prostetution. All of this activity is very difficult to anthing but an estimate of. The informal sector does not include farmers providing for themselves, but this is also unrecorded, and should not be left out, when calculating N.I.
Meassuring bread which is sold, is realtively easy, while services and certain commodities, usually within the public sector, do not have a price. Here productivity will tend more to an estimate, than an excact value, when adding this number up to N.I. Finnally when the N.I. has been added up, there is a final problem.
N.I. is usually only helpful when used to compare with other countries economy, and therefor the various N.I.’s have to be exchanged on paper to a common currency (usually the dollar) for better comparison. Here the value of N.
I. will natuurally vary according to the exchange rate, and not the productivity.
Concludingly, it should be stated that all of the above vritirias should be met when calculating N.I. if a correct figure is desired. .