Sample Economics Paper on Infrastructure Projects Using Toll Roads

Question 1: Advantages and Disadvantages of Using Toll Roads
The intensive capital requirements for investment in infrastructure projects,
particularly roads has pushed governments to turn to a different business model through the
use of public-private partnership. The approach encourages private stakeholders to invest in
road infrastructure and in return recoup their capital investment from toll charges. The use of
capital goods, and more specifically, toll goods is crucial as it encourages penetration of
infrastructure projects to different areas. The government may not have the capital required to
complete the target road, and alternatively, PPP is used whereby investors obtain their return
on investment through the toll charges. Kadam, Parenrengi, and Faturachman (2018) argue
that this form of investment model is vital as it encourages the ease of doing business through
enhanced accessibility. Greater accessibility means that the infrastructure project is able to
benefit the people by benefiting local businesses, encouraging tourism, among other social
benefits (Kadam et al., 2018). The local community and the government can benefit from the
social benefits associated with the new infrastructure projects through improved cash flow
from the businesses along the infrastructure line. In addition to enhanced access, the
infrastructure project is set to create employment opportunities to locals living along the
The development of a new road is vital in reducing traffic congestion along the
existing roads (Kadam et al., 2018). Although the government has a role in providing the
necessary infrastructure to the community, in some cases it is unable to fulfil this goal owing
to the financial constraints and the need to channel the available resources to other projects.
The use of toll roads allows infrastructure projects to develop at a faster rate through PPP to
meet the needs of the community. The continuous urban migration has increased pressure on

the existing roads, thus creating the need for rapid expansion to meet the demand and reduce
congestion along existing roads. This in turn saves a lot of time and resources for the users
since they are able to commute to their destination within a short time, thus enhancing
convenience. In addition, benefits are able to benefit from the convenience associated with
lower congestion along the route.
Despite the benefits associated with the toll roads, the cost of building such systems is
passed down to the users. Kadam et al. (2018) indicate that some users fail to use the new toll
roads owing to the positive externalities associated with the non-toll roads. Although user are
able to benefit from associated social benefits of such roads, the cost may reduce convenience
and also the chances of using such roads. However, Kadam et al. (2018) posit that users also
benefit from lower vehicle operating cost due to lower cost of maintenance associated with
the reduced congestion/ traffic. Furthermore, the government enjoys reduced development
cost associated with the development of a new infrastructure project since the cost is passed
down to users.
Question 2: Tax on Air Pollution
Part A
Tax incidence explains the manner in which the burden of tax is divided between
sellers and buyers. The tax incidence is largely dependent on the elasticity of supply and
demand. In the case of fuel/ petrol, supply is more elastic than demand. The cost of switching
to electric vehicles is very high, and also switching to other fuel sources (diesel) does not
offer great incentives. Although technological advancement in the design of petrol vehicles
has increased significantly, their popularity is yet to be seen due to the reliability offered by
the petrol-powered vehicles. As such, imposing any extra tax will be transferred to the
consumer by oil industry players since supply is more elastic than demand. The demand may

be inelastic in the short-run owing to the cost of switching to an alternative energy source. As
such, the consumers will be unlikely to respond to the price changes associated with the
increase in tax, and the quantity demanded will remain relatively the same when the tax is
introduced. Introducing the tax on the companies is more ideal as they will decide the amount
to be passed on to the suppliers. Figure 1 below illustrates the diagram for elastic supply and
inelastic demand.

Figure 1 : Supply and Demand Curves
Part B
If the demand for petrol was more elastic, then the petrol tax would be more ideal
since the consumers can easily switch to a new product. Notably, this would reduce
consumption of petrol but would also significantly reduce the revenue generated by
petroleum organizations. The diagram for elastic demand and inelastic supply is shown in
Figure 1 above.
Part C
Consumers of petrol will suffer from the tax since the government does not offer any
other option that can be used as a substitute. The cost of switching to electric vehicles is
substantially high, and the technology is yet to be proven as effective, reliable and durable as

the petrol-powered vehicles. The government should instead offer incentives on the purchase
of electric vehicles and invest in research and development to optimize this futuristic
technology to make sure it is a viable alternative for new car buyers. Once such incentives are
introduced, the people will continuously shift to electric-powered vehicles which are more
environmental-friendly in the long-run. The demand for petrol is currently inelastic, and thus
organizations in the oil industry are likely to pass all/ or much of the tax burden to the
consumers, thus increasing the mobility cost.
Part D
Workers in the oil industry are likely to remain in the same position despite the
introduction of the new tax. Although the petrol tax is likely to affect consumption, demand
will only shift by a very slight margin owing to its inelastic nature. In the same manner,
organizations have been known to pass a higher cost to consumers than the actual tax burden
introduced by the government. In such a case, workers in the oil industry are likely to benefit
from the government approach. However, the presence of the tax burden may affect the oil
industry adversely in the long-run as consumers will look for an alternative option that is
cheaper. Consequently, this will increase the purchase of electric vehicles, thus making
demand elastic.



Kadam, S., Parenrengi, N. P., & Faturachman, F. (2018). How does toll road impact
accessibilities, trades, and investments in short term? A case study of Cipali toll road
in West Java, Indonesia. Journal of Infrastructure, Policy and Development,