Average demand on a rural roadway ranges from zero to 500 veh/day when the cost per trip goes from $1.50 to zero. (a) Calculate the net user benefits per year if the cost decreases from $1.00 to $0.75/trip (assume a linear demand function). (b) Compare the value calculated in (a) with the benefits as calculated in typical highway studies.
What will be an ideal response?
(a) Construct the demand curve as shown in the figure below. From this curve,
one can find V1 and V2 from the prices provided.
V1 = 167 vehicles per day
V2 = 250 vehicles per day
Determine the net user benefits using Equation 13.1:
Net user benefits = (P1 – P2) (V1 + V2) / 2
Net user benefits = [(1.00 – 0.75) × (167 + 250)] / 2
Net user benefits = $52.13 per day
Next, determine the net user benefits per year.
Yearly net user benefits = 365 × net user benefits
Yearly net user benefits = 365 × 52.13
Yearly net user benefits = $19,027.45
Therefore, the net user benefits per year will be $19,027.
(b) The benefits calculated in typical highway studies are not based on the
concept of consumer surplus. They are usually based on travel time reduction as a
result of an improvement. In this manner, the annual user benefit would be:
Annual User Benefit = (P1 – P2) × (V2) × 365
Annual User Benefit = ($1.00 – $0.75) × (250) × 365
Annual User Benefit = $22,812.50
This method used in highway studies will usually overestimate the user benefits
as shown above.
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