A city XYZ is considering plan to expand capacity along existing tollroads
and build new roads as well. Once complete, the projects will decrease congestion and save travel time, but consumers will pay higher tolls to fund the project.
Assuming that the labor market for road construction workers is competitive and
that labor supply is not perfectly elastic, use a graph to illustrate the budgetary
costs and opportunity costs of the project. Label all relevant points and areas. Do
budgetary outlays overstate, understate, or equal opportunity costs?
Name two possible secondary markets that might be affected by this project.
Under what circumstances should policymakers consider surplus changes in these
markets when evaluating the gross benefits of the project?
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