Should Parking Be Free?

http://flashecon.org/lectures/parking/parking.asp

$10

$5

0 50 100

Parking spaces

Cost per day

Paid benefit

Demand for parking

Demand for parking is represented as a downward sloping curve. The driver with the most urgent needis prepared to pay $10 / day, while the driver with the least urgent need will only park for free.

$10

$5

0 50 100

Parking spaces

Cost per day

Demand for parking

When the number of spaces is equal to the number of cars needing parking and it is free, it will result in maximum utility, or utility that is not paid for when parking is free.

Consumer surplus

$10

$5

0 50 100

Parking spaces

Cost per day

Demand for parking

When the number of spaces is fewer than the numberof drivers looking for parking, the consumer surplus isreduced by the uncertainty of not finding a space.

Consumer surplus

$10

$5

0 50 100

Parking spaces

Cost per day

Demand for parking

If the spaces are reduced by 50%, the utility is also reduced by 50%. If parking is kept free, and spaces are still in high demand, the consumer surplus is reduced, and its distribution may also be insensitive to the differing needs of drivers. Drivers with less urgent needs will remain in spaces that drivers with urgent needs would be willing to pay for. Time spent searching for parking is a dead weight loss to the economy.

Consumer surplus

$10

$5

0 50 100

Parking spaces

Cost per day

Paid benefit

If a fee of $5 per day is charged for parking, the number of spaces demanded is equal to the number of spacesavailable. Nobody who is prepared to pay $5 is denied a space, eliminating the need to search for parking, and those who are not prepared to pay $5 will look for alternatives.

$10

$5

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Parking spaces

Cost per dayConsumer surplus under paid parking

Paid benefit

For the drivers who would be willing to pay $10 / day, there is a consumer surplus that they benefit from. The blue area represents the paid benefit received by drivers and the collected revenue for the parking lot owner.

$10

$5

0 50 100

Parking spaces

Cost per day

Paid benefit

When we compare the benefit of free parking to the benefit of paid parking, the blue area (paid benefit) alone is equal to the benefits of free parking.

$10

$5

0 50 100

Parking spaces

Cost per day

Consumer surplus under paid parking

Paid benefit

• When spaces are scarce, free parking is inefficient• The total benefit under paid parking is larger than

under free parking

For more information

• Visit FlashEcon.org

• http://flashecon.org/lectures/parking/parking.asp

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