The Law of Demand in Action

On Monday, Virgina began imposing flexible tolls on the I-66 stretch between the Beltway and Washington, DC.  I-66 is one of the most congested roads in the nation during rush hour and the goal of these tolls was to have drivers look for alternative routes so that the interstate remained relatively free-flowing for those who needed to get into the city quicker.

 

Lo and behold, it worked:

Traffic moved smoothly throughout the morning, and WTOP’s traffic center reported that the number of drivers on I-66 declined compared to typical Monday morning volume.

“There were no delays inside the Beltway; that’s the point of congestion pricing — to keep the carpools and paying solo drivers moving. As demand goes up, the price does too,” said WTOP’s traffic reporter Dave Dildine.

VDOT reported that the average speed on I-66 during the morning rush hour was 57 mph, up from 37 mph at the same time a year ago.

The George Washington Parkway absorbed the brunt of the traffic, with Virginia Route 123 and U.S. 50 picking up extra drivers as well.

As price rises, quantity demanded falls as people seek substitutes.  Those who are willing to pay the higher price are those who value the resource most highly.

There has been a backlash, of course.  No one wants to pay a $40 toll one-way.  There have already been calls to cap the tolls.  How does the state respond?

“If we don’t get the tolling right, all we’re going to do is clog up those lanes again, and so that’s why the algorithm is multifaceted. It may change, we’ll study it. But in terms of moving traffic, it looks like it’s doing its job,” [Virginia Transportation Secretary] Aubrey Layne said.

“I know all the publicity is ‘Oh, $40,’ but the whole idea is for the person to make a rational decision. ‘Is it worth [it for] me to pay this to use it or is another method better?’ If you start limiting that, you impact the entire network,” Layne said of requests to cap tolls or make other dramatic changes.

Price goes up, quantity demanded falls.  You put a price ceiling on the market, you “impact the entire network.”

Good to see some Econ 101 knowledge on the part of the Transportation Secretary.

19 thoughts on “The Law of Demand in Action

    • Appointed people can or will often do and say things that elected people can’t. The problem is when the appointed people cost the elected people who appointed them votes.

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  1. “But in terms of moving traffic, it looks like it’s doing its job,” [Virginia Transportation Secretary] Aubrey Layne said.”

    Success is determined by your goal. Moving traffic – good. Being affordable for many people – bad. If you’re tasked with moving traffic and the people that can make that happen demand affordability for the defined people, you have a big problem.

    How is that inevitable problem going to be solved? Education? Compromise? Some of both or maybe something else?

    It’s a lot of work to go from a plan/theory to actual implementation of that plan, and some plans, even great plans, simply aren’t going to make it. Which plans receive limited resources? Do you have the right people making those choices?

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    • Walt

      Being affordable for many people isn’t the goal. Moving traffic is. Those who value their time saved at more than the tolls will use the tollway.

      There is an optimal speed that allows the maximum number of cars per time period to use the tollway. The price that produces that amount of demand at any given time is the correct one.

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      • Being affordable for many people isn’t the goal.

        Ron, I totally agree. As a contingency though, what is “many people” and do the “not many” people have influence that can cause considerable backlash? Can new policy be adjusted more easily/cheaply on the front-end than the back-end?

        “The price that produces that amount of demand at any given time is the correct one.”

        The price that can successfully be implemented with the peak traffic outcome as close as possible to the goal is the correct one. The all-or-nothing stance is quite often the nothing outcome. Amelioration is usually a more desirable outcome than nothing.

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        • Walt

          As a contingency though, what is “many people”

          You tell me. It was your phrase in an earlier comment.

          you wrote: “Being affordable for many people”

          The price that can successfully be implemented with the peak traffic outcome as close as possible to the goal is the correct one.

          See there? You have added extraneous nonsense to what I wrote, apparently just so you can say you disagree. Are you really saying that the correct price is the one that is ultimately chosen?

          The all-or-nothing stance is quite often the nothing outcome. Amelioration is usually a more desirable outcome than nothing.

          That is meaningless without context.

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          • VDOT reported that the average speed on I-66 during the morning rush hour was 57 mph, up from 37 mph at the same time a year ago.

            Ron, I am saying who determined that 57 MPH was the “correct” speed-to-price ratio and do other people have input to the decision? How about 47 MPH for half price? Every time a price point is lowered, more people generally enter the universe of buyers or users.

            There’s nothing nonsensical about a discussion about more successful implementation.

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          • Who determined it? It’s a physics thing, Walt, an engineering thing. There is an optimum speed at which the maximum flow of cars per minute or per hour will occur on any given bridge or highway. It can be determined by actually counting them. At any speed higher or lower than that magic optimum, fewer cars will pass per time period. A price that creates the level of demand that matches that optimum flow rate is the correct price, if the goal is reduced congestion. A higher or lower price will not produce the maximum flow rate.

            It’s not something to negotiate or vote on, despite your belief that everything in life can be determined at the bargaining table.

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          • There is an optimum speed at which the maximum flow of cars per minute or per hour will occur on any given bridge or highway.

            I agree that speed is one of the determinates of the flow of cars on roads and streets 100%, Ron.

            I used to play around years ago with a cool traffic simulation computer program where you could change all kinds of things including speed and the number of vehicles on road to see how it impacted traffic flow and crashes (I’m going to see if I I can find it again). In that case I was the traffic God. In this case, however, someone else determines what is the optimum traffic flow per dollar or no dollar.

            Why do you think there is only one “optimum.” flow or speed? It’s already been bargained or regulated by someone. It seems to me it could conceivably be anywhere between 0 MPH and 150 MPH or so with current easily purchased production vehicles (unless a lower speed limit was determined using whatever people considered prudent factors).

            Maybe “optimum” is the price both a person with a lot of money and the person with no money can drive the same stretch of highway or maybe “optimum” is unlimited speed a rich person could afford to drive their sports car in a lane completely of their own for pay.

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          • Who determined it? It’s a physics thing, Walt, an engineering thing.

            Ron, I taught how to size gas pipe and duct work and I still do that on a contract basis where I am the one who determines peak flow. Traffic flow is not much different (it’s simply area, density, velocity minus friction)

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          • “I am saying who determined that 57 MPH was the “correct” speed-to-price ratio and do other people have input to the decision? How about 47 MPH for half price? Every time a price point is lowered, more people generally enter the universe of buyers or users.”

            The tolling is dynamic. As more people us I-66, the price goes up (and vice versa). At 57 MPH, there’s a certain price (as evidenced by the people using the highway). At 47 MPH, there’s a certain price (as evidenced by the people using the highway). I suspect there will eventually develop something approximating an equilibrium price/speed on the highway, the same way that it did for the Beltway.

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          • Sounds right, Jon. It’s like when I raced cars. How fast I wanted to go was determined by how much I wanted to spend.

            All I am saying is a human determined the traffic flow rate within either a soft or hard constraint and determined the price to be charged accordingly. As this is a variable, there is no constant factor or “optimum” that is not subject to discussion and adjustment. This is simply a friction and velocity problem because the pipe or duct work (number of lanes) is being held constant, so the other variables have to be changed for a desirable outcome (who has input into desired?).

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          • Walt

            ” As this is a variable, there is no constant factor or “optimum” that is not subject to discussion and adjustment. This is simply a friction and velocity problem because the pipe or duct work (number of lanes) is being held constant, so the other variables have to be changed for a desirable outcome (who has input into desired?).”

            You are missing the fact that people drive at a speed that allows them to maintain a comfortable distance between them and the car ahead of them. This distance increases as speed increases, until some maximum flow rate is reached. At that point, higher speed and greater distance between cars reduces the number of cars actually passing a given measuring point per period of time. In other words traffic density DECREASES as speed increases and beyond some optimum speed determined by road conditions, weather conditions, and propensity of drivers to maintain a safe distance, the actual flow rate will decrease.

            Ron, I taught how to size gas pipe and duct work and I still do that on a contract basis where I am the one who determines peak flow.

            Big whoop. We’ve all made those calculations, Walt.

            Traffic flow is not much different (it’s simply area, density, velocity minus friction)

            Traffic flow IS different. Gas molecules don’t demand more space between themselves as their velocity increases. Call it friction, if you like, it increases with speed, and at some maximum flow rate becomes a larger negative number than the positive number created by increased speed..

            I used to play around years ago with a cool traffic simulation computer program where you could change all kinds of things including speed and the number of vehicles on road to see how it impacted traffic flow and crashes (I’m going to see if I I can find it again). In that case I was the traffic God.

            Did this simulator correctly anticipate that drivers would slow down as the distance between them and the car ahead decreased? If not, it wasn’t worth much.

            Sounds right, Jon. It’s like when I raced cars. How fast I wanted to go was determined by how much I wanted to spend.

            It was also determined by the number of other cars on the track.

            Here’s the bottom line, Walt: There is a mechanical limit to how many cars may be added to traffic flow before overall flow decreases. While people can pull their favorite numbers out of their ass all day long, there is a certain price at which the number of drivers who choose to use that highway – AT THAT PRICE – will equal the maximum flow rate of the highway. THAT is the optimum toll IF the goal is to maximize traffic flow from point A to point B. IF the goal is something else, then it’s an entirely different discussion.

            There is no price at which everybody can afford to use the tollway and still do so at a reasonable speed.

            there is nothing wrong with offering better/faster service to those willing to pay more for it. It’s just the way life is.

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          • Walt

            After reading today’s CD post I realize there’s a consideration I had overlooked in our discussion of maximum traffic flow rates. It’s possible that the maximum flow rate on a given section of highway occurs at a speed greater than the posted speed limit. In those cases, the rare driver who actually observes that arbitrary limit will impede the efficient flow of traffic, but based only on my own observations, the number of such drivers is probably quite small.

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  2. I understand the tolling is dynamic, but how are they informing the commuters what the price/toll is? The school bus picks the kids up, I’m at the interstate entrance ramp….are they telling you what the toll will be?

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