Market failure — practice question

Study the source material closely before you answer Question 1. Source material: Traffic jams in the Philippines Manila, the capital city of the Philippines, has a very high population density and almost no unused land available for development. It is famous for its traffic jams (congestion). People may spend hours travelling only a short distance. The Philippine government is worried that traffic congestion could harm people’s health, put multinational companies (MNCs) off setting up in the country and slow economic growth. It will also prevent the country from reaching full employment and will lower labour productivity. Entrepreneurs and workers frequently arrive at their firms feeling stressed and exhausted. More Philippine workers are relocating to Manila to take jobs in the expanding computer, retail and education industries. One benefit of the Philippine economy is its young, well-educated population. Improvements in the skills of Philippine workers are making it easier for workers to move from shrinking industries to expanding ones. Growth in the country’s population is raising the number of cars on Philippine roads. Driving is also made more attractive by cheap parking and easy access to parking spaces, together with the poor standard of public transport. Manila has too few trains but too many buses. By 2017, deregulation had raised the number of bus companies in the city to more than $1100$. Taxes in the Philippines are fairly high but disposable income has increased. Consequently, consumer spending, including spending on cars, has risen. Some of the cars bought are imported. Table 1.1 shows consumer expenditure and imports in selected countries in 2017.