Wednesday, October 27, 2010
As the Sun Sets Lazily Over the Jersey Shore....
I can be a hard person to be around watching a movie because I love to jump on goofs. Some of the most infamous goofs are things like showing the characters sitting on a beach watching the sun set....over the Atlantic ocean. In that regard, it would be hard to find a worse headline than a recent article in the Tallahassee Democrat. (Yes, I know, you're wondering what it's like to live in a town where that's the name of the local paper, but I digress).
"Park it: Rate increase has no effect on demand."
That headline is about the City of Tallahassee raising rates on traffic meters from 25 cents per hour to 50 cents per hour. If doubling the price of parking had "no effect on demand" then revenue, which is 25*x cents (where x is the amount of parking), should double to 50*x cents. And yet, the revenue estimates from the meters are $270,157 before the increase and $275,000 after the increase. Ignoring the slight offset between the fiscal year date and the revenue reporting date, if the price per park has gone from 25 cents to 50 cents an hour, doesn't that suggest that the number of hours parked has dropped from 1,080,628 to 550,000? That's a pretty big hit on demand. And, the switchover being in late 2009 suggests that the drop probably isn't related to the recession. In fact, the text of the article even quotes city officials as saying that one of the effects of the price increase has been to shift parking from the metered spots to the downtown parking garages. (I checked with my nephew Nick Heynen who works at the Madison, Wisconsin, newspaper and he told me that it is still the case that the reporter who writes the story may not write the headline for the story).
This is Econ 101. A monopolist (the city) cannot raise prices without limit because at some point the effect from the lost demand outweighs the increase in the per-unit price. It's called the monopolist's demand elasticity. Some government monopolies have found that they've raised rates (or taxes) so much that their revenue has actually gone down. In Tallahassee, it appears that the fee increase had a big effect on demand, with the result that it had little effect on city revenue.