In Florida, in Pinellas County, fees are levied on residential and business construction in order to pay for transportation improvements such as roads and sidewalks, and to cover the costs of congestion. For example, a small convenience store locating near downtown St. Petersburg is charged $21,391 because of the traffic it is expected to generate. Building a new house in the older part of St. Petersburg requires payment of $1,209, regardless of the size of the house.

The effect is that business development is being stifled in an area that is trying to grow and provide more jobs in the wake of race riots. Further, the city is not congested and does not need to repair the roads or sidewalks.

City officials would like to be able to eliminate the fees for businesses, as part of an incentive package for businesses, especially if they are providing quality jobs.

(Updated January 1, 1999)

1.	a) Draw a diagram of the market for goods and services in St. Petersburg, showing the marginal private cost and benefit curves. Mark the private equilibrium price and quantity.
	b) The County is assuming that there are external costs stemming from congestion. Show the marginal social cost curve. Draw the social equilibrium point.
	c) Explain what the fees are intended to achieve.
	d) If the County sets the fees too high relative to the external costs, what is the effect?
2.	a) Draw another diagram of the market for goods and services in St. Petersburg, showing the private equilibrium point.
	b) The establishment of businesses in St. Petersburg provides consumers with private benefits. Given the news story, what might be some external benefits?
	c) Add the marginal social benefit curve to your diagram. How is the social equilibrium point different from the private equilibrium?
	d) What might the City do to move toward the socially optimal level of output? To what extent should they do this? Refer to your diagram.