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6  In 2012 the local government of a city decided to increase parking charges for motorists. It was intended to raise money to correct a deficit in the local government’s budget. The local government said if they did not increase charges they would not be able to provide all their current services. Businesses complained about the likely loss of revenue if parking charges were increased.Which concepts does this statement involve?1 pointA inflation and the private sectorB opportunity cost and public expenditureC private benefit and the free marketD unlimited resources and a centrally planned economy

Question

6  In 2012 the local government of a city decided to increase parking charges for motorists. It was intended to raise money to correct a deficit in the local government’s budget. The local government said if they did not increase charges they would not be able to provide all their current services. Businesses complained about the likely loss of revenue if parking charges were increased.Which concepts does this statement involve?1 pointA inflation and the private sectorB opportunity cost and public expenditureC private benefit and the free marketD unlimited resources and a centrally planned economy

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Solution

The statement involves the concepts of opportunity cost and public expenditure.

Opportunity cost is represented by the local government's decision to increase parking charges in order to maintain their current services. If they did not increase the charges, they would have to cut some services, which is the opportunity cost of not raising the charges.

Public expenditure is represented by the local government's spending on their current services, which they say they would not be able to maintain without increasing parking charges. This is a form of public expenditure because it is spending by the government on public services.

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