Teaching Case: Maine Turnpike Toll Discounts
The text for this case is a coupon and survey distributed on the Maine Turnpike in 1995 as part of an experiment in using toll reductions to induce travelers to use the road during off-peak times on summer weekends. Discussion of the case introduces students in microeconomics to many of the concepts they will learn in the principles course, and the case is especially well-suited to teaching on the very first day of class.
- Downward sloping demand
- Opportunity cost
- Demand elasticity
- Congestion Externalities
- Data collection and interpretation
Once used, the case can then be used as a sustained example for the complete discussions of each topic during the course.
Context for Use
Description and Teaching Materials
Maine Turnpike Coupon (Microsoft Word 43kB Aug29 12)
Maine Turnpike Case Preparation Questions (Microsoft Word 20kB Feb12 09)
Teaching Notes and Tips
Step 1: Student Preparation
This is a short case, and can be read in class in five to seven minutes. Instructors not using this on the first day of classes can distribute the materials before hand as homework and go straight to the discussion in class.
Step 2: Lead the discussion by asking questions.
Here are some sample questions and guidance on how to make use of student answers:
1. Why did the Turnpike authority offer this coupon?
This is the first preparation question, and while it is usually best NOT to ask preparation questions in discussion, on the first day of class doing so will reassure students and encourage participation. Depending on student responses, follow-up questions will include:
a. How did they choose the times?
b. Why did they use a coupon and not just reduce the toll for everyone?
The goal here is to get students thinking about the idea of using prices to influence consumer's choices, which begins to introduce the concept of economics as the study of choice behavior.
2. What does the Turnpike Authority think is the relationship between the level of the toll and people's decision to use the Turnpike?
The objective here is to get students to recognize the underlying behavioral assumption of an inverse relationship between price and consumption.If the question as worded above fails to produce a response, more probing question like "What would happen to the number of drivers using the turnpike if the price were higher?" might get the ball rolling. Once the inverse relationship has been articulated, the instructor can then name this as a downward sloping demand curve, which introduces that concept.
3. The survey suggests raising tolls during peak travel times as an alternative to lowering tolls during off peak times. Would these two changes have the same effect on driving decisions?
This begins the long process of getting students to understand the nature of opportunity cost. They will not initially understand that both policies cause driving at peak times to cost $1.60 more than driving off-peak. Focused questioning, including direct questions such as "Is spending $1.60 out of your pocket the same as failing to take advantage of a $1.60 discount?" It is important, in this part of the discussion, to identify and name the concept of opportunity cost and make clear that, to the economist, $1.60 spent is the same as $1.60 not saved.
4. The survey identifies seven potential purposes of the trip on which the driver received the coupon. Which types of travelers do you think are most likely to use the coupon? Which least? Why?
The answers to this question will lead to a discussion of the determinants of responsiveness to price, or elasticity. Follow up questions can focus on how much time flexibility different drivers might have. Once again, this is the time to name the concept and indicate that it will be part of future study in the course.
5. The experiment was a failure. The Boston Globe reported on September 7, 1995 that only 5% of turnpike riders used a coupon to get a reduced toll. Even that 5% overstates the effect, since at least some of those people would have ridden at off-peak times even without the coupon. Why do you think this failed?
Answers will include the inconvenience of having to use a coupon, among other things. This can be tied back to the question about raising the toll at peak hours. Leading questions to help students focus on those travelers able to switch times (recreational travelers), and how little $1.60 is in the context of a whole vacation budget will help them see how elasticity is determined and how it varies across people.
6. Is this what you expected to talk about in microeconomics?
This question provides a nice way to tie up the discussion and to outline what is to come in the rest of the course.
Early in the semester we discussed an experiment conducted by the Maine Turnpike Authority in the mid 1990's. In this experiment, drivers could use coupons to reduce their tolls by up to $1.60 if they used the turnpike during off-peak hours on busy August weekends. Since the maximum toll was $2.25, a $1.60 discount represents a significant reduction. As we discussed, only 5% of drivers on the turnpike actually used the coupon.
a. Why do you think the experiment failed? Be sure to use concepts and vocabulary from Economics to explain your brief answer.
b. Given what you know from this experiment, would the Maine Turnpike Authority be wise to raise tolls in order to finance road repairs? Explain.
c. Since the time this experiment was conducted, Amtrak has started train service between Boston and a number of Maine vacation spots. If this rail connection had existed at the time of the coupon experiment, would you have expected any difference in the results of the experiment?