Some observers have argued that the Internet is overused in times of network congestion.
a) Do you think the Internet serves as common property? Are people ever denied access to the Internet?
b) Draw a graph illustrating why the amount of traffic is higher than the efficient level during a period of peak demand when there is congestion. Let your graph reflect the following characteristics of the Internet:
i. At low traffic levels, there is no congestion, with marginal private cost equal to marginal external cost. ii. However, at higher usage levels, marginal external costs are positive, and the marginal external cost increases as traffic grows.
c) On your graph explain how a tax might be used to improve economic efficiency in the use of the Internet during a period of congestion.
d) As an alternative to a tax, one could simply deny access to additional users once the economically efficient volume of traffic is on the Internet. Why might an optimal tax be more efficient than denying access?