Everybody loves free parking, but when the number of parking spaces is fewer than the number of drivers wanting to park, free parking will squeeze out the drivers with more urgent needs.

1. Should Parking Be Free?
http://flashecon.org/lectures/parking/parking.asp

2. Demand for parking is represented as a downward
Cost per day
sloping curve. The driver with the most urgent need
is prepared to pay $10 / day, while the driver with
the least urgent need will only park for free.
$10
$5
Demand for parking
Paid benefit
0 50 100
Parking spaces

3. When the number of spaces is equal to the number of
Cost per day
cars needing parking and it is free, it will result in
maximum utility, or utility that is not paid for when
parking is free.
$10
$5
Consumer surplus Demand for parking
0 50 100
Parking spaces

4. When the number of spaces is fewer than the number
of drivers looking for parking, the consumer surplus is
Cost per day reduced by the uncertainty of not finding a space.
$10
$5
Demand for parking
Consumer surplus
0 50 100
Parking spaces

5. If the spaces are reduced by 50%, the utility is also
reduced by 50%. If parking is kept free, and spaces are
still in high demand, the consumer surplus is reduced,
Cost per day and its distribution may also be insensitive to the
differing needs of drivers. Drivers with less urgent needs
will remain in spaces that drivers with urgent needs
$10 would be willing to pay for. Time spent searching for
parking is a dead weight loss to the economy.
$5
Demand for parking
Consumer surplus
0 50 100
Parking spaces

6. If a fee of $5 per day is charged for parking, the number
of spaces demanded is equal to the number of spaces
available. Nobody who is prepared to pay $5 is denied a
Cost per day space, eliminating the need to search for parking, and
those who are not prepared to pay $5 will look for
alternatives.
$10
$5
Paid benefit
0 50 100
Parking spaces

7. For the drivers who would be willing to
pay $10 / day, there is a consumer
surplus that they benefit from. The blue
Cost per day area represents the paid benefit received
Consumer by drivers and the collected revenue for
surplus the parking lot owner.
$10 under paid
parking
$5
Paid benefit
0 50 100
Parking spaces

8. When we compare the benefit of free
parking to the benefit of paid parking, the
blue area (paid benefit) alone is equal to
Cost per day the benefits of free parking.
$10
$5
Paid benefit
0 50 100
Parking spaces

9. • When spaces are scarce, free parking is inefficient
Cost per day • The total benefit under paid parking is larger than
under free parking
$10
Consumer
surplus under
paid parking
$5
Paid benefit
0 50 100
Parking spaces

10. For more information
• Visit FlashEcon.org
• http://flashecon.org/lectures/parking/parking
.asp
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