The Eastern Harbour Tunnel

The Eastern Harbour Tunnel designed to increase its toll by 40 percent. In general, increasing the price will decrease the quantity demand of drivers, the profit will decrease. The reason that the company increases the toll of the tunnel to earn more money can be explained using the simple supply and demand diagram.

Figure 1 shows the change of the revenue of the tunnel. We assume that the supply is perfectly inelastic as the quantity will not change with increasing toll. For the demand, drivers can afford to pay more tolls so the demand curve is quite inelastic. Let S & D be the supply and demand curve. Gain in revenue due to toll rise is greater than loss in revenue, so the total revenue will increase. As the result, the Eastern Harbour Tunnel will increase its toll in order to make more profit.

The toll rise for the Eastern Harbour Tunnel and the congestion problem of the Cross-Harbour Tunnel will make drivers looking for alternatives to cross the harbour in order to save money and time. So MTR and New World First ferry will become the substitutes of the people. They will choose them to cross the harbour.

Although there are substitutes for the Eastern Harbour Tunnel, problems of the toll rise still exist. Hung Hom end of the Cross-Harbour Tunnel will be more congested after raising the toll of Eastern Harbour Tunnel.

Figure 2 shows the change of excess demand of the Cross-harbour Tunnel after raising the toll of the Eastern Harbour Tunnel. Let S be the supply of the Cross-Harbour Tunnel and D1 and D2 are the old and new demand of it respectively. When the toll rose from $25 to $35, more drivers use the Cross-Harbour Tunnel as they are close substitutes. So the demand curve of the Cross-Harbour Tunnel will shift to the right and the excess demand of it will increase. As the result, the congestion problem will be worsened.

The citizens are annoyed by the congestion problem, so government should take the role on improving the problem.

First of all, government can communicate with bus companies about regulating the bus routes or the number of runs of buses between Kowloon and Hong Kong Island. By increasing the number of runs of buses at Eastern Harbour Tunnel, citizens can travel through the tunnel by bus in a lower cost with respect to by their private cars. So fewer vehicles will use the tunnel at the same time and the congestion problem of the Cross-Harbour Tunnel will be reduced.

On top of that, government can increase the toll of the Cross-Harbour Tunnel during busy hours (i.e. 7-9 am and 5-7 pm). So some drivers will not use the Cross-Harbour Tunnel at that moment in order to reduce the congestion problem.

All in all, we totally disagree that the company of the Eastern Harbour Tunnel raise the toll in order to make more profit. This will worsen the congestion problem of the Cross-Harbour Tunnel.