Economic Decline

Economic Decline

Introduction

Recent Economic decline on a households desire to own more than one automobile is up to some extent is correct but the major reason for this in not only the recession or increase in oil prices but there are some other factor also exist which also decreases the demand of vehicles or buying more than one car, these factors are discussed below.

The trend for personal travel has been for increasing use of the automobile and reduced reliance on alternative modes. One result has been increased levels of congestion and delay on the road system and increasing subsidies for the transit system. From an economic perspective, many of the perceived problems occur because people do not pay the appropriate price for travel. Hence, it is important to understand the demand for transportation and the methods of finance because the latter determines the perceived price.

There are two important distinctions between the demand for transportation and the demand for most goods and services. The first is that transportation is typically classified as a derived demand; most travel is not consumed for itself. Rather, it is a method to achieve other goals. The second is that for personal transportation, the person's time must be used, and the value of this time is part of the cost of transportation. Thus, time and the value of time are very important issues in discussions of transportation. In fact, transportation economists often differentiate between the cost of transportation services and the cost of transportation, which includes the opportunity cost of the time used in making the trip. The latter is typically referred to as generalized cost. This distinction is very important when analyzing the demand for transportation services because the differences in time cost often have substantial impacts on the choice of mode for travel.

The next step in analyzing the demand for personal transportation refers to elasticity of demand. In addition to the common discussion of price elasticity of demand, the income elasticity of demand and cross-price elasticity of demand are important in analyzing transportation choices.

Cost and the Value of Time

The most common example of the distinction between the generalized cost and the monetary cost of different choices is the choice of mode for commuting. If one looks only at the monetary cost, then mass transit would be a bargain, compared to driving, for most people. The transit fare is typically a fraction of the cost of using an automobile, especially if the person driving must also pay for parking. Despite the price differences, the vast majority of commuters in the United States choose the automobile over mass transit. A major reason is that the auto commute is typically much shorter than the transit commute, and people value the time savings. A broad generalization often used in transportation analysis is that people value time in commuting at about half of their wage rate, but there is substantial variation in people's willingness to pay to save time. This valuation also varies by how the time is being ...