ECONOMICS TRANSPORTATION

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The Economics of Transportation

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Table of contents

Introduction1

Discussion1

Demand for Transportation Services1

Cost and the Value of Time1

Elasticities2

Price Elasticity2

Cross-Price Elasticity of Demand3

Supply of Transportation Services3

Economies of Scale3

Economies of Scope4

Mode Choice4

Location Patterns5

Components of Cost5

Mass Transit5

Economics of Transit6

Transit Fares6

Conclusion7

References8

The Economics of Transportation

Introduction

In this paper we try to focus on the economics of Transportation. This research paper starts with a discussion of the demand for transportation services and the factors that are important in analyzing the choices made from the perspective of the user of the transportation system. Then, of course, supply of transportation is evaluated. Because the market for transportation services is not the typical market system, the method of funding and the incentives for efficient use of the system are then discussed, along with the role of government in regulating the transportations system. The research paper concludes with a discussion of some of the important policy debates regarding transportation.

Discussion

Demand for Transportation Services

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 (Dean, 2003).

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 (Small, Winston, & Yan, 2005).

Elasticities

There are a variety of elasticities that are important in understanding transportation economics. The price elasticity of demand is the one most commonly discussed in economics, and it is very relevant for transportation. However, two other elasticities are important in analyzing transportation choices: the income elasticity of demand, which relates to changes in demand as income changes, and the cross-price elasticity of demand, which relates to the way demand for one good changes when the price of another good changes.

Price Elasticity

For transportation, the price elasticity of demand is complicated because there is either the ordinary price elasticity of demand, based on monetary price, or the generalized cost elasticity of demand, based on monetary and time cost. Where the time needed for travel does not change, the ordinary price elasticity of demand is evaluated. In general, the price elasticity of demand for transportation is fairly low in the short ...