ETS Chapter 9 Flashcards
What is the marginal cost principle in transportation?
The marginal cost principle states that prices should be set equal to the additional cost of transporting one more unit, ensuring efficient resource allocation.
Example: A railway charges higher fares during peak hours when extra capacity is needed.
How does marginal cost influence price and quantity in a market?
Marginal cost influences market price by ensuring that production continues until the cost of producing one more unit equals the price consumers are willing to pay.
Example: A shipping company expands its fleet when the revenue from additional deliveries exceeds operational costs.
Why do marginal costs vary based on unit size?
Larger units may have lower marginal costs due to economies of scale, while smaller units may have higher marginal costs.
Example: A full truckload is cheaper per unit than shipping small parcels individually.
How do marginal costs change over time in transportation?
Marginal costs fluctuate based on capacity utilization, fuel prices, and infrastructure maintenance.
Example: Airlines adjust ticket prices based on fuel cost variations over time.
How do demand fluctuations impact marginal cost pricing?
High demand increases marginal costs as resources become scarce, while low demand reduces them.
Example: Ride-sharing services apply surge pricing when many users request rides simultaneously.
What are the external effects considered in marginal cost pricing?
External effects include congestion, pollution, and infrastructure wear, which affect the true cost of transportation.
Example: Governments impose fuel taxes to account for pollution externalities.
Why is marginal cost pricing important for transportation efficiency?
Marginal cost pricing promotes optimal resource use, reducing waste and congestion.
Example: Road pricing schemes encourage drivers to avoid peak hours, improving traffic flow.
