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Economics OCR AS > Transport > Flashcards

Transport Flashcards

1
Q

Define fixed costs

A

Costs that do not change in the short run with changes in output
E.g. Rent, insurance, tax, salaries

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2
Q

Define variable costs

A

Costs that change with changes in output e.g. Billable staff wages, raw materials

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3
Q

Define short term

A

The time period where at least one FoP is in fixed supply (usually capital)

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4
Q

Define AC

A

Total cost divided by output (also know as unit cost)

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5
Q

Define marginal cost

A

The change in total cost resulting from changing output in one unit

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6
Q

Define economies of scale

A

A reduction in long run average costs resulting from an increase in the scale of production

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7
Q

Define transport infrastructure

A

Anything that allows the provision of transport

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8
Q

Define diseconomies of scale

A

An increase in long run average costs caused by an increase in the scale of production

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9
Q

What are 3 diseconomies of scale?

A

Problems of communication- more costs by letting all a mangers aware of objectives

Problems of co ordination- hue layers of management and decision making makes slower change

Problems of industrial relations- worker-employer relationship become more strained and distance

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10
Q

Define Purchasing EoS

A

When firms buy in bulk they often pay less per unit purchased. A large firm may be able to negotiate more favourable terms with a distributors to get greater quantities of goods

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11
Q

Define technical economies

A

Large firms can afford to use expensive high tech equipment and use it efficiently (larger boxes) As can transport more in one journey, this lowers price per unit

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12
Q

Define managerial economies

A

As firms grow in size, it becomes more possible and beneficial to employ specialists. This includes accountants or HR. As they only have to do one job this will increase their efficiency and output and lower AC

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13
Q

Define financial economies of scale

A

Large firms find it easier and cheaper to raise finance than small firms. Banks are more willing to lend them money with low interest rates, lowering costs per unit

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14
Q

Define average revenue

A

Total revenue divided by the output sold

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15
Q

Define marginal revenue

A

The change in total revenue resulting from the sale of one more unit

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16
Q

Define price taker

A

A firm that has no influence on price

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17
Q

Define price maker

A

A firm that influences price when it changed its output

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18
Q

Define predatory pricing

A

Setting prices low with the aim to force rivals out of the market

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19
Q

Define barriers to entry

A

Obstacles to firms leaving the market

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20
Q

Define sunk costs

A

Costs incurred by a firm that cannot be recovered once it has left the market

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21
Q

Define limit pricing

A

Setting a low price in order to discourage the entry of new firms

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22
Q

Define profit maximisation

A

Achieving the highest possible proud when MC=MR

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23
Q

Define supernormal profit

A

Profit earned where AR exceeds AC

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24
Q

Define normal profit

A

The level of profit needed to keep a firm in the market

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25
Q

Define natural monopoly

A

A market where long run AC are lowest when output is produced by one firm

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26
Q

Define sales revenue maximisation

A

The objective of achieving as high total revenue as possible

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27
Q

Define profit satisficing

A

Aiming for a satisfactory level of profit to please stakeholders rather than higher level of profit possible. Done when there are conflicting objectives between marketing, accountants etc

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28
Q

Define derived demand

A

Demand for one item depending on the demand for another

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29
Q

Define transport

A

Anything that allows the movement of people and goods for personal or business reasons

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30
Q

Define sales revenue maximisation

A

An objective wherefore produces where MR=0

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31
Q

Define sales maximisation

A

An objective that involves the maximisation of the volume of sales

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32
Q

Define allocative efficiency

A

P=MC

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33
Q

Define contestants market

A

A set of conditions here there is always the threat of new firms being able to enter the market

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34
Q

Define price discrimination

A

Where monopolists charge different prices for the same product in different markets (off peak and on peak)

35
Q

Define dead weight loss

A

Loss to society of the firm producing where price exceeds marginal cost

36
Q

Define collusion

A

Where firms tactically or otherwise agree not to compete on prices or device provision

37
Q

Define hit and run entry

A

The way which a firm enters a market where supernormal profits and being warned and leaves when profits return to normal

38
Q

Define shadow price

A

A relative price that is proportional to the opportunity cost for the economy

39
Q

Define hypothecation

A

A situation where revenue from tax is directly allocated to some other purpose

40
Q

Define Public Private Partnership

A

A contractual agreement between a public and private sector fund large vale projects

41
Q

Define cost benefit analysis

A

A technique for assessing the viability of a project, taking in account of all effects over time

42
Q

Define cost benefit analysis

A

A clear decision making tool that evaluated the worth of a project by comparing costs

43
Q

Define the principle agent problem

A

The conflict between directors and share holders. Directors may want sales revenue whilst share holders want profit maximising

44
Q

What is the Singapore road charging system?

A

1) Fall in peak traffic
2) reduction in number of multiple trips
3) users use roads more at off peak times

45
Q

Define transport

A

The movement of people and goods for personal or business reasons

46
Q

What is transport operations?

A

The providers of freight or passenger transport

47
Q

Define concentration ratio

A

The proportion of total market shared between the nth largest firms. More concentrated=more market share between firms

48
Q

Advantage and disadvantage of car travel

A

A- flexible and convenient, door to door

D- least environmentally friendly

49
Q

Advantage and disadvantage of bus/ rail travel

A

A- more attractive when short waiting times, very clean polluting
D- limited services, unreliable

50
Q

Air travel Advantage and disadvantage

A

Best for middle to long journeys for speed

Very polluting

51
Q

Define forecasting

A

Future estimated based on past information. Based on: GDP, fuel prices, population growth, car ownership, industrial output
Used to determine future network needs and effects of the transport policies. However, data needs to be accurate and future cannot always be predicted

52
Q

Define deregulation and where it has been present

A

Removal of regulations
1989 buses deregulation in all Cities but London
EU open skies- open access, airlines set own fares

53
Q

2 arguments for privatisation

A

1) public sector is inefficient

2) allows businesses to focus on long term business plans rather than short term political considerations

54
Q

2 arguments against privatisation

A

1) natural monopoly and issue of duplication

2) essential services raise social and economic well being u

55
Q

What are the aims of the public sector

A

Reduce externalities, social inclusion, integrated policy and modal shift

56
Q

What is the principle agent problem?

A

Board of directors have different objectives to shareholders

57
Q

3 reasons for profit satisfying

A

1) unwilling to take risks to increase profits
2) happy just to keep shareholders happy
3) bus firms don’t like to compete on fairs and just earn normal profit

58
Q

Define cross subsidisation

A

Revenue from profitable activities is used to support loss making ones

59
Q

Describe 5 negative externalities arising from transport

A

1) atmospheric pollution
2) noise
3) accidents
4) congestion
5) visual intrusion

60
Q

Why do economists put monetary values on everything?

A

So someone can pay the cost to correct the market failure, need to know the size of the market failure to correct it. However it is very hard to give a cost to everything

61
Q

Define sustainability

A

Meeting the needs of the present without compromising the ability of future generations to meet their own needs. Sustainable policy should cause modal shift and shorter journeys

62
Q

3 ways to combat road congestion

A

1) Build more roads (especially high capacity) however, supply creates even greater demand
2) public transport development
3) road pricing

63
Q

Define road charging

A

A form of road pricing where a flat rate charge is made for the use of a stretch of road and access to the charging zone

64
Q

Define the principal agent problem

A

Shareholders snd mange net have conflicting views over what to do
SH always want profit maximisation

65
Q

What is meant by a sustainable transport policy? (15)

A

1) road pricing would be a policy that charged people per mile for every mile that they drive. Pay the full social cost and the polluter pays, clear disincentive and shift to PT
2) subsidies lower fares or improve quality of PT making them more attractive causing a shift
3) traceable pollution permits set up by the eu in 2012 to counter airplane emissions. Issued to cover a certain amount of pollution. Lowers market failure

66
Q

Discuss whether increased competition increases efficiency (20)

A

YES
firms will move from a monopoly market to a competitive market and will have lower ACs to lower prices. Leads to PE. Price is also lowered as price is more MC
-dynamic efficiency as firms will invest greater research and development into create new innovative products
NO
- decreased dynamic efficiencies as no longer any supernormal profits
-Cut costs could lead to more negative externalities and worse AE
DEPENDS ON
Scale of increased competition as only a small increase won’t lead to much impact
not the level of competition but the threat that caused change
Depends on market structure (v bad for natural monopoly)

67
Q

Main characteristics of an oligopoly market

A

1) firms face linked demand curve, will not increase price as would lose huge market share. However, lower price causes price wars. Price wars avoided as firms decrease their profit. This leads to price rigidity and non price competition.
2) set prices as they don’t know reaction of competitors so won’t change price
3) high barriers to entry making market uncontestable
4) collusion exists (BA and virgin 2004-2006 where time can tactically agree on price or output) restricts competition to maximise profit

68
Q

Analyse the effect ofnegative externalities that arise from transport

A

1) allocative inefficiency occurs as too many resources are being used on transport that society does not want
2) OC & OP caused no costs so air travel is cheaper than it should be
3) increased pollution from plane emissions worsens asthma greater cost for tax payer for NHS

69
Q

Is the bus market contest able? (20)

A

1) des regulation in 1986 removed a big BoE which was that firms had to prove their service was needed. New companies now only needed to obtain an operators licence and meeting basic safety standards. This increased competition, lowering Barriers of Entry and making market more contestable
2) bus markets resemble monopolistic competition and firms are too small to partake in predatory pricing or have EoS. Lowers BoE and more contestable
NO
1) legal barriers removed but still have high health and safety standards and high start up costs so can’t enter otherwise
2) oligopolies form som places, natural monopolies
3) depends where you are

70
Q

Discuss whether or road user charges are a good way to combat congestion (20)

A

1) consumers pay full social cost which neutralises the externality. Impose charge will contract demand.
2) leads to hypothecation, government can reinvest money made from the charge into public transport subsidies to make PT more attractive and lower prices causing a modal shift
EVALUATION
1) effective if introduced with other policies like subsidies of PT
2) only effective if road charge is high enough to break the inelastic PED. Must affect middle to high incomes too
3) must cover all roads as motorway bypasses. Otherwise cause a shift not a decrease

71
Q

Different methods used to attach monetary values to eternal costs and benefits

A

1) congestion costs
Work hours cost X hourly wage
2) CBA and COBA
2) simple price comparisons before and after an airport is built

72
Q

Analyse determinants of demand for car use

A

1) greater economic growth means greater output, derived demand, higher demand for transport, higher willingness to work, higher car use
2) rise in price of substitutes. If rail fares are expensive, people will switch to cars as cheaper
3) higher disposable income leads to higher demand in cars. Incomes have risen faster than inflation as more income to spend rather than PT
4) increased population had occurred so more people moving around for work and leisure.

73
Q

Analyse how and why economists forecast future growth in transport

A

1) level of fuel prices foreshadow growth, rise in causes more income and greater shift to PT. Helpful to CBA we it estimated the importance of particular projects by looking at how bad future congestion will be and the benefits that will arise from a project
2) GDP and YED forecasts growth. When GDP growth is positive, incomes tend to rise too. When incomes rise, they will have more discretionary income and spend on leisure. Leisure will mean more resources. Used to determine future network requirements

74
Q

Analyse how barriers to entry determine degree of competition

A

1) EoS are present in large bus firms such as Stagecoach and Arriva as they are national big firms. New firms find it hard to compete due to large EoS can get discounts through Purchasing EoS, lowering ACs, deters new firms
2) high set up costs (e.g research before launch of new train service) these costs defer firms from entering the market as they will not be recouped on leaving the market, not take risks
3) brand loyalty- customers may always use the same taxi brand
4) predatory pricing used my incumbent firms eg lowering bus fares below the cost of production. New firms cannot sell at such a low price and cannot risk entering

75
Q

Analyse what is meant by an integrated transport policy

A

1) through ticketing is where the same ticket can be used on different modes of transport. This means people can easily transfer between trains and buses more easily and will be encouraged to do so. This is shown in an increase in demand for public transport use
2) subsidies are payments from government. Gives ease for commuters between different modes of transport (bus station near train station)
3) road congestion charge deter motorists to use roads during peak times lowering congestion. Less congestion means buses won’t be delayed and bus travellers an tie times in with trains

76
Q

Analyse economies of scale which arise in transport

A

1) Purchasing EoS arise with airlines buying fuel in greater bulk. Lowers results in Lower AC as firms are able to gain discounts and the cost of buying each unit of fuel diminishes despite total costs rising
2) managerial occur with airlines as can now employ specialist managers like HR and accountants. Benefit from lower ACs as specialisation leads to high productivity so increased output/hour
3) technical- firms expand they can take advantage of larger capacity trains:planes. With larger planes, will benefit from lower ACs. This is because capacity may double but total running costs rise more slowly

77
Q

Diseconomies of scale that arise

A

1) larger firms often suffer from poor communication as they find it difficult to maintain effective flow of information between departments. Time lags between information flows create lower productivity and higher costs
2) lower motivation of workers in large firms lower productivity

78
Q

Benefits of contestability (20)

A

1) monopolists are price makers and may lower prices in order to stop making supernormal profits which would have attracted more firms to the market. Increased consumer surplus
2) more AE as want to provide products which consumers demand in order to survive competitive markets. Firms are more PE we want to lower costs to reduce prices in order to not make super profits
3) increased supply from more firms entering the market increase choice and lower prices
NO
1) firms will not make supernormal profits that they can invest into R&D
2) fear the loss of supernormal profits and chance of hit and run firms, may not expand and lose benefits of EoS which would lead to productive inefficiency
3) bigger supply leads to greater negative externalities

79
Q

What is cost benefit analysis

A

CBA compares the costs and benefits of a proposed project. Attached monetary values to these costs (shadow prices) and forecasts the future costs and benefits. Selecting projects with a net benefit will cause an efficient allocation of resources. However, it is hard to attach monetary values to all costs/benefits. Shadow prices may be inaccurate. Time consuming and costly. Highly subjective to the values each C/B faces. Depends on validity of data

80
Q

Has privatisation in rail been a success?

A

1) Greater supply has led from a monopoly to monopolistic competition which lowers fares and raises consumer surplus.
2) increase productive effort as lower AC due to trying to get lowest ticket prices. AE as p=MC. Additionally They want to promote products consumers want or will lose market share
3) more incentive to invest due to the profit motive as want to achieve greatest profit
NO
1) limited competition within franchise systems creates monopoly or oligopoly systems. This leads to productive inefficiency as not producing at minimum AC
2) negative externalities

81
Q

Describe the characteristics of monopolistic markets

A

1) firms slightly differentiate their products via branding/ packaging. This tries to make their product unique to increase market power
2) profit maximise and produce where MC=MR
3) price makers- can change their prices slightly without losing all their customers
4) low concentration ratio as lots of firms
5) with low barriers to entry, new firms will enter the market and compete these profits away in the long run.for an individual firm, there is a leftwards shift in demand due to loss of sales from new entrants. More elastic as more provision

82
Q

Discuss the effectiveness of subsidising PT

A

1) diagram explanation
2) due to lower prices, public transport becomes more competitive with cars. This will be more attractive to car users as lower price causing a modal shift.
NO 1)inelastic PED for PT an card, a price fell will only change a tiny bit of demand leaving subsidies less effective
2) firms may not translate lower costs into prices but absorb them to increase profit
3) with rising incomes, subsidising buses may not be effective due to negative YED. People move away from buses
DEPENDS WHETHER USED IN CONJUNCTION WITH OTHER POLICIES (TAXES)

83
Q

What extent is monopoly provision beneficial?

A

1) producers gain greater profits from higher prices. This is seen in an increase of consumer surplus.
2) consumers benefit from lower prices as firms may gain from EoS such as bulk buying and hence benefit from lower ACs and greater consumer surplus
3) firms benefit from supernormal profits which an be used to increase R&D. This will increase dynamic efficiency and consumers can buy a greater range of services
NO 1) price discriminatory and charge each customer different prices for the same services, lowering consumer surplus
2) not economically efficient
3) reduces choice

84
Q

Why is demand for transport derived?

A

1) people use transport to travel to work rather than just for the activity itself. As employment roses there is a rise in the number of commutes leading to an increase in demand for PT
2) people take holidays demand transport to get to their destination rather than just to ride the transport itself and hence greater demand
3) foods are demanded by consumers. These goods need to be transported from their warehouses. As economic growth increases, firms needs to develop more foods and there is an increase in demand for freight services
4) raw materials transported

Economics OCR AS (1 decks)

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