Transportation Economics

Question 1

Market place

Answer 1

place where buyers and sellers meet. Does not have to be a physical place

Question 2

Demand

Answer 2

Demand denotes the quantities of a good or service that potential buyers are willing and able to buy

Question 3

Individual vs market demand

Answer 3

Individual demand : the quantity of a product that an individual intends to buy at a specific price and at a particular time given his or her income,

Market demand: is simply the sum of all the individual demands

Question 4

Determinants of individual demand

Answer 4

1. Price of a product
2. Price of related products (complements/ substitutes)
3. Consumer income
4. Tastes and preferences
5. Size of household

Question 5

Law of demand

Answer 5

The higher the price of the good, the lower the quantity demanded

Question 6

Supply

Answer 6

Supply refers to the quantities of a good or service that suppliers are willing and able to sell.

Question 7

Law of supply

Answer 7

The higher the price of the good, the higher the quantity supplied

Question 8

Individual vs market supply

Answer 8

Individual supply: refers to the quantity of a product or service that individual sellers/ producers intend to sell at a specific price in a particular period

Market supply: is obtained by simply adding the individual supplies. Now that the concept of supply has been better understood

Question 9

Determinants of Supply

Answer 9

1. The price of the product or service
2. The prices of alternative products or services
3. Prices of factors of production and other inputs (A key input into road transportation is fuel)
4. Expected future prices of vehicles themselves and/or fuel prices
5. The state of technology

Question 10

Market Equilibrium

Answer 10

When the quantity demanded is equal to the quantity supplied, the market is in equilibrium.

Question 11

Price elasticity of demand

Answer 11

This type of elasticity refers to the sensitivity of quantity demanded to a change in the price of the product or service.

|∞| = Perfectly Elastic

|0| = Perfectly Inelastic

|1| = Unitary Inelastic

|0-1| = Relatively Inelastic

|>1| = Relatively Elastic

Question 12

Income elasticity of demand

Answer 12

Income elasticity of demand relates to the sensitivity of the quantity demanded to a change in the income of consumers.

+ive means that the increase in income is accompanied by the increase in the quantity demanded of the product concerned. (Normal Goods). Normal Goods = Luxury good/ Essential good

Luxury Good
•When the income elasticity of demand > 1
•% Change in Q> % change in Y

Essential Good
•When the income elasticity of demand is still positive but < 1 [0-1]
•% Change in Q < % change in Y

-ive means that the increase in income leads to a decrease in the quantity demanded of the product concerned. (Inferior Goods).

Question 13

Cross elasticity of demand

Answer 13

Cross elasticity of demand is a measure that shows the sensitivity of the quantity demanded of a specific good or service to a change in the price of a related (substitute or complement) good or service.

Substitutes
•Cross elasticity of demand is positive.
A change in the price of one product (butter), will lead to a change in the same direction in the Qd of the substitute product (margarine).

Complements
•Cross elasticity of demand is negative.
A change in the price of one product (motorcars), will lead to a change in the opposite direction in the Qd of the complementary product (tires).