A few days ago I met a student who showed me the texts he received from a student doing an AS Economics exam. It was the final question in Unit 2. The student then texted back the detailed answer. He had no qualms in showing me this as he knew that a) as I didn't work at the school they b) would not listen to me as it would reflect badly on them and c) I could never prove it anyway. he added that the invigilator 'often went drinking with the pupils' - which may, of course, be irrelevant.
Yesterday's Transport exam was travelling via mobile phones at 10 am with texts going out looking for answers. Here's how you do it.
Take 3 mobile phones into the exam.
hand one in then say 'Oh, I forgot, here's my second one'. That makes it certain you will not be searched for the third. Also say that 'owing to exam nerves ' you have diahorrea.
Ten minutes into the exam go to the toilet. be fairly quick as all you are doing is texting out the question.
Then 1 hour later go to the toilet again (as you have diahorrea) and read through the answers to check against what you have written.
In the Transport paper one student went to the toilet for 20 minutes (!!!) and then came back and wrote loads.
It's so easy - and so preventible!
Mocks – 1
Do ONE of the following:
1. (a) explain how the theoretical treatment of perfect competition is useful in analysing transport markets. (10 mks)
(b) Apply the natural monopoly argument to transport. (15 mks)
2. a) What are the special characteristics of air travel? (10 mks)
b) Examine the impact of deregulation on air transport. (15 mks)
3. a) Outline the main transport problems facing the government (10 mks)
b) Government transport policy is set out in White Papers and is built round various themes. Explain the themes and the transport policy. (15 mks)
1. a) Outline the main characteristics of transport investment. (10 mks)
b) Discuss the arguments for and against the PFI. (15 mks)
2. a) Why should aviation pay for its external costs? (10 mks)
b) Examine the difficulties in estimating externalities and identify two alternative methods used to estimate externalities. (15 mks)
3. a) Describe how transport poses sustainability issues. (10 mks)
b) Evaluate the economic argument for subsidising railways (15 mks)
1. a) Government measures to intervene in transport markets to correct market failure can be classified as demand or supply side. Identify and briefly explain at least SIX demand side policies. (10 mks)
b) Explain supply side policies and, with reference to at least THREE supply side policies in other countries to tackle congestion, compare supply side to demand side policies in terms of effectiveness. (15 mks)
2. a) Outline the main characteristics of transport investment. (10 mks)
b) Discuss the arguments for and against the PFI. (15 mks)
3. a) Outline the main barriers to entry in transport. (10 mks)
b) With reference to contestable market theory, explain how making markets contestable benefits the consumer. (15 mks)
Middle: say it
Conclusion: say that you have said it, provide a judgement and add one other point
Here is an excellent presentation on WEESTEPS...
So if you were going to evaluate the London Congestion Charge (nudge, nudge) then you would refer collectively to the evidence you have prsented, make a judgement and then add one further point.
Thus if you had an essay about freight rail (nudge, nudge) then you would look at the usage from the business view, look at the costs, reliability but in the conclusion add the point that not all businesses are profit maximisers. (That's an example of a final point.)
Very important to always keep your eye on the clock too.
(a) Explain the main conclusions of the Eddington transport study (15 mks)
(b) Evaluate the ways of producing a more sustainable freight transport policy (20 mks)
(a) Explain the objectives of transport policy in the
(b) Evaluate the challenges for government in trying to implement a sustainable transport policy (20 mks)
(a) Explain a) the user benefits and b) the costs of Crossrail (15 mks)
(b) Using and Appraisal Summary Table explain a multi-criteria approach to new road schemes (20 mks)
(a) Using a diagram, explain the benefits to users of a new road (15 mks)
(b) Evaluate COBA as a means of appraising new motorways and trunk roads (20 mks)
(a) Explain the role of private and public sectors in resource allocation (15 mks)
(b) Evaluate PPP as a means of funding expansion in Transport (20 mks)
(a) Explain the main arguments for public transport subsidies payments (15 mks)
(b) Discuss whether air transport growth should be controlled?
(a) Explain how road pricing has differed between countries. (15 mks)
(b) Evaluate the use of road user charging as a means of reducing traffic congestion (20 mks)
(a) Explain the reasons behind the privatisation of various businesses in the transport industry (15 mks)
(b) Evaluate the arguments for the privatisation of British Rail (20 mks)
(a) Explain the EU Open Skies policy (15 mks)
(b) Evaluate the effects of deregulation on the airline industry (20 mks)
(a) Explain the difference between contestability and competition (15 mks)
(b) Evaluate the transport relevance of contestability (20 mks)
(a) Explain the different market structures in the transport industry (15)
(b) Evaluate the transport relevance of monopoly/monopolistic/oligopolistic competition (20)
(a) Explain – with examples – the importance of economies of scale in the transport industry (15)
(b) Discuss the different aims and objectives of firms in the transport industry (20)
(a) Explain how forecasting road traffic demand is carried out (15)
(b) Evaluate the importance of transport to the
(a) Explain the factors that affect the demand for transport (15)
(b) With reference to recent trends in transport demand explain why traffic forecasts are useful (20)
Congested road space can be rationed/controlled by:
1. Queuing: the resultant traffic jams waste time and generate pollution
2. Regulation: banning some motorists from driving e.g. Florence bans cars from their narrowest streets or pedestrian central shopping areas;
3. Price: allocating road space to those who value it most – ignoring income distribution and equity issues
Task: What are the consequences of road pricing?
Road pricing or congestion charging results in:
1. Government revenues generated for subsidising public transport - if hypothecated;
2. Increased transport costs - inflationary pressure and a loss of competitiveness;
3. Little impact on journeys - undertaken by car as demand for peak time road usage is price inelastic because of absence of substitutes;
4. Equity issues - congestion charges are a regressive tax and so are unfair as low income groups are excluded;
5. Implementation issues – efficient toll collection requires a robust and expensive infrastructure;
6. Road pricing encourages consumers to switch to relatively cheaper substitutes.
Task: Explain the polluter pays principle?
The polluter pays principle means polluters should be taxed the amount of their externality e.g. road charging i.e. Pigou tax.
This is done by setting: an indirect tax equal to the marginal external cost (EMC) – this means the government is forcing producers and consumers internalise the externalities – (the polluter pays principle)
However it is difficult to estimate externality and expensive to collect the tax e.g. road charging; this requires expensive extensive IT infrastructure able to read number plates of thousands of cars in all weather conditions.
Task Explain the policy options for combating/ overcoming congestion?
A. Through Increased Supply by:
1. Build more roads- new roads generate extra traffic. New roads are unsustainable;
2. Enable constant traffic speed to reduce congestion;
3. Improve existing roads e.g. variable Road humps; Improve traffic light;
4. Prevent lorries overtaking using the fast lanes.
B. Through Reduced demand by:
1. Congestion charging equals to EMC.
2. Workplace parking charge
3. More/improved park & ride schemes
4. Improve public transport capacity & quality
5. Subsidise substitutes e.g. increase subsidies or offer tax relief on train/bus season tickets
6. Use planning regulations to halt new out-of-town super stores and build houses near work
7. Encourage tele-working where employees work from home through tax incentives
8. Quotas to limit car owned by individuals.
Task: Explain the term subsidy.
A subsidy is a grant given by the government to producers to lower their cost of production by encouraging more production or consumption of a particular good or service.
Task: Why subsidise railways?
Subsidies can be justified on social equity grounds:
1. low-income groups are now more able to afford public transport and loss making but socially essential services maintained.
2. New transport infrastructure offers positive externalities encouraging new firms and jobs to commuters
Task: Is road transport sustainable?
Road transport is least sustainable because it consumes fossil fuels, creates pollution and congestion at peak times and the road network has a significant impact on land use.
However the degree of unsustainability depends on the:
1. Size of the vehicle and the amount & source of energy used.
2. Place time and distance travelled Urban travel in city centres during peak times is less sustainable
3. Occupancy of the vehicles. Well occupied cars are more sustainable than several driver only cars
To inform policy and enable evaluation, the government monitors four stated objectives of sustainable development.
Task: How is sustainability maintained?
1. Effective protection of the environment - Increased transport and associated negative externalities damage the environment;
2. Prudent use of natural resources - transport consumes natural resources;
3. Maintenance of high and stable levels of economic growth and employment - contribution to national gross domestic product (GDP)
4. Social progress that recognises the needs of everyone - cheaper transport means more people have opportunities to travel to further away places.
Task: Is congestion charging a success in London?
A successful project meets its objectives.
• 20% less traffic is entering the zone – the target was 15%.
• Projected revenue is less than half the 2001 forecast at £65m;
• Bus subsides are ahead of estimates at £500m per annum. This means less revenue is being raised to finance transport improvements.
• Bus usage is up 14%. Journey reliability has improved
Task: What are the main transport problems facing the government?
• Capacity : Current road, rail and air networks are unable to meet current demand at peak times.
• Sustainability: Projected increase in car usage is unsustainable.
• Infrastructure: past under investment means the public transport network is badly maintained and characterised by poor quality and lack of choice.
• Use of buses falling outside London: Mergers of bus companies following deregulation means a lack of competition, reduced services, higher fares, local monopolies and high subsides to operators to run non commercial rural routes
• The government is unsure if the electorate will accept satellite technology for charging will work.
Explain why the ‘best’ allocation of resources is not always possible?
The characteristics of transport mean such conditions are not always possible.
Transport markets fail because:
• Operators and users fail to take account of significant externalities.
• There is imperfect competition in a transport market e.g. in some regions local buses are a monopoly.
• Roads are a quasi public good i.e. to some extent non-excludable and non-rival.
• Railways are a natural monopoly so a regulated monopoly is the best solution.
Task: What are the special characteristics of transport investment?
The characteristics of transport investment include:
• Transport investment especially in infrastructure is very expensive and measured in £billions;
• Infrastructure has a life of 25+ years ie is long term;
• The costs mainly occur in the early years while the benefits are spread over the life of the project;
• Transport infrastructures also create positive externalities;
• Investment in local transport infrastructure can be an initial stimulus to regional economic development with improved job opportunities and a multiplier effect.
Task: Is road space a pure public good?
A pure public good is non-excludable and non-rival.
Tolls and licences can be used to exclude motorists; once operating at capacity road space becomes rivalry. In short, road space is a quasi public good.
Task: Distinguish between Public Private Partnerships and the Private Funding Initiative
Public Private Partnerships (PPPs) are joint ventures between private sector firms and public sector agencies eg Amery and London Underground.
The Private Funding Initiative (PFI) is an example of PPP where private firms bid for a contract to pay for the construction costs of infrastructure and then rent the finished project back to the public sector.
Task: Is the Private Funding Initiative a success in transport? Justify
No: Some private sector firms are demanding rates of return in excess of 30% for investment in London Underground modernisation.
This implies a pay back period of 3 years with 22 years of ‘super-normal profit’. The ‘abnormal profit’ received by firms could be reinvested in the service.
Yes: “The use of PFI for road procurement has delivered contracts representing real value for money…. These savings are significant and show that private sector efficiencies and the adoption of whole-life costing techniques are not just theory, but a reality.” Source: Highways Agency.
Task: Give examples of fixed, variable and semi fixed costs in transport
Fixed Costs are independent of mileage.
• Car purchase / replacement
• Interest on loans
• Depreciation of vehicle due to age
Variable Costs depend on miles/usage.
• Depreciation from mileage
• Time Cost (opportunity cost)
Semi fixed costs part fixed and part variable eg a firm may employ a pool of drivers who may be idle at some point in the day.
Task: Are load factors important?
Load factor refers to the proportion of total space or seats sold.
• A load factor of 80% means 8 in 10 seats are sold.
• A greater load factor means higher technical efficiency, and lower unit costs.
Task: Can costs and benefits always be expressed in monetary terms?
Externalities are estimated using money as a unit of account. Private costs and benefits are relatively easy to establish by constructing demand and supply schedules.
External costs are estimated using one of two methods:
• ex ante i.e. before the event: what are users willing to pay to avoid an externality?
• ex post i.e. after the event: what are the costs incurred by say an accident.
NB: The Dept of Transport assess environmental, accessibility, and integration impacts qualitatively ie outside a CBA approach.
Transport systems help overcome the effects of distance and:
1. Increase the size of the market by enabling domestic goods to be sold globally;
2. Create mass markets
3. Enhance opportunities for international trade / economic integration
4. Enables just in time production techniques
5. Improved mobility of labour (commuting possible)
1. Transport accounts for nearly 15% of
2. Transport infrastructure generates positive externalities
3. Investment in transport infrastructure can be an initial stimulus to regional economic development.
The quantity of transport demanded is dependent on a range of factors:
1. The price of a journey e.g. price of petrol or rail fare
2. Price of substitutes e.g. coach or rail fare.
3. Price of complements e.g. price of new cars and petrol.
4. Income e.g. low income households cannot afford a car.
5. Consumer taste e.g. public transport unreliable.
6. Time – how long will a journey by a given transport mode take?
Consumer behaviour changes have increased demand for car travel:
1. Workers commute longer distances.
2. Out of town shopping centres encourage road usage.
3. More pupils are taken by car in the school run.
4. The price of new cars has fallen following government fair trade investigation stimulating demand.
This is where a firm sells identical products at different prices to different buyers.
· Passengers or freight users: wants low price/costs and reliable safe journeys.
· Employees: seeking high wages and good working conditions.
· Employers: (operators) want minimum costs, maximum profits and meeting government targets.
· Managers: seeking bonuses and promotion.
· Owners/shareholders: maximum profits, dividends and growth.
· Local communities: want excellent transport infrastructure and minimal negative externalities.
· Government: want to satisfy voters, invest in infrastructure and high tax receipts.
- Productive efficiency – firms delivering the highest possible output from given inputs by producing at the lowest unit costs.
- Allocative efficiency – resources are allocated to the production of goods/services most valued by society.
In terms of:
1. Productive efficiency:
· Unit costs leading to higher profits;
· Firms who do not produce at unit cost may be forced to close.
2. Allocative efficiency:
- Produce goods/services most people want
- Enter industries enjoying abnormal profits
- Leave industries suffering abnormal losses
Non-price competition in the form of differentiation through:
- Brand Image
Unregulated monopolies have the freedom to set profit maximising (or loss minimising) price/output.
- Cap price increase
- Monitor service quality
- Introduce competition
- Significant economies of scale
- A natural monopoly e.g. railway network MES is so high meaning one firm can fully exploit the potential of economies of scale.
- Only monopolies can generate sufficient profits to enable large scale high cost of R&D.
The degree of monopoly power is related to the availability of close substitutes through:
- Unique or highly differentiated products
Internal organic growth or mergers/takeovers
Government encourage competition through:
- Privatisation e.g. telecommunication; water; electricity etc.
- Removal of barriers to entry and open up a market to greater competition.
- More entrants (new firms)
- More frequent services
- Lower fares
- More buses operating below full capacity.
- Adding to existing congestion.
- Increasing pollution in crowded city centres.
- Improved services
- More competitive charges
- Better customer services
- Enhanced efficiency