OCR 2885 Transport

Jam Busters

2010-09-05T16:57:00.000-07:00

Here is a sobering thought: it is estimated that there are more than 750m vehicles on the planet, and that this mechanical population is swelling by more than 50m newcomers each year.

At the current rate, the total number of cars on the road will double by 2025. All those vehicles need to go somewhere – but, increasingly, they don't.

While the combustion engine brings movement to the masses, and gives us the freedom of choice to live and work where we want, it also regularly leaves us gridlocked, sitting impotent and immobile in traffic jams, gently simmering in our own frustration.

Congestion is nothing new. Archaeologists have discovered evidence of horse-and-cart jams in the ruins of Pompeii. But, health implications aside, traffic congestion is more than ever having a huge economic impact. In the UK, jams cost the national purse £20bn-£30bn a year. In car-addicted America, where each year the driving population cumulatively spends around 500,000 years stuck in traffic, the congestion cost is around $100bn (£65bn).

In Moscow, now regarded as the most congested business city in the world, jams cost some $12bn a year, and the city would need to build 400 more kilometres of road to ease the 650 jams that happen each day. In the face of this global gridlock, road planners and traffic controllers are increasingly turning to science for solutions.

As far back as the 1950s, mathematician Sir Michael James Lighthill was using wave theory to understand the complexities of traffic flow and interaction. Today the traffic-science sector attracts computer programmers, engineers and even astronomers, along with traditional mathematicians. With a tsunami of new motor vehicles already sweeping across developing nations such as China and India, and road capacity full in Europe and America, research into road-network optimisation is vital to keep the planet moving.

Today's jambusters arm themselves with powerful computer-simulation tools to construct virtual highways containing thousands of virtual vehicles which interact with each other and gives clues as to why seemingly random congestion occurs. Although roads carrying vehicles at a certain density will always become congested, traffic scientists puzzled for years over those annoying jams that occur on free-flowing roads for no apparent reason. In the mid-Nineties, researchers in the US first built simulations which mirrored this effect. Within the computer programme, virtual cars would organise themselves spontaneously into distinctive patterns. Other models found a similar effect, where vehicle flows turned suddenly sluggish and stopped, as if they had crystallised. The commonly held view was that these patterns were caused by sheer weight of traffic.

Boris Kerner, a researcher working at the Daimler Chrysler Research Centre in Germany, studied the traffic state between freely flowing cars and a full-scale traffic jam, which he called "synchronised traffic flow". He discovered that on carriageways where the traffic was moving in this manner vehicles appeared to have jelled into a type of unified, moving mass. This condition allowed waves of dense traffic to pass upstream along a motorway. More recently, a team of mathematicians from the University of Exeter discovered that these congestion waves were not due to sheer weight of traffic, but were down to driver action.

The Exeter team developed a computer model that simulated the impact of unexpected events on motorways, such as lorries changing lanes. They discovered that under certain conditions, when cars are bunched in a specific density and travelling at a specific speed, a single driver over-reacting can set off a braking shockwave that will build momentum and travel back along a motorway for miles.

As the initial driver brakes, the car behind has to brake, and so on until cars bunch into clumps and stop-start congestion develops. Eventually, several miles back, traffic grinds to halt. The process is akin to an automotive butterfly effect, where a nervy tap of the brake pedal on the M1 at Luton can cause someone to miss an appointment in Milton Keynes an hour later.

Researchers in Japan observed a similar "wave" pattern when they put 22 vehicles on a 23-metre, single-lane circuit and asked drivers to cruise steadily at 30km an hour. Initially the traffic moved freely, but small fluctuations soon appeared in distances between cars and built into larger pockets of congestion. These clusters, which scientists call "jamitons", spread backwards through the traffic like a shock wave. Scientists studying the same phenomenon at MIT in the US discovered that "jamitons" share similar characteristics to the detonation waves created by explosions.

Of course, scientific theory is not always needed to explain gridlock. The causes of some jams, such as the recent 100km queue in China, which snared drivers for days on the main north-south motorway to Beijing, are easily identified. That monster jam was blamed on roadworks, a broken-down car and an overload of trucks carrying coal from Mongolia to the capital. Stranded drivers struggled to travel two miles a day and the queue generated its own economy, with industrious hawkers selling provisions to motorists at vastly inflated prices.

Thanks to its breakneck development, Beijing is now one of the top global traffic hotspots along with Sao Paolo, Mexico City, Johannesburg, New Delhi, Moscow, London, New York, Los Angeles and Tokyo.

According to Tim Rees, head of traffic behaviour at research and development consultancy Transport Research Laboratory (TRL), major city road layouts have a lot to answer for. "Any city serviced by motorways which merge as they approach it will be prone to congestion," he says. "When traffic merges vehicles have a tendency to cut across lanes moving into gaps in the traffic flow, causing drivers behind to slow or brake. That leads to a ripple effect which can stretch back 20 miles. Ideally, to alleviate this type of effect, drivers should stay on the inside lane for a mile or so after merging with motorway traffic – but that rarely happens."

TRL developed the traffic management system that controls the flow on the London orbital M25 motorway. This system, one of the most advanced in the world, uses real-time data collected from monitors on the carriageway and analysed by TRL experts to set strategic variable speed limits to try to alleviate problems before they materialise. As traffic builds to conditions where waves are likely to form, controllers set speed limits to regulate traffic flow at either 60mph or 50mph. Further back, a 40mph limit is set at the rear of the predicted congestion zone to help regulate traffic through it.

However, even with the best technology in the world, sometimes demand on roads is just too high and jams are unavoidable. Theoretically, in order to keep a constant flow of 60mph, the ideal number of cars on a road should be between 1,800 and 2,000 per lane, per hour. On a four-lane stretch of the M25 this would mean 8,000 cars per lane per hour. With up to 200,000 vehicles a day during busy periods, demand far exceeds supply.

Solutions to the global gridlock problem are myriad, and range from the sublime to the ridiculous. On the M42 a "hard-shoulder running" pilot scheme, whereby the hard shoulder was opened to alleviate congestion, proved successful and greatly reduced journey times and congestion.

TRL have also looked into the possibility of sending out vehicles, like the pace cars in motor racing, to slow traffic down before congestion builds on busy motorway section. Restricting road use by banning certain motorists from driving one day a week, depending on their car registration number, is used in China. Engineers there are also developing an electric bus on stilts that will carry 1,400 people and run on rails, allowing cars to drive underneath it.

However, according to Gabor Orosz, assistant professor of mechanical engineering at the University of Michigan and one of the architects of the Exeter University study, the solutions lie in marrying macro-level systems, like the M25 variable speed limit system, with micro-level technology built into cars.

He says: "In our research we discovered there is a region between a smooth-flowing state and a jam state where congestion build-up depends on the driver behaviour. This region is typified by between 15 and 50 cars per kilometre depending on conditions and here, congestion waves are likely to be caused if a driver brakes too hard. This is the region where we can do the most for traffic in terms of controls and regulations.

"We realised that if you build radar into the bumper of a car and have an on-board computer that can control braking and acceleration, you can control the car through this type of traffic profile to optimise the chances of avoiding congestion. We tell the computer how to drive and the computer reaction time is much faster and more proportionate than a human's. It is like an auto-pilot system, but with limited capability. We call it Automatic Cruise Control. In theory an ACC car would get to a congestion area and signage would advise the driver to enable the ACC, which would take the driver smoothly through the zone."

Until we can entrust our computer-controlled cars to smooth out the traffic however, the best advice scientists have to alleviate jams is to drive smoothly and steadily. Alternatively, of course, you could just take the train.

Source: The Independent

Cheating in the Transport examination

2010-06-24T03:03:00.000-07:00

It's sad that with all the help, all the resources and all the expert tuition available people still want to - and are still able to - cheat in the examination.

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!

As has been pointed out....

2010-06-23T08:01:00.000-07:00

....the exam paper was revealed here some time ago. Only ONE of those who comment managed to find it...

Oh well

well..

2010-06-22T17:09:00.001-07:00

london congestion charge
rail freight
air skies policy/sustainable transport
types of competition/contestability

Mocks

2010-06-21T11:43:00.001-07:00

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)

Mock 2

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)

Mock 3

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)

Evaluation

2010-06-21T10:29:00.000-07:00

Introduction:say what you're going to say

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.

Can you do these?

2010-06-19T17:43:00.000-07:00

(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 UK (15 mks)

(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 UK and other economies (20)

(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)

Revision notes

2010-06-09T12:04:00.001-07:00

Task: How can congested roads be rationed?
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

Revision notes

2010-06-09T12:02:00.000-07:00

Resource Allocation Issues in Transport
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.

Task
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.
• Fuel
• 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.

Revision notes

2010-06-09T11:58:00.000-07:00

Task: What is the importance of transport to the economy?

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)

6. Improved UK competitiveness (minimises travel times / unit costs)

Task: Why is transport infrastructure important?

1. Transport accounts for nearly 15% of UK economic activity in terms of GDP.

2. Transport infrastructure generates positive externalities

3. Investment in transport infrastructure can be an initial stimulus to regional economic development.

Task: What factors affect the demand for transport?

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?

Task: Why has the demand for road transport risen sharply?

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.

Task: What is Price discrimination?

This is where a firm sells identical products at different prices to different buyers.

Task: State the major stakeholders in a transport market and explain their objectives to the person next to you.

· 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.

Task: How is economic efficiency achieved?

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.

Task: How can competition lead to an efficient allocation of resources?

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

Task: Explain how firms compete on non-price competition

Non-price competition in the form of differentiation through:

Quality
Brand Image
Advertising
Distribution

Task: Do natural monopolies earn abnormal profits?

Unregulated monopolies have the freedom to set profit maximising (or loss minimising) price/output.

Regulator may prevent abnormal profits through:

Cap price increase
Monitor service quality
Introduce competition

Task: What are the benefits created by monopolies?

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.

Task: How do firms gain and maintain monopoly power?

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

DEREGULATION

Task: Describe the importance of deregulation in the transport industry?

Government encourage competition through:

Privatisation e.g. telecommunication; water; electricity etc.
Removal of barriers to entry and open up a market to greater competition.

Task: Analysis the benefits and costs of deregulation in road passenger (bus) in the UK.

Benefits:

More entrants (new firms)
More frequent services
Lower fares

Costs

More buses operating below full capacity.
Adding to existing congestion.
Increasing pollution in crowded city centres.

Task: Analysis the benefits and costs of UK railways privatisation.

Benefits:

Improved services
More competitive charges
Better customer services
Enhanced efficiency

Cost:

Safety
Punctuality
Profitability

Transport Exam Paper June 2010

2010-04-19T03:12:00.000-07:00

Remember this?

In 2009 I taught on an Easter Course. On the course was a student from 'school X' where the Chief Examiner taught. This Chief Examiner emphasised, repeated, stressed a particular topic 'for the exam' - the PSBR.

This was the first question in the exam!

This year - 2010 - I taught on another Easter course and met someone who told me what was in the Transport exam.

I will wait a bit and then post the questions...

Justice!

2010-03-11T09:37:00.000-08:00

What have these three got in common?

TWO OF THEM did extra essays for me - which I marked.

The other one did a daily blog.

So what did they all do?
WHAT THEY WERE TOLD TO DO.

And they all got grade A !

Only one other person got grade A - and he taught Economics!

Well, the exam is now over

2010-01-30T08:48:00.000-08:00

I wasn't allowed to say so before but a legal letter was received and as a result I was not allowed to:

'openly and flagrantly post the questions for the January 2010 exam paper. Whilst it may not be possible to prosecute you as there has yet been a test case on this, nonetheless the question papers would have to be withdrawn and re-set. Given the problems already caused by inclement weather, such a move could be a disaster for all the hardworking A2 students'

However nothing was said about obscurely posting the questions (which I did here) and then pointing my own students towards the relevant post

:-))

Links

2010-01-11T16:06:00.000-08:00

1. Ten Year Transport Plan, found here, was, of course, “dead” by 2004, but managed to sruggle on and had only “Failed” by 2008. It’s well worth looking at the plans/targets in the introduction (e.g. Rail investment, congestion targets etc) and thinking about whether they’ve been achieved.

2. National Road Pricing was floated in 2005. There’s an excellent 24-page briefing here (it won’t take you that long to skim through, honest), and Friends of The Earth have a document about it here (pdf). I haven’t read it; let me know how it is. Plenty more out there on teh interwebs.

3. World’s fastest train is now in China. Best line of the video: “airlines are already reducing their prices to compete”. does the large distance make it more worthwhile than UK? Not sure. But China will have 13,000 km more high speed line in the next 3 years. Astonishing.

4. This is an interesting little website which shows you the pollution effects of a journey by different modes of transport. Check out your greenhouse gasses.

5. Nice pointers for AO4 skills here, from the BBC’s “Ethical Man”. Instead of looking at his blog as asking “Are busses greener than cars?”, think of it as “under what circumstances are busses greener than cars?”. Definitely worth a read.

6. Meanwhile, also on the BBC, from a few moths ago, is a look at whether trains have got better over the last decade or so.

And having mentioned Hybrid cars recently, are they worth the effort. Slate looks at their green credentials in this article and discussion (from last year).

Fancy making such a suggestion!

2010-01-11T15:58:00.001-08:00

This blog suggests there is inside knowledge....

How can that possibly be true?

Is this a school where the Chief Examiner teaches? (Because that would open up the suggestion that there was inside knowledge...)

Has a textbook been written by the Chief Examiner with a mock inside that bears a startling resemblance to the actual paper (as was suggested last year with A level Sociology). Would that be 'inside knowledge'?

Have students just finished a revision course where they said that they had received 'huge hints' as to what was on the paper (as happened last year too!)

Surely the fairest thing would be to bring the 'inside knowledge' to the widest audience possible - and, to avoid charges of breaching copyright, get the mark allocation wrong....?

Attention Bagautdinova!

2010-01-07T12:18:00.000-08:00

Friday

9.00 – 10.30

• Data response/comprehension questions on Transport
• Demand for transport
• Transport forecasts

11.00 – 12.30

• Theory of the Firm models in Transport
• Price discrimination in Transport
• Deregulation
• Contestability
• Privatisation of Transport

1.30 – 2.20

• Resource allocation issues in Transport
• Private funding
• The COBA model

3.30 – 5.00

• Transport policies to correct market failure
• Government measures to intervene: demand side measures
• Government measures to intervene: supply-side measures

Practice

2010-01-02T05:31:00.002-08:00

Do this essay as a mock
a) with the aid of a diagram, explain how atmospheric pollution associated with increased transport use causes misallocation of resources (10)
b) Discuss the extent to which increased indirect taxes on transport users might correct the market failure caused by atmospheric pollution associated with increased transport use (15)

Research this essay and then write it out in 1 hour

1. (a) explain the benefits of an integrated transport policy (10)
(b) Discuss the extent to which the present structure of the UK rail industry contributes towards an integrated transport policy (15)

Do this essay as a mock

2. (a)Explain the natural monopoly argument as applied to transport (10 mks)
(b) Evaluate the policies a government may follow to increase the degree of competition within transport markets (15 mks)

Research this essay and then write it out in 1 hour

3. (a) Outline the main barriers to entry in the transport market (10 mks)
(b) Evaluate the impact of Rail Privatisation (15 mks)

Do this essay as a mock
a) Explain the factors which have influenced the growth in demand for private car use (10)
b) Discuss the extent to which a national road user charging scheme could reverse the growth in demand for private car use (15)

Do this essay as a mock

a) Explain how economists forecast air passenger transport demand (10)
b) Discuss the implications for government policy of the projected increase in demand for air passenger transport (15)

Do this essay as a mock

(a) Explain how the negative externalities caused by transport users result in the misallocation of resources (10)
(b) Discuss the extent to which taxes levied on transport users correct the misallocation of resources such users cause (15)

Do this essay as a mock

(a) Explain the private and external costs associated with traffic congestion. (10)
(b) Discuss, with the aid of examples, the effectiveness of using the cost benefit approach when appraising transport infrastructure projects. (15)

Practice

2010-01-02T05:31:00.001-08:00

Do this essay as a mock

(a) Explain the determinants of demand for rail passenger transport (10)
(b) Discuss the impact of growing demand for rail transport services on rail infrastructure and on transport sustainability. (15)

Research this essay and then write it out in 1 hour

9 (a) With reference to data, examine the role of government and the market in the allocation of resources in the transport sector (10 mks)
(b) Analyse the relationship between transport economics and transport policies, particularly in the UK (15 mks)

Practice

2010-01-02T05:30:00.002-08:00

Research this essay and then write it out in 1 hour

8 (a) Outline the nature and features of an integrated transport policy (10 mks)
(b) Evaluate whether transport policy should be promoting more sustainable transport outcome.

Research this essay and then write it out in 1 hour

7 (a) With reference to examples, explain why road congestion is a classic case of market failure (10 mks)
(b) “Some form of road pricing is the only proven and effective way of reducing congestion in many towns and cities.” Discuss

Practice!

2010-01-02T05:30:00.001-08:00

Do this essay as a mock

a) Outline the economic argument for subsidising railways (10 mks)
b) Giving examples of road pricing policies in different countries, evaluate the case for road pricing as a means of correcting market failure (15 mks)

Research this essay and then write it out in 1 hour

4 (a) With reference to data, explain why the private sector is having an increasingly important role in funding transport investment, particularly through the Private Finance Initiative (10 mks)
(b) Evaluate the use of cost benefit analysis to allocate resources in transport (15 mks)

Exam Practice 1

2010-01-02T05:29:00.003-08:00

Do this essay as a mock

a) Explain how market failure exists in Transport (10 mks)
b) Government measures to intervene in transport markets to correct market failure can be classified as demand or supply side. Explain and evaluate the demand and supply side policies. (15 mks)

Research this essay and then write it out in 1 hour

5 (a) Explain why barriers to entry are very important in determining the degree of competition in transport markets (10 mks)
(b) With reference to examples, analyse how deregulation has sought to produce competitive markets for local bus services in Britain and for European air transport services (15 mks)

Exam Practice 2

2010-01-02T05:29:00.001-08:00

Do this essay as a mock

a) Should Aviation pay for its external costs? (10 mks)
b) Evaluate the use of CBA as a tool for investment analysis (15 mks)

Research this essay and then write it out in 1 hour
6 (a) With reference to examples examine the argument for and against the privatisation of transport (10 mks)
(b) Explain how the effectiveness of rail privatisation can be evaluated (15 mks)

Exam Practice 3

2010-01-02T05:28:00.002-08:00

Do this essay as a mock

a) Outline the main characteristics of transport investment (10 mks)
b) Evaluate the arguments for and against the Private Funding Initiative (15 mks)

Research this essay and then write it out in 1 hour

3 (a) With reference to data, explain the respective roles of the private sector and the public sector in resource allocation decisions for transport (10 mks)
(b) Evaluate the different criteria used by the private and public sectors in making investment decisions in transport (15 mks)

Exam Practice - 4

2010-01-02T05:28:00.001-08:00

Do this essay as a mock

a) Explain how the theory of the firm is useful in analysing transport markets (10 mks)
b) Explain how price discrimination appears in the transport market (15 mks)

Research this essay and then write it out in 1 hour

2. (a) With reference to data, carefully explain how increased transport use leads to negative externalities and market failure (10 mks)
(b) Evaluate the use of indirect taxation and subsidies to regulate transport use (15 mks)

Exam Practice - 5

2010-01-02T05:27:00.000-08:00

Do this essay as a mock

a) Explain how the concept of elasticity of demand is used in Transport. (10 mks)

b) Outline the main sources of uncertainty in transport forecasts and evaluate the importance of transport to the economy (15 mks)

Research this essay and then write it out in 1 hour

1. (a) With reference to data, explain how and why economists make forecasts of transport demand (10 mks)

(b) How can the importance of the transport sector to the UK economy be assessed? (15 mks)

Xmas Gift

2009-12-25T03:40:00.000-08:00

The Jan 2010 questions well, 'predicted'(I have to say that or they will recall the questions) - will appear here later today....

Final tips for the exam this afternoon

2009-06-18T10:42:00.000-07:00

Likely questions:

1. What is derived demand and why is the demand for transport by rail derived? (10)
Evaluate government policieis aimed at increasing supply in the local bus market. (15)

2. Explain road pricing. (10)
Is road user charging appropriate to reduce the market failure arising from traffic congestion (urban and motorway) (15)

3. How is contestability related to efficiency within a market? (10)
'The entry of low cost airlines has increased efficiency in the air passenger transport market' Discuss. (15)

Every mark is sooooooo important!

2009-06-17T15:37:00.000-07:00

Last year there were TWELVE marks between a grade E and a grade A for the Transport exam!

Grade A : 33
Grade B : 30
Grade C: 27
Grade D: 24
Grade E : 21

How can you MAXIMISE the marks?

Make sure you DEFINE every economic term

Leave space between your answers so you can go back and add information.

Make sure you always use diagrams and you also discuss them. Obviously make sure you label them thoroughly and properly.

EVALUATE
EVALUATE
EVALUATE

Discuss your point of view.

Refer to LOCAL bus and train charges etc - the Examiner won't know that locally bus fares have risen by 100% etc since deregulation.

If you finish early then go back and add something. Add a diagram. Develop a point. Add data.

Perfect comp and contestablity

2009-06-17T15:03:00.000-07:00

From the June 2008 paper:

Explain two differences between a perfectly competitive and a contestable market. [4]

1 mark for each difference stated, plus up to 2 marks for application of
knowledge and critical understanding, eg

In a perfectly competitive market actual competition exists, whereas in a contestable market it is the threat of competition (1) which makes the incumbent firm(s) behave as though it is in a more competitive market (1) and earn normal profits to deter potential competition from entering the market (1). A large number of firms required in a perfectly competitive market, whereas the number of firms irrelevant in a contestable market (1); in the latter it is the threat of competition rather than actual competition which determines the
behaviour of the firm (1) Product not necessarily homogenous in a contestable market (1) with critical understanding (1).

Application need not be from a transport market.

Lists with no comparison – 2 marks max.

I am reliably told that the questions for the January 2010 paper will include:

a. something about forecasting demand for transport
b. something about monetising the external costs and the difficulties in so doing

Read all these - this is the comprehension...

Also read about British Rail as the privatisation forms the basis of one of the essay questions.

Likely topics for the Transport paper

2009-06-17T13:54:00.000-07:00

Privatisation/market structure

Explain how the models fo market structure can be applied to selected transport markets?

Explain how deregulation has sought to produce competitive markets for local bus services in Britain and for European air transport services.

Comment on the arguments for and against the privatisation of transport

How have railways in Britain been privatised?

How can the effectiveness of rail privatisation be evaluated?

Sustainability/road pricing

Example: Why is there a growing consensus among economists that transport policy should be promoting more sustainable transport outcomes.

Road pricing? This has been done to death on this blog - look it up!

Answers to all the above are here:

CBA and transport

2009-06-17T09:42:00.000-07:00

First - what is CBA?

From Wiki:

"Cost-benefit analysis is a term that refers both to:

a formal discipline used to help appraise, or assess, the case for a project or proposal, which itself is a process known as project appraisal; and
an informal approach to making decisions of any kind.

Under both definitions the process involves, whether explicitly or implicitly, weighing the total expected costs against the total expected benefits of one or more actions in order to choose the best or most profitable option. The formal process is often referred to as either CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost Analysis).

A hallmark of CBA is that all benefits and all costs are expressed in money terms, and are adjusted for the time value of money, so that all flows of benefits and flows of project costs over time (which tend to occur at different points in time) are expressed on a common basis in terms of their “present value.” Closely related, but slightly different, formal techniques include Cost-effectiveness analysis, Economic impact analysis, Fiscal impact analysis and Social Return on Investment(SROI) analysis. The latter builds upon the logic of cost-benefit analysis, but differs in that it is explicitly designed to inform the practical decision-making of enterprise managers and investors focused on optimising their social and environmental impacts."

What about its application to TRANSPORT?

Again, from Wiki:

Cost-benefit analysis is mainly, but not exclusively, used to assess the value for money of very large private and public sector projects. This is because such projects tend to include costs and benefits that are less amenable to being expressed in financial or monetary terms (e.g. environmental damage), as well as those that can be expressed in monetary terms. Private sector organizations tend to make much more use of other project appraisal techniques, such as rate of return, where feasible.

The practice of cost-benefit analysis differs between countries and between sectors (e.g. transport, health) within countries. Some of the main differences include the types of impacts that are included as costs and benefits within appraisals, the extent to which impacts are expressed in monetary terms and differences in discount rate between countries. Agencies across the world rely on a basic set of key cost-benefit indicators, including:

PVB (present value of benefits);
PVC (present value of costs);
NPV (PVB less PVC);
NPV/k (where k is the level of funds available) and
BCR (benefit cost ratio, PVB divided by PVC).

The concept of CBA dates back to an 1848 article by Dupuit, and was formalized in subsequent works by Alfred Marshall. The practical application of CBA was initiated in the US by the Corps of Engineers, after the Federal Navigation Act of 1936 effectively required cost-benefit analysis for proposed federal waterway infrastructure. ^[1] The Flood Control Act of 1939 was instrumental in establishing CBA as Federal policy. It specified the standard that "the benefits to whomever they accrue [be] in excess of the estimated costs.^[2]

Subsequently, cost-benefit techniques were applied to the development of highway and motorway investments in the US and UK during the 1950s and 60s. An early, and often quoted, more developed application of the technique was made to London Underground's Victoria Line. Over the last 40 years, cost-benefit techniques have gradually developed to the extent that substantial guidance now exists on how transport projects should be appraised in many countries around the world.

In the UK, the New Approach to Appraisal (NATA) was introduced by the then Department for Transport, Environment and the Regions. This brought together cost-benefit results with those from detailed environmental impact assessments and presented them in a balanced way. NATA was first applied to national road schemes in the 1998 Roads Review, but subsequently rolled out to all modes of transport. It is now a cornerstone of transport appraisal in the UK and is maintained and developed by the Department for Transport.[10]

The EU's 'Developing Harmonised European Approaches for Transport Costing and Project Assessment' (HEATCO) project, part of its Sixth Framework Programme, has reviewed transport appraisal guidance across EU member states and found that significant differences exist between countries. HEATCO's aim is to develop guidelines to harmonise transport appraisal practice across the EU.[11][12] ^[3]

Transport Canada has also promoted the use of CBA for major transport investments since the issuance of its Guidebook in 1994.^[4]

More recent guidance has been provided by the US Dept. of Transportation and several state transportation departments, with discussion of available software tools for application of CBA in transportation, including HERS, BCA.Net, StatBenCost, CalBC, and TREDIS. Available guides are provided by the Federal Highway Administration^[5]^[6], Federal Aviation Administration^[7], Minnesota Department of Transportation^[8] and California Department of Transportation (Caltrans)^[9].

During the early 1960’s, CBA was also extended to assessment of the relative benefits and costs of health care and education in works by Burton Weisbrod.^[10]^[11]. Later, the US Dept. of Health and Human Services issued its CBA Guidebook^[12]."

What about CBA and Transport?

"There are well established appraisal techniques for assessing the costs and benefits of transport changes. Economists have repeatedly demonstrated that, in a perfectly competitive economy, a fully-specified cost benefit analysis (CBA) would capture all the economic impacts of a change to the transport system. Economic benefits such as the benefits to a firm of workers being prepared to travel further to work are another representation of the value of time savings included in the CBA, not additional to these benefits.

Perfect versus imperfect competition

Markets are not, however, perfectly competitive. As a result, there are two important conditions influencing economic impacts: first, the extent to which transport-using industries are perfectly competitive; and, secondly, the extent to which prices in the transport sector reflect social costs.

Where monopoly power is prevalent in transport-using industries, firms will charge prices to maximise profit, but these prices will be higher than they should be to maximise economic welfare. Similarly, if there are potential economies of scale that cannot be realised in a small local market, again prices are higher than they need or should be. In these circumstances and provided prices in the transport sector reflect marginal social cost, a transport scheme which opens the area up to wider competition and a wider market may bring prices down, and may in turn produce additional economic activity. The end result is benefits which are greater than the direct benefits as assessed by the CBA.

Conversely, if transport-using industries are perfectly competitive and prices in the transport sector are less than marginal social costs (e.g. congestion or pollution costs are not fully paid for by the producer of them), total benefits will be less than the direct benefits assessed by CBA. Other possible combinations of circumstances in the transport-using and transport sectors exist for which it is not possible to state a general rule about the existence and sign (positive or negative) of additional impacts.

We have commissioned new work, extending recent research into the implications of imperfect competition (Venables and Gasiorek (1997)). This work provides a theoretical framework which illuminates the linkages between transport and the economy and may help to identify the circumstances in which transport changes could have a significant economic impact. For example:

It lends support to the view that in certain circumstances there will be economic impacts additional to those captured by CBA. Crucially, these impacts could be either positive or negative.
It also lends support to the concept of network effects.
It gives some general guidance as to the circumstances in which improving transport links between regions could work to the advantage or disadvantage of peripheral regions, or of industrial sectors within regions."

What about transport investment and growth?

From the Department for Transport:

"The Committee's main findings at present are:

In certain circumstances transport investment may have economic impacts which are additional to those measured in conventional cost benefit appraisal. These additional impacts could be either positive or negative. Recent research may help identify the circumstances in which such impacts might be significant. The Committee's further work will consider the feasibility of developing this work into practicable improvements in appraisal methodology. At present this is an open question.
There is scope to achieve some reduction in national traffic volumes through restraint measures which will at the same time improve economic efficiency. This is likely to entail packages of price and non-price measures, focused on congested parts of the network. The Committee's work does not enable it to say anything about the scale of traffic reduction which could be achieved without harmful effects on the economy.
While in certain circumstances transport schemes may bring added economic benefits to an area needing regeneration, in other circumstances the opposite might occur. Better communications will enlarge markets for goods, services and workers: the area as a whole may gain or lose from this depending on the structure and competitiveness of the local economy. It follows that there is no simple, unambiguous link between transport provision and local regeneration.
The Committee believes that the state of the art in local and regional economic impact studies is under-developed. The pervasive, often implicit assumption, that the benefit of improved accessibility will always accrue to the target area may often be misplaced; the possibility of the net impact running counter to regeneration objectives cannot be ruled out. The Committee indicates some thoughts about an improved approach which it will consider further for its final report."

And the wider economic benefits of transporttation....

And as for Monte Carlo simulation....

And a good quote to show evidence of research?

"There is very little realism in CBA, and 40 years or more of CBA in transport has contributed to the parlous condition of transport policy and provision in the UK. CBA is a contested area. The way that valuation of time is carried out for road schemes leads to a situation where we invest to reduce time spent travelling and then adapt by travelling longer distances so that we maintain a constant time budget. This is why we have congested roads. The valuation of time methodology is artificial and deeply flawed."

Source

Don't forget that the Heathrow and all this and this and this make up the comprehension question in the June 2010 exam.

Free rider problem (Wiki)

2009-06-17T09:13:00.000-07:00

In economics, collective bargaining, psychology, and political science, "free riders" are those who consume more than their fair share of a public resource, or shoulder less than a fair share of the costs of its production. Free riding is usually considered to be an economic "problem" only when it leads to the non-production or under-production of a public good (and thus to Pareto inefficiency), or when it leads to the excessive use of a common property resource. The free rider problem is the question of how to limit free riding (or its negative effects) in these situations.

The name "free rider" comes from a common textbook example: someone using public transportation without paying the fare. If too many people do this, the system will not have enough money to operate.

In the context of labor unions, free rider means an employee who pays no union dues or agency shop fees, but nonetheless receives the same benefits of union representation as dues-payers. Under U.S. law, unions owe a duty of fair representation to all workers that they represent, regardless of whether they pay dues. Free riding has been a point of legal and political contention for decades.^[1]

Free riding is also a term used by brokerages when a client purchases shares beyond his or her means. Free riders are those who purchase shares and then do not pay for them. (See margin.)

The answers to all the questions...

2009-06-17T08:47:00.000-07:00

...from here....are...in the book on the left!

Just look it up on Amazon!!!!

Contestable markets

2009-06-17T08:41:00.000-07:00

4_1_5 What is a Contestable Market?

• One in which there is one firm (or a small number of firms)

• Because of freedom of entry and exit, the firm faces competition and so operates like a perfectly competitive firm

• The threat of “hit and run entry” from new firms may be sufficient to keep the industry operating at a competitive price and output

• The key requirement for a contestable market is the absence of sunk costs - I.e. costs that cannot be recovered if a business decides to leave a market

• When sunk costs are high, a market is more likely to produce an price and output similar to monopoly (with the risk of atlocative inefficiency because P>MC)

• A perfectly contestable market occurs only when entry and exit into and out of a market is perfectly costless

Contestable and Perfectly Competitive Markets

Contestable markets are different from perfect competitive markets

It is possible for one incumbent firm to dominate the industry (i.e. have a monopoly position)

Each existing firm in the market can and does produce a differentiated product (i.e. goods and services are not perfect substitutes for each other)

There are 3 conditions for contestability

• Perfect information and the ability / right to use the best available technology

• Freedom to market I advertise and enter a market

• The absence of sunk costs

What are Sunk Costs?

• Sunk costs are those costs which a business incurs in setting up or running a business that are irrecoverable to the owners of the firm should it decide (a) to close down or (b) leave the market

• A past outlay or loss that cannot be altered by current or future actions

• Sunk costs represent a barrier to entry in an industry because they scare potential entrants from entering -should they fail, they would have wasted all the sunk costs.

Making Markets More Contestable

Many countries have used government intervention to make markets more contestable in recent years - through competition policy

Main approaches

De-regulatlon - I.e. markets opened to competition by reducing statutory (legal) barriers to entry (examples include the main utilities, telecommunications and postal services)

Tougher competition laws acting against predatory behaviour by existing firms in a market / tougher rules against cartels

The changing nature of technology

Technological progress has brought down the high entry costs in some markets (an increase in capital mobility)

• E.g. Desktop publishing for magazines

• E-commerce - emergence of new players in travel and online bookselling

• Household utilities (new entrants able to supply gas and electricity and bill households and business users at Lower cost)

UK Markets That Have Become More Contestable

• Internet Service Providers (e.g. the entry of Freeserve in 1999)

• Home Banking and Financial Services (home & car insurance)

• Electricity and Gas Supply - OFGEM has now lifted price caps because it believes contestability has reached an acceptable level

• Parcel delivery (soon to be extended to household mail services)

• Opticians (the statutory monopoly for opticians ended in mid 1980s)

• Low cost domestic airlines (Go, Buzz, BMI-Baby, Ryan Air)

• Domestic Retail Clothing Industry - discount stores now enjoy 15% of the UK clothing market (Matalan, TK Maxx and Primark)

Case Study: Parcel Deliveries

• Market was deregulated in the 1980s and is now highly competitive - even though most of the market is in the hands of major national and international players

• 4,000 operators are already in business offering competitive services

• Local parcel courier businesses often operate profitably in individual towns and cities

• Move towards greater contestability strengthened by development of the European Single Market

• Strong competition in price and non-price terms

• PostComm announced in 2002 that the markets for business and household mail deliveries will be fully opened to competition by the end of 2004 (two years earlier than expected)

Barriers to Contestability

Rarely is a market perfectly contestable. Existing (incumbent) firms can engage in predatory behaviour to make entry more costly or exit more expensive

Raising rivals’ costs

Vertical integration means that some firms act as component suppliers to other firms in their industry - they have control over the supply-chain

Reducing rival’s revenues - I.e. through the practice of “bundling”

A monopoly can use profits in one market to boost its market power in another (cross-subsidisation)

Bundling: Anti-Competitive Behaviour

• Bundling is a marketing ploy of giving away a relatively cheap product with a relatively expensive one to attract customers

• Bundling can have the effect of tying the consumer to both products

• This is particularly prevalent in computer manufacturing where the product comes with specific items of software already pre-loaded

Here's an essay on contestable markets

From wiki:

In economics, a contestable market is a market served by only one firm, but with mandated "competitive" pricing, so as to second the monopoly held by said firm on said market. Its fundamental feature is low barriers to entry and exit; a perfectly contestable market would have no barriers to entry or exit. Contestable markets are characteristed by 'hit and run' entry. If a firm in a market with no entry or exit barriers raises its prices above marginal cost and begins to earn abnormal profits, potential rivals will enter the market to take advantage of these profits. When the incumbent firm(s) respond by returning prices to levels consistent with normal profits the new firms will exit. In this manner even a single-firm market can show highly competitive behaviour.

The theory of contestable markets has been used to argue for weaker application of antitrust laws as simply observing a highly concentrated or monopoly market does not mean that the firm is harming consumers by earning super-normal profits. The applicability of the theory to real world situations has been questioned, however, particularly as there are very few markets which are completely free of sunk costs and entry and exit barriers.

Low cost airlines are commonly referred to as an example of a contestable market. Entrants have the possibility of leasing aircraft and should be able to respond to high profits by quickly entering and exiting. In practice there may be barriers to entry and exit in the market associated with terminal leases and availability and predatory pricing by incumbents, signalled through built-in overcapacity.

Revision from TSR

Transport links with Unit 1 & 2

2009-06-17T03:34:00.000-07:00

This BBC clip outlines one negative externality associated with motoring

a) Define a negative externality
b) Explain the negative externality outlined by the clip and article
c) Using a diagram, explain how the market fails in this case
d) Suggest 2 possible actions the govt could take to reduce the negative externality, and give 2 disadvantages of each action

From economics student comes this useful summary of how price, income and cross elasticity can be used in the transport sector

This BBC clip explains that the price of fuel is going up

a) Using a S&D diagram, explain why the price of fuel will rise
b) Using a S&D diagram, explain why the price of goods in the shops will rise
c) To what extent can car travel and public transport be regarded as substitutes?

The Eddingon report on on the future of UK transport suggests a role for road pricing. This video clip suggests why

Drivers should be charged according to how much they use the roads, says a report on the future of transport in Britain.< http://www.bbc.co.uk/mediaselector/check/nolavconsole/ukfs_news/hi?redirect=st.stm&news=1&bbram=1&bbwm=1&nbram=1&nbwm=1&nol_storyid=6197498 >

More on the report can be found here

and other links are listed with a summary at Geoff Riley's blog

As the prospect of green taxes loom, this BBC Midlands Today video clip examines what road pricing might cost some of the region's commuters.

< http://www.bbc.co.uk/mediaselector/check/nolavconsole/ukfs_news/hi?redirect=st.stm&news=1&bbram=1&bbwm=1&nbram=1&nbwm=1&nol_storyid=6099642 >

From the BBC comes this article about falling numbers of air passengers in 2008

a) What evidence is ther to suggest air travel is a normal good
b) If this is the case, would the income elasticity of demand for air travel be +ve or -ve? Explain your answer
c) The following passage lists has many statistics: What use would they be for firms planning their stratagy to deal with the downturn in passenger numbers?

UK airports handled 235 million passengers in total last year, the CAA found.
The 1.9 per cent decline is only the the fourth annual decrease in passenger numbers since the end of the Second World War, the authority said.
CAA figures revealed London's airports, including Heathrow, Gatwick, Stansted, Luton and London City, saw an overall annual fall of 2%.Stansted was particularly badly hit, with 1.4 million fewer passengers in 2008 - a 6.0% decline on 2007.Manchester, the biggest regional airport, also saw passenger numbers fall by 3.8%.However, not all airports were hit by a decline in travellers.
London City airport saw a rise of a 12%, Luton showed a 2.6% increase and Birmingham's numbers rose by 4.8%.

Rail competition

The CAA also revealed charter airline numbers were down 9.3% on 2007, while scheduled airlines were down 0.8%.There was also a fall in the overall number of passengers taking domestic flights - down 4.8% to 25 million.The authority said this was partly due to increasing numbers of people opting to take the train.

Rail fare increases above inflation were announced today

a0 Why have rail companies imposed these fare increases?
b) What does this tell you about the PED for these rail services?
c) To what extent do you believe these increases are warrented?

An interesting article proposing a way to reduce negative externalities associated with air travel. There is though a flaw in the scheme. What is it?

The OFT is likely to recommend a Competition Commission enquiry into BAA says this BBC article

a)On what grounds?
b) Given its market share, what term could you use to describe BAA's market position?

This BBC video explains the new deal between the US and Europe aiming to open up air travel between the two continents.

< http://www.bbc.co.uk/mediaselector/check/player/nol/newsid_7320000/newsid_7321100?redirect=7321163.stm&news=1&nbwm=1&bbwm=1&bbram=1&nbram=1&asb=1 >

a) Why would this action be regarded as a supply side policy?
b) Using a diagram, explain the potential effects on the European and American economies of this action

The BBC reports that BA is introducing different fuel surcharges for different classes of passengers

a) Explain how the concept of PED may have influenced the decision to introduce different fuel surcharges for different classes of passengers

From Geoff Riley's blog comes this great piece on demand

a) Explain the difference between notional and effective demand for airlines
b) What is the formula for PED?
c) Using the information provided calculate the PED for flights
d) Using the information provided calculate the exact fall in the number of passengers if prices rise by 20%
e) Why is the PED likely to be inelastic?

Final exam tips

2009-06-16T18:04:00.000-07:00

If you really WANT to revise key topic areas then look at:

Deregulation of buses

Typical questions:

a. How has deregulation sought to produce competitive markets for local bus services in Britain and for European air transport services?
b. What efficiency issues are raised by deregulation of buses?

Here are some links:

Bus deregulation is not working

The UK Bus Industry

Bus deregulation in Great Britain

Bus deregulation 'isn't working'

Impacts and benefits of deregulation

London bus deregulation

Monopolies

Road pricing

(Plenty of links on this blog...)

Integrated transport system.

Integrated transport system - Scotland

Integrated transport system - Budapest

RAC integrated transport system

UK Commission for Integrated Transport

Prescott's 10 year plan is dead

Integrated transport system London 2009

Now all you have to do is....

2009-06-16T17:58:00.000-07:00

Get a piece of paper. Divide it into the following sections:

a. definitions
b. data
c. diagrams
d. development

Then plan each question on the exam papers shown below.

THEN - and only then - check the marking guidelines.

Make a note of any diagrams you missed out/drew wrongly.

Then move on to the next paper.

Thus spend maybe 30 minutes per paper.

Work through all the papers and then you'll have all the diagrams, all the definitions.

Data can be topped up by looking at the other posts.

Finally attempt the essays listed NOT from a past paper.

The source of those questions will be posted later today.

Exam questions (June 2008)

2009-06-16T17:08:00.000-07:00

1. (a) Explain how economists make forecasts of air passenger transport demand.
[10]
Discuss the implications for government policy of the projected increase in
demand for air passenger transport. [15]

2. (a) Explain the factors that have influenced the growth in demand for private car
use. [10]
Discuss the extent to which a national road user charging scheme could reverse the growth in demand for private car use. [15]

3. With the aid of a diagram explain how atmospheric pollution associated with
increased transport use causes a misallocation of resources. [10]
Discuss the extent to which increased indirect taxes on transport users might
correct the market failure caused by atmospheric pollution associated with
increased transport use. [15]

Answers/Marking guidelines here

Exam questions (Jan 08)

2009-06-16T17:04:00.000-07:00

1. Concern continues to be expressed at the increased market share of some local bus companies since deregulation.
(a) Explain how an increased market share for a firm might reduce the economic efficiency of that industry. (10)
(b) Discuss the extent to which the local bus industry in Britain has become an oligopoly since deregulation. (15)

2. (a) Explain the main factors that have influenced the increased demand for air passenger transport. (10)
(b) Discuss the extent to which government policy can influence the supply of air passenger transport services. (15)

3. (a) Explain the main factors determining a manufacturer’s choice between modes of freight transport. (10)
(b) Discuss the ways in which the government can promote more sustainability in UK freight transport policy. (15)

Answers/Marking guidelines here

Exam questions (June 2007)

2009-06-16T17:02:00.000-07:00

1. a) Explain the likely effects of an increase in demand in an oligopolistic market.
Discuss the impact of deregulation on the structure of the air passenger
transport industry (15)

2. a) Explain how the environmental costs associated with transport use result in a
misallocation of resources. (10)
Discuss the contribution that estimating such environmental costs can make
towards correcting the market failure associated with increased transport use. (15)

3. a) Explain the economic benefits of constructing new and improved motorways and
trunk roads. (10)
Discuss whether forecasts of demand for road traffic on their own should be the
basis for making decisions on road construction. (15)

Answers/Marking guidelines here

Exam questions (Jan 2007)

2009-06-16T16:59:00.000-07:00

1. (a) Explain the determinants of demand for a passenger transport mode of your choice.
(b) Discuss the effectiveness of using taxes and subsidies to switch passengers from private car to local bus and rail transport. (15)

2. (a) Explain how the costs associated with road traffic congestion lead to a misallocation of resources. (10)
(b) Discuss the effectiveness of increasing the supply of road space to reduce traffic congestion.

3. (a) Explain the benefits of an integrated transport policy. (10)
(c) Discuss the extent to which the present structure of the UK rail industry contributes towards an integrated transport policy. (15)

Answers/Marking guidelines here

Exam questions (June 2006)

2009-06-16T16:57:00.000-07:00

1. One of the problems of achieving a more sustainable transport policy is dealing with peaked demand.
(a) Explain the consequences for passenger transport providers of the peaked demand which they inevitably face. [10]
Discuss how government policy can manage passenger transport in more sustainable ways. [15]

2. Even though more and more passengers are flying each year to more and more destinations, much controversy still surrounds the provision of additional airport capacity.
(a) Explain the economic benefits of constructing new airports and runways. [10]
Discuss the extent to which forecasts of demand for air travel should be used as the basis for decisions on airport capacity in the UK. [15]

3. (a) Using a diagram, explain how taxation can be used to make the operators of goods vehicles pay the full social costs of their use. [10]
(b) Discuss the likely economic effects of increased road haulage operating costs on the freight transport industry, its customers and the economy as a whole. [15]

Answers/marking guidelines here

Exam questions (Jan 2006)

2009-06-16T16:54:00.000-07:00

1. (a) Explain why the level of profit differs between perfect competition and monopoly. [10]
In a transport market of your choice, discuss the way in which its market structure affects the ability of firms to set prices and to make profits. [15]

2. Explain the factors that have influenced recent trends in the demand of
road transport. [10]
Discuss the extent to which road user charging can correct the market failure associated with the growth in road transport. [15]

3. (a) With the aid of a diagram, explain the effect of a fall in the level of
subsidies for local bus services. [10]
Discuss whether subsidies alone are a sufficient policy to halt the decline in the demand for local bus services. [15]

Answers/Marking guidelines here

Exam questions (June 2005)

2009-06-16T16:52:00.000-07:00

1. (a) Explain the main problems associated with monopolies. [10]
Discuss the possible impact of greater regulation on the local bus industry in the UK. [15]

2. (a) Explain the determinants of demand for the main modes of freight transport.
[10]
(b) Discuss the extent to which recent trends in freight transport are sustainable.
[15]

3. Following the introduction of the congestion charge in London in 2003, there have been suggestions for a more widespread introduction of road user charging in other UK cities.
(a) Explain the economic basis for road user charging in cities. [10]
Discuss the likely impact on businesses of widespread road user charging in UK cities. [15]

Answers/guidelines here

Exam questions (Jan 2005)

2009-06-16T16:49:00.001-07:00

1. It is estimated that the costs of traffic congestion now exceed £20 billion per annum, yet the government is still reluctant to introduce a national system of road user charging.
(a) Explain how the costs of traffic congestion might be estimated. [10]
Discuss how effective the introduction of a national system of road user charging might be in reducing the problem of traffic congestion. [15]

2. (a) Explain the relationships between the component parts within the structure of the UK railway industry.
[10]
Discuss the ways in which economists might assess the efficiency of the UK railway industry

3. There has been much argument in recent years on whether aviation fuel should be taxed in order to reduce pollution caused by air transport.
(a) Explain how the negative externalities associated with air transport cause a misallocation of resources. [10]

(b) Discuss the extent to which a tax on aviation fuel might correct the misallocation of resources associated with air transport.
[15]

Answers/guidelines here

Can you do these essays?

2009-06-16T16:36:00.001-07:00

1 (a) Explain how economists make forecasts of transport demand (10)
(b) Assess the economic importance of the transport sector in the UK economy (15)

2. (a) Explain how increased transport use leads to negative externalitieis and market failure. (10)
(b) Discuss how government use of indirect taxes and subsidies helps to regulate transport use. (15)

3. (a) Explain why the private sector is having an increasingly important role in funding transport investment, particularly through the pFI. (10)
(b) Discuss the different criteria that are applied by private and public sectors in makming investment decisions in transport (15)

4. (a) Explain how the models fo market structure can be applied to selected transport markets (10)
(b) Analyse how deregulation has sought to produce competitive markets for local bus services in Britain and for European air transport services. (15)

5. (a) Explain the arguments for and against the privatisation of transport (10)
(b) How can the effectiveness of rail privatisation be evaluated? (15)

6. (a) Explain how the costs of road congestion can be estimated (10)
(b) 'Some form of road pricing is the only proven and effective way of reducing congestion in many towns and cities' Discuss. (15)

7. (a) Explain why congestion is a classic case of market failure (10)
(b) Evaluate the policy options available for combating road congestion (15)

8. (a) Outline the nature and features of an integrated transport policy (10)
(b) Evaluate the role of government and the market in the allocation of resources in the transport sector (15)

9. (a) Explain the relationship between transport economics and transport policies, particularly in the UK (10)
(b) Why is there a growing consensus among economists that transport policy should be promoting more sustainable transport outcomes? (15)

In the Comment box post how many of the above you can do.

Get an advantage over other candidates...

2009-06-16T14:37:00.000-07:00

...if you speak French.

But if you prefer English...

Researching air transport

2009-06-15T15:55:00.000-07:00

Sometimes people revising, seem lost for information.

Really, all they need is to:

a. google it
b. google it in the main newspapers

Take for example, forecasting demand for air transport.

The following links took less than 5 minutes to find:

link 1

link 2

link 3

link 4

link 5

link 6

link 7

link 8

What will differentiate YOUR paper from others is:

a. using current data
b. being familiar with current trands/forecasts and sources
c. ability to draw key diagrams well - and apply them
d. ability to plan your essay - and include detailed evaluation

Remember with forecasts:

"Done through market research and extrapolating trends, but this lacks accuracy. If the project being forecast doesn't exist yet, such as building a new road, there are no past trends and therefore hard to predict. For this, consumer surveys will need to be carried out of their needs and this takes time. Also, construction of such a project may boost demand more than expected. More accuracy can be gained through the combination of other forecasts, such as GDP, YED of that product, etc..."

Source

Privatisation: Aviation

2009-06-13T11:01:00.000-07:00

Air economics and privatisation

Air traffic control and privatisation (more research nedeed - this article is just a start)

Book: air privatisation

Partial privatisation

Secret plot to privatise....

Markets...

Pie in the sky not working

Passenger terminals

Safety

Airspace - final frontier

Air traffic sell-off

Oil supply

2009-06-13T08:07:00.000-07:00

Read this...

The Oil Supply

We Will Never Run Out of Oil

Economics sense!

2009-06-13T07:35:00.001-07:00

25 topics to revise

2009-06-13T06:24:00.000-07:00

1) Outline the characteristics of the main modes of transport

2) Explain why transport is derived demand

3) Explain how to measure transport demand

4) Explain how transport forecasts are made and why

5) Explain how some of the main ways in which transport sector can be described through the data

6) Outline economies of scale and their application to transport

7) Describe contestability in transport markets

8) Describe barriers to entry and their applciation to the transport market

9) Outline the natural monopoly case for transport

10) Describe deregulation in the transport markete

11) Explain and describe privatisation in the transport market

12) Explain negative externalities due to ever increasing transport demand

13) Describe how transport interacts with the environment

14) Describe and evaluate sustainability issues in transport

15) Explain why traffic congestion is a cause of market failure

16) Describe the costs of congestion

17) Explain how to deal with congestion

18) Describe road pricing schemes

19) Outline how other countries tackle congestion

20) Describe the role of private and public sectors in transport

21) Explain what is meant by cost benefit analysis, when it is used and its limitations (transport)

22) Explain how the government approaches new road schemes

23) Describe integrated transport policy

24) Describe the main features of the current transport policy

25) Outline sustainable transport policy

Exam questions

2009-06-13T01:27:00.000-07:00

Explain how economists make forecasts of air passenger transport demand. (10 mks)
Discuss the implications for government policy of the projected increase in demand for air passenger transport.(15 mks)

Explain the factors that have influenced the growth in demand for private car use. (10 mks)
Discuss the extent to which a national road user charging scheme could reverse the growth in demand for private car use. (15 mks)

With the aid of a diagram explain how atmospheric pollution associated with increased transport use causes a misallocation of resources.(10 mks)
Discuss the extent to which increased indirect taxes on transport users might correct the market failure caused by atmospheric pollution associated with increased transport use.(15 mks)

Mark schemes

Three links to keep an eye on

2009-06-13T01:14:00.000-07:00

TSR

Tutor2u

Economics teacher

Road Pricing

2009-06-13T01:02:00.000-07:00

Motorists embarrass ministers

Spy in the sky

Road pricing is two years away

Road pricing - the case for and against

The rise of road pricing

Other methods to tackle congestion

Public acceptability of road pricing

Road pricing feasability study

Public attitudes to road pricing

How road pricing can be introduced in the UK

Acceptability of road pricing models

Business case road pricing

Road pricing in Europe

2009-06-13T01:01:00.000-07:00

(Source Wikipedia)

Facing rising levels of traffic congestion, European governments are giving serious consideration to nationwide road pricing schemes. Some of these could exploit the new Galileo satellite positioning system, although it is possible to arrange road pricing using various different technologies. A satellite based system would entail vehicles containing a satellite tracking device which would determine which roads were being driven along, for how far and at what time of day. This information would then be sent to a central computer system, and the appropriate charges levied against the driver.

Further information: Toll roads in Europe

Germany

Schemes for charging trucks (lorries) in Germany (by the company Toll Collect) and Austria are already underway. The German scheme began on January 1, 2005, trucks pay between €0.09 and €0.14 per kilometer depending on their emission levels and number of axles. The expensive scheme, combining satellite technology with other technologies, suffered numerous delays before implementation, whilst a scheme using much simpler technology in Austria was up and running in 2004. In the UK, the Labour government announced in July 2005 that the proposed UK truck road user charging scheme would not go ahead.

Italy

Main article: Ecopass

A traffic charge program in Milan, called "Ecopass", began on a trial basis on January 2, 2008. It exempts vehicles compliant with the Euro3 and Euro4 emission standards or higher, as well as several alternative fuel vehicles. Residents within the restricted zone, called ZTL (Italian: Zone a Traffico Limitato), may purchase a discounted annual pass. Although the program is operationally similar to existing congestion pricing schemes, its main objective is to reduce air pollution from vehicle emissions rather than relieve traffic congestion.^[3]^[4]^[5] The program was extended until December 31, 2009, and a public consultation will be conducted to decide if the charge should become permanent.^[6]

Malta

A fully automated system called a Controlled Vehicular Access (CVA) system has been launched in Malta's capital city of Valletta since May 1, 2007.^[7]When compared to other countries that make use of congestion charging models, the Maltese system makes use of a wider array of innovations including variable payments according to the duration of stay, flexible exemption rules, including exemptions for residents within the charging zone, and monthly or quarterly billing options for vehicle owners. Pre-payment facilities, including direct debit arrangements and purposely designed vouchers, are also available. The billing system was designed in Malta and has been described as a state of the art 'next generation congestion charge billing solution'. The Valletta Congestion Charge, which is also known as Valletta CVA, was recently nominated for the Best European Transport Strategy Award. Public voting is still underway.

Norway

One of the earliest schemes was introduced in Bergen in Norway in 1986.^[8] Only traffic entering the town is charged and only during weekdays from 6:00 a.m. through 10:00 p.m. Public service vehicles pay no charge.

Bergen has now a fully automated toll plaza system that is based on passing without stopping for all traffic. There are no coin slots or manual service. A similar system was introduced for the Oslo Toll Ring from February 2, 2008. To ensure interoperability of electronic fee collection in Norway a system called AutoPASS is used throughout the country for toll roads and congestion charging schemes etc. Most local drivers have purchased a tag which is automatically read on passing the detectors. As of February 2008^[update], there will be six fully automated schemes in operation. For the others motorists without a tag pay a fee at a manual barrier.

Sweden

Main article: Stockholm congestion tax

Stockholm has a congestion pricing system, Stockholm congestion tax,^[9] in use on a permanent basis since August 1, 2007,^[10]^[11] after having had a seven month trial period from January 3 to July 31, 2006.^[12] The City Centre is within the congestion tax zone. All the entrances and exits of this area have unmanned control points operating with automatic number plate recognition. All vehicles entering or exiting the congestion tax affected area, with a few exceptions, have to pay 10–20 SEK (1.09–2.18 EUR, 1.49–2.98 USD) depending on the time of day between 06:30 and 18:29. The maximum tax amount per vehicle per day is 60 SEK (6.53 EUR, 8.94 USD).^[13] Payment is done by various means within 14 days after one has passed one of the control points, one cannot pay at the control points.^[14]

Road Pricing

2009-06-13T01:00:00.000-07:00

Road pricing (Wikipedia) is an economic concept regarding the various direct charges applied for the use of roads. The road charges includes fuel taxes, licence fees, parking taxes, tolls, and congestion charges, including those which may vary by time of day, by the specific road, or by the specific vehicle type, being used.^[1] Road pricing has two distinct objectives: revenue generation, usually for road infrastructure financing, and congestion pricing for demand management purposes. Toll roads are the typical example of revenue generation. Charges for using high-occupancy toll lanes or urban tolls for entering a restricted area of a city are typical examples of using road pricing for congestion management purposes.^[2]

Road pricing UK

2009-06-13T00:59:00.000-07:00

(From Wikipedia)

UK governments have periodically considered the possibility of using road pricing since the early 1960s, when the Smeed Report considered how to implement congestion charging.^[15]

Durham became the first city in the UK to have a permanent congestion charge in 2002.^[16] London has had a congestion charge in the central area since 2003. The organisation responsible for the charge is Transport for London (TfL). The fee was introduced on February 17, 2003.^[17] Initially set at £5, then raised on July 4, 2005 to £8,^[18] the daily charge must be paid by the registered keeper of a vehicle that is on public roads^[18] in the congestion charge zone between 7 a.m. and 6 p.m. (previously 6:30 p.m.), Monday to Friday.^[19] Failure to pay the charge means a fine of at least £50.^[20] The charge area was extended into parts of West London on February 19, 2007.^[21]

A scheme similar to the one in London is proposed in Manchester, covering a wider area but with a much smaller daily charging window covering the morning and evening rush hours.^[22] . A scheme for Cambridge is currently under consideration and the subject of heated public debate,^[23] with council surveys showing that a majority of Cambridge-area residents reject the scheme.^[24] A scheme for Edinburgh was rejected in a public referendum in February 2005.^[25] On 2008-03-05, councils from across the West Midlands, including those from Birmingham and Coventry, rejected the idea of imposing road pricing schemes on the area, this was despite promises from central government of transport project funding in exchange for the implementation of a road pricing pilot scheme.^[26] Similar schemes proposed for cities in the East Midlands have also been dropped.^[27]

Extensive studies are being done on introducing a scheme for all UK vehicles, with an aim to implementation at the earliest around 2013.^[28]^[29] In October 2005 the UK government suggested they explore "piggy-backing" road pricing on private sector technologies, such as usage based insurance (also known as pay-as-you-drive, or PAYD).^[specify] This method would avoid a large-scale public sector procurement exercise, but such products are unlikely to penetrate the mass market. If introduced, this scheme would likely see a charge being levied per kilometre depending on the time of day, the road being driven along, and perhaps the type of vehicle. For example, a large car driving along the western section of the M25 in rush hour would pay a high charge; a small car driving along a rural lane would pay a much lower charge. The very highest charges would be likely in the most congested urban areas. It is expected that rural motorists would benefit the most from such a scheme, perhaps by paying less through road pricing than they do at present through petrol and car taxes, whereas urban motorists would pay much more than they presently do. However, this is highly dependent on whether such a scheme would be designed to be either revenue neutral or congestion neutral. A revenue neutral scheme would replace (at least in part) petrol and vehicle taxes, and would be such that Treasury revenue under the new scheme would equal the revenue from current taxes. A congestion neutral scheme would be designed so that growth in congestion levels would stop as a result of the new charges; the latter scheme would require significantly higher (and increasingly higher) charges than the revenue neutral scheme and so would be unpopular with the UK's 30 million motorists. The carbon emission consequence of moving from fuel duty to a charge per mile has been raised as a concern by some environmentalists, as has any diversionary response from heavily trafficked (and hence more expensive) roads.^[specify] The UK government announced funding for road pricing research in seven local areas in November 2005.^[30]

In June 2005, Transport Secretary Alistair Darling announced the current proposals to introduce road pricing.^[31]^[32] Every vehicle would be fitted with a satellite receiver to calculate charges, with prices (including fuel duty) ranging from 2p per mile on uncongested roads to £1.34 on the most congested roads at peak times.^[33]

A 2007 online petition against road pricing, started by Peter Roberts and hosted by the British government attracted over 1.8 million signatures, equivalent to 6% of the entire driving population. Over 150,000 signatures were added during the last day before the petition closed on February 20, 2007.^[specify] In reply, the prime minister e-mailed the petitioners outlining his rationale, denying that the proposals were to introduce a stealth tax or increase surveillance, and promising 'debate' before a decision was made as to whether to introduce a national scheme.^[34] Also, in a recent poll 74% of those questioned opposed road pricing.^[35]

In July 2008, Roberts started the Drivers' Alliance, a mass-membership organisation dedicated to researching the issues surrounding road pricing and campaigning against its introduction.

National Transport Model

2009-06-13T00:56:00.000-07:00

The National Transport Model

The Department has developed a National Transport Model (NTM) as an analytical and policy-testing tool, providing a systematic means of comparing the national consequences of alternative national, or widely-applied local, transport policies.

Contestable Markets

2009-06-13T00:47:00.000-07:00

Contestable Markets

Contestability theory is associated with Baumol who argues the mere threat of new firms entering a market impels existing firms to act competitively ie earn normal profits and deliver allocative and productive efficiency.

Imperfectly competitive markets can be made contestable - another policy, alongside privatisation and deregulation, for introducing competition into transport industries.
Contestable market theory is based around four concepts:

i Barriers to entry: the technical or economic factors preventing firms from entering an industry and competing with existing firms

i Sunk costs are the costs associated with leaving an industry. Firms entering an industry incur costs. Those expenditures that cannot be recovered on exit eg promotion and R&D are known as sunk costs. Sunk costs act as a barrier to entry because new entrants know that if they are unsuccessful then some set up costs are lost

i A franchise is the legal right to operate a given service for a given period of time.

Franchisees make a lump sum payment to buy a franchise, must meet quality standards as set out in a contract and invest their own capital in providing the service. Because franchises are time limited there is the threat of a potential entrant when the franchise next comes up for tender ie contestablility. However, short-term franchises that introduce contestability into transport markets also deter long-term investment where firms feel they may lose their current franchise and experience sunk costs. For this reason, the latest franchise agreements are for longer periods eg 15 years. 15 year franchises create uncontested legal monopolies.

i Hit & Run Rival firms attracted by abnormal profits ‘hit’ ie enter an industry. As increased supply forces down prices, they then ‘run’ ie leave.

Making markets contestable by reducing barriers to entry into the market means potential entrants are able to enter market quickly if abnormal profits are made. This process helps ensure normal profits only, are earned in the long run – irrespective of the number or size of firms.

It is important to understand that contestability theory does not require firms to enter the market. The theory of contestable markets argues that changing the behaviour of existing monopolist is not actual but the threat of potential competition.

A contestable market has

i One or only a few firms in the industry ie a pure monopoly or oligopoly market structure
i No or minimal barriers to entry eg - firms can enter or leave an industry freely
i Minimal sunk costs ie the costs of entry and exit are zero or minimal

The government has sought to create contestable markets in the rail, bus, ferry and air industries through deregulation (buses) and short franchises (trains).

However, contestablility is an inappropriate policy in natural monopolies like Network Rail and NATs, where regulation is more appropriate.

Barriers to Entry

2009-06-13T00:46:00.000-07:00

Barriers to entry: the technical or economic factors preventing firms from entering an industry and competing with existing firms
Barriers to entry in transport include
i Legal monopoly eg a eg Train Operating Companies have been given a regional monopolies with a time-limited franchise by law
i Vertical integration: where by acquiring suppliers or distributors a firm can exclude rivals from a producing a product or supplying a market
i Predatory pricing where established firms lower price to force competitors into losses and so force their withdrawal from industry eg Laker Airway’s Skytrain no frills transatlantic route
i Economies of scale. Initially, new entrants with low output cannot enjoy the same economies of scale and low unit costs of established firms
i Large potential sunk costs deter new entrants from risking entry
i Branding establishes products as unique. New entrants require expensive advertising to establish sales deters entrants
Monopolists sustain abnormal profits by blocking potential entrants. Barriers to entry largely determine the degree of competition in a market.

Air Transport Deregulation

2009-06-13T00:44:00.000-07:00

Air Transport Deregulation

Before discussing the UK’s experience of air transport deregulation, consider first the special characteristics of air travel

i Aviation generates significant externalities including noise, climate change, and diminished air quality. Planes burn most fuel during take-off. Therefore short flights are disproportionately polluting The Dept of Transport estimates a £3 tax on short-haul, and £20 on a long-haul flight, is needed to internalise the externality ie make the polluter pay.

i Airport development involves significant land use and consequent urbanisation of the surrounding area

i In the UK and Europe, the supply of airspace and landing slots at major cities is limited.

i The current airports, runway and air traffic control infrastructure lacks the capacity to handle the projected number of flights

Air transport is made up of several interlocking components:

i Airline operators in the private sector commercial airlines such as Virgin or state own ‘flag carriers’ such as Air France, low cost companies such as Ryan Air and charter airlines used by holiday firms

i Infrastructure: airports and air traffic control systems

Air travel markets are segmented into submarkets: first class & economy class, low cost, leisure & business domestic, short & long haul. Evaluation requires performance indicators. The criteria to evaluate the performance of air transport include fares, the number of services, service frequency, quality of service, changes in demand, loading.

Air transport is a heavily regulated industry because:

i Travel by air is potentially dangerous and any accident involves hundreds of people
i Air flights pass through the airspace of different countries and so pose a potential security threat

The first country to deregulate air transport and allow new carriers to enter the market was the USA in 1978, resulting in a proliferation of smaller airlines, competing against established major airlines.

During this period European air transport was dominated by state-owned 'flag carriers'. Governments negotiated bilateral agreements eg BA flies from Heathrow to Geneva and Swiss Air form Geneva to Heathrow. Resultant barriers to entry meant virtually no competition and high prices.

Starting in 1987, UK air transport deregulated as part of an EU wide process. Additional 1993 reforms granted all European airlines the right to offer international flights within Europe and most domestic routes. Airlines became free to set their own fares.

The result has been to replicate the US experience. There has been an explosion of low cost operators such as EasyJet challenging established state owned carriers.

Europe is now moving towards an open skies policy where the air transport industry is liberalised and governed by an EU regulatory framework. Increasing competition involves allowing more airlines to fly to destinations. To encourage new entrants, the EU allocates 50% of unused or newly created slots to newcomers to the market.

The impact of deregulation varies between sub markets:

i Low cost operators like Easyjet and Ryanair have rising profits and are expanding by offering low cost flights.
i Premium carriers such as BA are losing business passengers and profits to cheap fares airlines

2009-06-13T00:41:00.000-07:00

There are three main sources of uncertainty in transport forecasts:

i The future path and values of the variables used in a model (eg GDP or oil price) may diverge from predicted values

i The specification and stability of statistical relationships used in the model may change over time

i A model may leave out of factors that do not currently affect consumer behaviour but may in future be important determinants of transport demand eg Eurotunnel predictions did not take into account the advent of low cost air flights between London and Paris

Remember: relationships based on past trends and patterns of consumer behaviour may not always be accurate for predicting behaviour in the future. Consumer tastes change and markets go through life cycle phases. Eg is air transport a growing or mature market?

Transport Trends presents an overview and analysis of trends in transport and travel in Great Britain over the past twenty five years, and highlights some of the key issues.
It is intended as a companion volume to Transport Statistics Great Britain, which contains reference tables containing more detailed figures and, in some cases, longer time trends.
Transport Trends includes a wide range of indicators and statistical analysis to illustrate longer-term trends and to help put key policy targets and trends into a broader context. The report includes trends in relation to the Department's Public Service Agreement (PSA) targets and the government's sustainable development indicators which are most relevant to transport.

Transport Trends 2008 is released on 12 February 2009 - you can download a PDF version from the introduction page or e-mail publicationgeneral.enq@dft.gsi.gov.uk for a free copy of the publication.

Transport trends current edition.

Elasticity and Transport

2009-06-13T00:34:00.000-07:00

The Use of Elasticity of Demand in Transport

Elasticity measures sensitivity or responsiveness specifically how one variable responds to a change in a second variable.

i Inelastic means unresponsive, ie a change in one variable results in a smaller change in a second

i Elastic means responsive, ie a change in one variable results in a bigger change in a second

Elasticity is a key quantitative tool in microeconomics that is used extensively to assess and predict the effect of a change in one variable eg price, on a second variable eg number or quantity of journeys demanded. In short, elasticity quantifies changes.

Transport operators take account of several types of elasticity in planning price and predicting output

Price Elasticity of Demand

Price elasticity of demand measures the responsiveness of demand to a given change in price. Firms can use price elasticity of demand (PED) estimates in transport to predict:

i The effect of a change in fares on quantity demanded
i The effect of a change in fares on total revenue & expenditure
i The effect of a change in indirect tax eg road charging or fuel duty on price and quantity
demanded
i The effects of price discrimination in peak/off peak. Price discrimination is where a monopolist charges different prices for the same product to different segments of the market
eg peak and off peak rail travel

Income Elasticity of Demand

Income elasticity of demand (YED) measures the responsiveness of demand to a given change in income. Governments and firms use YED estimates to predict impact on demand and revenues of:

i Economic growth: the demand for luxury items such as air travel (high positive YED) increases proportionately more than products with a low YED such as bus travel
i The business cycle: fluctuations in the demand for transport can be estimated

Road rail and air travel have high positive income elasticity of demand (YED). Economic growth is resulting in a proportionately greater increase in the use of these modes of transport. Economic growth raises incomes.

Given the high positive YED for cars, a given economic growth rate results in a proportionately larger increase in car usage.

Note increased car usage is a result of increased prosperity and the preferences of consumers and unsustainable because of resultant congestion and environmental impacts from pollution Buses exhibit low, even negative YED, and are mainly used by low income consumers

Cross Elasticity of Demand

Cross elasticity of demand measures the responsiveness of demand for good A to a given change in price of good B

Firms use cross elasticity of demand (XED) estimates to predict the impact of a rival’s pricing strategies on demand for their own products. If a competitor cuts the price of a rival service, firms use XED to predict the effect on the quantity demanded and total revenue of their own product.

Syllabus

2009-06-13T00:19:00.000-07:00

The subject content of this module focuses on the economic principles and context underlying a range of transport problems and issues. In particular, it considers transport industries in terms of the models of market structure, especially in the context of the contestablility in such markets. Although there is a particular emphasis on the transport situation in the UK, candidates may draw upon the experience of the rest of the EU and rest of the world where this is appropriate to the requirements of the topic. Some knowledge of the recent historical background to transport issues and policies is required in order to appreciate contemporary applications. However, the specification content focuses upon present day transport economics problems and issues.

The use of relevant statistical information should be incorporated into the teaching of this module. Transport Statistics Great Britain (annual), Office for National Statistics, is a particularly useful source. Other data is incorporated in newspaper articles and transport publications as well as material on the World Wide Web. The web site of the Department for Transport, (http://www.dft.gov.uk) is particularly useful.

5.5.1 Transport, Transport Trends and the Economy

Content

Definition of transport, Transport modes and modal characteristics. Transport as a derived demand. Factors affecting the supply of transport services.

Recent trends in transport demand in the UK. Forecasted demand and the economic basis of transport forecasts. The importance of the transport sector in the UK economy.

Candidates should be able to:

• define ‘transport’ in terms of transport operations and infrastructure;
• understand the advantages and disadvantages of the main modes of transport, for passenger and freight transport;
• apply an understanding of these characteristics to appreciate why transport is a derived demand;
• understand the structure of transport operations in the UK, in terms of private and public sector ownership and responsibilities;
• interpret and understand the reasons for recent trends in the demand for and supply of transport in the UK;
• apply economic principles in order to understand how and why transport forecasts are made and used by transport economists;
• handle and interpret data on the economic importance of transport in the UK economy.

5.5.2 Theories of market structure and competitive behaviour in transport markets

Content

The models of perfect competition, monopolistic competition, oligopoly and monopoly. The concept of contestability in markets and comparisons of outcomes in terms of prices, output, profits and efficiency.

Application of these models to the behaviour of firms in transport markets, to include: recent ownership trends; transport as a natural monopoly; transport as a franchised monopoly; deregulation and the principle and impact of contestability in road passenger (bus) and air transport in Europe; the process and impact of rail privatisation, including the role of franchising and direct sale of freight.

Candidates should be able to:

• explain the models of perfect competition, monopolistic competition, oligopoly, monopoly and contestability;
• evaluate the implications of different market structures for resource allocation;
• apply the outcomes of the models of market structures to the actual behaviour of firms in transport markets;
• analyse the natural monopoly argument applied to transport;
• understand what is meant by deregulation and analyse the characteristics of contestable markets;
• evaluate the impact of deregulation in road passenger (bus) and air transport in Europe;
• describe how the transport industry in the UK has been privatised;
• understand how and why the UK’s railways have been privatised and evaluate the impact of this privatisation for passenger and freight services;
• discuss the relationship between efficiency and market structure in transport.

5.5.3 Resource allocation issues in transport

Content

Objectives of transport policy and how to achieve the ‘best’ allocation of resources; the concept of an ‘integrated’ transport policy.
How resources are allocated in transport – role of government and the private sector. New initiatives and opportunities for the private sector in transport projects. The cost structure of the main modes of transport.
Cost-benefit analysis – application in transport decision-making.

Candidates should be able to:

• understand and evaluate the objectives of transport policy;
• analyse why the ‘best’ allocation of resources is not always possible and why this may constitute market failure;
• understand the nature and features of an ‘integrated’ transport policy;
• understand how resources are allocated in the transport sector;
• understand how and why the private sector has funded recent transport projects through initiatives such as the Private Funding Initiative;
• evaluate the contribution of the private sector in transport investment decisions;
• understand and analyse the cost structure of the main modes of transport operations in terms of fixed costs and variable costs;
• understand how and why some costs and benefits can be expressed in monetary terms, whilst others cannot;
• understand how the costs of traffic congestion can be calculated;
• understand and interpret information collected in a transport cost-benefit analysis and apply this knowledge in transport decision-making;
• discuss the uses and limitations of the cost-benefit approach to transport decisionmaking.

5.5.4 Market failure and the role of the government in transport

Content

Negative externalities associated with increased transport use – pollution, noise, accidents, blight, stress, congestion – and how these may be expressed in monetary terms. Transport and the environment: role of regulation and taxation in dealing with negative externalities; the hypothecation of taxation; transport policy and the environment – the contribution of the Royal Commission of Environmental Pollution; the nature and meaning of sustainability in transport; the relevance of sustainability for transport policy and in transport policy strategies for the future.

Traffic congestion as a market failure: policies for combating congestion – role of transport subsidy, public transport development, user charges, fiscal measures and direct control; the nature of road pricing – its advantages and disadvantages; international comparisons of policies for reducing congestion in cities; road pricing in transport policy in the UK and
elsewhere.

Candidates should be able to:

• discuss how regulation and taxation are used in transport to reduce negative externalities;
• the meaning and rationale of the hypothecation of taxation;
• evaluate the extent to which transport policy in the UK is sensitive to environmental issues;
• define sustainability and apply this to the transport sector;
• analyse and evaluate the extent to which current and future transport policies are sustainable;
• apply the principle of market failure to the problem of traffic congestion;
• understand the policy options for combating congestion and discuss their respective advantages and disadvantages;
• understand what is meant by user-charging and road pricing and analyse their economic basis;
• evaluate the theoretical and practical arguments for the introduction of user-charging and road pricing schemes;
• compare the experience of the UK with that of other countries.

OCR 2885 Transport

Jam Busters

Cheating in the Transport examination

As has been pointed out....

well..

Mocks

Evaluation

Can you do these?

Revision notes

Revision notes

Revision notes

Transport Exam Paper June 2010

Justice!

Well, the exam is now over

Links

Fancy making such a suggestion!

Attention Bagautdinova!

Practice

Practice

Practice

Practice!

Exam Practice 1

Exam Practice 2

Exam Practice 3

Exam Practice - 4

Exam Practice - 5

Xmas Gift

Final tips for the exam this afternoon

Every mark is sooooooo important!

Perfect comp and contestablity

Likely topics for the Transport paper

CBA and transport

Perfect versus imperfect competition

Free rider problem (Wiki)

The answers to all the questions...

Contestable markets

Transport links with Unit 1 & 2

Final exam tips

Now all you have to do is....

Exam questions (June 2008)

Exam questions (Jan 08)

Exam questions (June 2007)

Exam questions (Jan 2007)

Exam questions (June 2006)

Exam questions (Jan 2006)

Exam questions (June 2005)

Exam questions (Jan 2005)

Can you do these essays?

Get an advantage over other candidates...

Researching air transport

Privatisation: Aviation

Oil supply

The Oil Supply

Related Articles

Economics sense!

25 topics to revise

Exam questions

Three links to keep an eye on

Road Pricing

Road pricing in Europe

Germany

Italy

Malta

Norway

Sweden

Road Pricing

Road pricing UK

National Transport Model

The National Transport Model

Contestable Markets

Barriers to Entry

Air Transport Deregulation

Elasticity and Transport

Syllabus