Final tips for the exam this afternoon

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!

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.


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

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

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

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."


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)

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...

...from the book on the left!

Just look it up on Amazon!!!!

Contestable markets

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

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.<;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.

<;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.

< >

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

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


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....

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)

1. (a) Explain how economists make forecasts of air passenger transport demand.
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)

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)

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)

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)

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)

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)

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.
(b) Discuss the extent to which recent trends in freight transport are sustainable.

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)

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.
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.

Answers/guidelines here

Can you do these essays?

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...

...if you speak French.

But if you prefer English...


Researching air transport

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..."



Privatisation: Aviation

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....


Pie in the sky not working

Passenger terminals


Airspace - final frontier

Air traffic sell-off

Oil supply

Read this...

Economics sense!

25 topics to revise

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

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



Economics teacher

Road Pricing

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

(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.


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.


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]


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.


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, there will be six fully automated schemes in operation. For the others motorists without a tag pay a fee at a manual barrier.


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]