Wednesday

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.< http://www.bbc.co.uk/mediaselector/check/nolavconsole/ukfs_news/hi?redirect=st.stm&news=1&amp;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&amp;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?

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