TRANSPORT ECONOMICS

INTRODUCTION TO TRANSPORT
ECONOMICS
• Most individuals have a basic need to travel from one location to another.
• Modern life
• structured around accessing goods and services that lie outside of the
immediate vicinity of the home.
• Transport services required
• to gain access to employment, education, personal care/health services as well
as access to retail outlets for household goods such as food, clothing, electrical
goods, books, CDs and so on.
• This importance is further reflected in the link between transport levels and
economic growth.
• In the past this link has been very strong, as both passenger and freight
transport play a vital role in the function of the economy, with strong growth
normally associated with innovative transport solutions.
 TRANSPORT ISSUES THAT
ECONOMICS CAN SHED LIGHT
ON
• congestion and the role of road pricing,
• the impact of traffic on the environment,
• the organisation of public transport services,
• the rise of low-cost airlines,
• the capacity of the rail network, or indeed
‘problems on the railways’ and so on
 WHY TRANSPORT HAS EXPERIENCED
MAJOR CHANGES IN RECENT YEARS

• Governments worldwide have become increasingly

aware of the need to introduce effective ways of
containing the use of the private car, both as a means
of tackling congestion and as a result of the negative
environmental impacts its use entails.
• Transport in general and the movement of passengers
and freight bring with its considerable negative impacts
in terms of air pollution, noise and visual intrusion.
• There has also been regulatory change and a
reduction in state ownership of transport companies in
all areas of transport, from the rail and bus industries, to
freight companies, and in the aviation sector.
 WHAT IS TRANSPORT ECONOMICS?
• Economics is one of the social sciences, concerns the study of people and their
actions.
• It is therefore about the production, distribution and use of society’s goods and
services
• Transport economics is a branch of economics that deals with the allocation
of resources within the transport sector. ( American economist John R.
Meyer)
• Transport economics could also be defined as the study of the movement of
people and goods over space and time.
• It is a branch of economics that deals with the allocation of resources within
the transport sector.
 SCARCITY
CHOICE AND
OPPORTUNITY COST
• Scarcity is defined as the main economic problem and apply both to the
Third world economies or advanced economies.
• In simple terms individuals cannot have everything that they want because
there is a finite limit on the resources that can be used to satisfy these
‘wants’.
• Any resource is therefore scarce, If individuals cannot have all that they want, then
choices need to be made, put simply every choice involves a cost.
• This will always be the next best alternative that could have had been selected
when that choice was made. This is known as the opportunity cost of that decision.
• Thus if a particular society does not have sufficient resources to build both a new
stretch of motorway and a new airport, it must make a choice between the two.
• If it chooses to build the motorway then the opportunity cost of the motorway is the
airport that was not built.
• Opportunity cost therefore can be formally defined as the next best alternative
forgone and is consequently not assessed using financial criteria.
 ECONOMIC CHARACTERISTICS OF
TRANSPORT
• People wish, in general, to travel so that some benefit can be obtained at
the final destination.
• The trip itself is to be short as possible.
• The demand for transport is therefore a derived demand.
 ECONOMIC CHARACTERISTICS OF
TRANSPORT

• Another characteristic is that transport demand takes place over space and
time.
• This distinguishes transport economics from other branches of economics.
• Transport journeys are made over a particular distance between start and
end points and take a particular amount of time.
• The reality though is that this demand is not spread evenly throughout the
network. This uneven demand can cause traffic congestion.
 ECONOMIC CHARACTERISTICS OF
TRANSPORT
• Transport is often divided into fixed and mobile component, the fixed
component consist of infrastructure and the mobile component of vehicles
and operations.
 IMPORTANCE OF TRANSPORT IN
ECONOMIC DEVELOPMENT
• Transport by itself is not sufficient condition for development; however, the
lack of transport infrastructure can be seen as a constraining factor on
development.
• The development of transport increases traveling and trade, especially in
agricultural product. This contributed to the development of cities and ports.
 IMPORTANCE OF TRANSPORT IN
ECONOMIC DEVELOPMENT
• Role in Production: It enables the entrepreneur to assemble more easily the
raw material and labour input needed to make a specific product.
• The same transportation system moves intermediate goods to other
producers for subsequent use in their production process, and it moves
finished goods to the consumers.
• An efficient transport system enables Just in Time (JIT) production techniques.
• Components are delivered when needed reducing a firms stock levels
hence unit costs
 IMPORTANCE OF TRANSPORT IN
ECONOMIC DEVELOPMENT
• Employment Opportunities: Transport also contributes to economic
development through job creation.
• This can either be direct or indirect. Direct employment will be created in the
industry itself , such as drivers , logistics managers and pilots.
• Indirectly, jobs are created in for example the insurance and financing
industry, related to the assets of transport companies.
 IMPORTANCE OF TRANSPORT IN
ECONOMIC DEVELOPMENT
• Geographical Specialization: The development of transportation system has
enabled regions to specialise in producing its most efficient output.
Production and consumption of products can take place in two different
locations.
• The bulk of the electronic products we use daily, such as television sets, is
manufactured in the east and transported through ship to Africa.
• Substantial economies of scale have been achieved and these have
resulted in reduced per unit production costs.
 IMPORTANCE OF TRANSPORT IN
ECONOMIC DEVELOPMENT
• Trade: Transportation has enabled countries to trade with other countries
throughout the world. International transportation has led the way to more
world trade, and it has enabled nations or regions to specialise in producing
whatever it can do best (comparative advantage)
• Tourism: The airline industry has specifically contributed to the growth in the
tourism industry, due to airline being fast, safe and relatively cheap. The car
rental industry, likewise has also played a major role in tourism development.
Currently tourism industry is the fastest growing industry in Namibia.
 OTHERS
• Time Utility; Efficient transportation creates time utility by ensuring that
products are at the proper locations when needed
• Place Utility ; The reduction in transportation cost between points A and B
gives a commodity a place utility. This place utility will encourage market
areas to purchase products from distant suppliers that might be locally
produced
• Quantity Utility; Transportation gives goods a quantity utility through the
assurance that the goods will arrive without damage. This helps assure that
the quantity demanded is the same as quantity delivered