Transport Economics Management
Table of Contents
Transport Economics Management ...................................................................................1
Week 1 .................................................................................................................................... 2
Knowledge clip week 1: inverse demand .......................................................................................................2
Knowledge clip week 1: Elasticity of demand ................................................................................................2
Lecture 1 Demand ..........................................................................................................................................3
Knowledge clip week 1: Cost minimization ....................................................................................................5
Lecture 2 Cost functions .................................................................................................................................6
Week 2 .................................................................................................................................... 9
Knowledge clip week 2: Full competition .......................................................................................................9
Knowledge clip week 2: Welfare maximization .............................................................................................9
Knowledge clip week 2: Second degree price discrimination ......................................................................10
Lecture 3 Market Structures.........................................................................................................................11
Lecture 4 Competition Policy, Regulation, Privatization ..............................................................................15
Week 3 .................................................................................................................................. 19
Knowledge clip week 3: externalities ...........................................................................................................19
Knowledge clip week 3: missing market and cap & trade ...........................................................................21
Lecture 5 Externalities ..................................................................................................................................22
Knowledge clip week 3: Rule of a half ..........................................................................................................25
Lecture 6 Cost Benefit Analysis ....................................................................................................................26
Week 4 .................................................................................................................................. 29
Knowledge clip week 4: Congestion in the standard diagram .....................................................................29
Knowledge clip week 4: Congestion varies ..................................................................................................30
Lecture 7 congestion ....................................................................................................................................31
Lecture 8 Rail ................................................................................................................................................33
Week 5 .................................................................................................................................. 36
Knowledge clip week 5: Deregulation of (US) freight ..................................................................................36
Knowledge clip week 5: Truck vs multi model .............................................................................................37
Lecture 9: Road and Multi-model freight .....................................................................................................38
Lecture 10 Maritime economics and management .....................................................................................42
Week 6 .................................................................................................................................. 45
Lecture 11 Maritime Economics and Management .....................................................................................45
Lecture 12 Discrete choice models...............................................................................................................47
,Week 1
Knowledge clip week 1: inverse demand
Assumptions consumer:
• Rational: always makes the best possible choice
• Self-interested (maximizes his/her utilities)
Consumer makes a choice on how much to but of goods Q1 and Q2 given the consumer’s
budget constraints: Y = p1Q1 + p2Q1
The indifference curve: combinations of Q1 and Q2 that yield the same utility level
• Never intersect each other, one is always higher than the other
Knowledge clip week 1: Elasticity of demand
Elasticity: responsiveness of demand to a change in a factor measured in percentages
• (% change in demand) / (% change in price)
o E.g. a price elasticity of -1.15 means that demand decreases by 1.15% is the
price increases by 1%
• Inelastic demand: -1 < price elasticity < 0
• Elastic demand: price elasticity < - 1
2
,Lecture 1 Demand
Why interested in demand → We want to know why consumers behave in a certain way
• What are consumers willing to pay for it?
• How derives demand?
o Maximize utility
Inverse demand → The value of everything else we want to give up getting item in question
• Willingness-to-pay
What determines demand (the height of the inverse demand function):
• Price of substitutes (product is one that can be purchased instead of another)
• Price of complementary goods (apps for on a iPhone)
• Income
• Population (more people, can produce more, cost production will go down)
• Bureaucracy
• Security (how safe is logistics chain)
• Popularity/image
• Speed (Suez Canal)
• Reliability
Demand sensitivity: elasticities
• An elasticity gives the % change in a variable as a result of change in another variable
• Point elasticity: effect at a certain price point
• Why relative changes: absolute numbers cannot be compared
Brons et al (2002) meaning E(-1.146) → a 1% increase in price leads to a -1.146 decrease
in demand
Price elasticity influenced by:
• Proportion of consumer expenditure
• Addictiveness (smokers)
• Level of necessity (introduction of new iPhone, someone wants the newest, water)
• Time scale (flying to London tomorrow, airline can ask for a high price)
• Availability of substitutes
Area under inverse demand curve measure total benefit or total surplus
3
, Q = f(P, Y, t)
• Demand (Q) is a function of price P, income Y and time trend t
• Assumes a causal relation, one/two/three variable cause Q
4
Table of Contents
Transport Economics Management ...................................................................................1
Week 1 .................................................................................................................................... 2
Knowledge clip week 1: inverse demand .......................................................................................................2
Knowledge clip week 1: Elasticity of demand ................................................................................................2
Lecture 1 Demand ..........................................................................................................................................3
Knowledge clip week 1: Cost minimization ....................................................................................................5
Lecture 2 Cost functions .................................................................................................................................6
Week 2 .................................................................................................................................... 9
Knowledge clip week 2: Full competition .......................................................................................................9
Knowledge clip week 2: Welfare maximization .............................................................................................9
Knowledge clip week 2: Second degree price discrimination ......................................................................10
Lecture 3 Market Structures.........................................................................................................................11
Lecture 4 Competition Policy, Regulation, Privatization ..............................................................................15
Week 3 .................................................................................................................................. 19
Knowledge clip week 3: externalities ...........................................................................................................19
Knowledge clip week 3: missing market and cap & trade ...........................................................................21
Lecture 5 Externalities ..................................................................................................................................22
Knowledge clip week 3: Rule of a half ..........................................................................................................25
Lecture 6 Cost Benefit Analysis ....................................................................................................................26
Week 4 .................................................................................................................................. 29
Knowledge clip week 4: Congestion in the standard diagram .....................................................................29
Knowledge clip week 4: Congestion varies ..................................................................................................30
Lecture 7 congestion ....................................................................................................................................31
Lecture 8 Rail ................................................................................................................................................33
Week 5 .................................................................................................................................. 36
Knowledge clip week 5: Deregulation of (US) freight ..................................................................................36
Knowledge clip week 5: Truck vs multi model .............................................................................................37
Lecture 9: Road and Multi-model freight .....................................................................................................38
Lecture 10 Maritime economics and management .....................................................................................42
Week 6 .................................................................................................................................. 45
Lecture 11 Maritime Economics and Management .....................................................................................45
Lecture 12 Discrete choice models...............................................................................................................47
,Week 1
Knowledge clip week 1: inverse demand
Assumptions consumer:
• Rational: always makes the best possible choice
• Self-interested (maximizes his/her utilities)
Consumer makes a choice on how much to but of goods Q1 and Q2 given the consumer’s
budget constraints: Y = p1Q1 + p2Q1
The indifference curve: combinations of Q1 and Q2 that yield the same utility level
• Never intersect each other, one is always higher than the other
Knowledge clip week 1: Elasticity of demand
Elasticity: responsiveness of demand to a change in a factor measured in percentages
• (% change in demand) / (% change in price)
o E.g. a price elasticity of -1.15 means that demand decreases by 1.15% is the
price increases by 1%
• Inelastic demand: -1 < price elasticity < 0
• Elastic demand: price elasticity < - 1
2
,Lecture 1 Demand
Why interested in demand → We want to know why consumers behave in a certain way
• What are consumers willing to pay for it?
• How derives demand?
o Maximize utility
Inverse demand → The value of everything else we want to give up getting item in question
• Willingness-to-pay
What determines demand (the height of the inverse demand function):
• Price of substitutes (product is one that can be purchased instead of another)
• Price of complementary goods (apps for on a iPhone)
• Income
• Population (more people, can produce more, cost production will go down)
• Bureaucracy
• Security (how safe is logistics chain)
• Popularity/image
• Speed (Suez Canal)
• Reliability
Demand sensitivity: elasticities
• An elasticity gives the % change in a variable as a result of change in another variable
• Point elasticity: effect at a certain price point
• Why relative changes: absolute numbers cannot be compared
Brons et al (2002) meaning E(-1.146) → a 1% increase in price leads to a -1.146 decrease
in demand
Price elasticity influenced by:
• Proportion of consumer expenditure
• Addictiveness (smokers)
• Level of necessity (introduction of new iPhone, someone wants the newest, water)
• Time scale (flying to London tomorrow, airline can ask for a high price)
• Availability of substitutes
Area under inverse demand curve measure total benefit or total surplus
3
, Q = f(P, Y, t)
• Demand (Q) is a function of price P, income Y and time trend t
• Assumes a causal relation, one/two/three variable cause Q
4
