Essays On Transport Economic Revision With Answers
Analyse the level of economic efficiency achieved in the short run in a
monopolistic competitive transport market - CORRECT ANSWERS-
Allocative inefficiency arises (L1). This is usually
achieved where P=MC (L2) but in the case of
monopolistic competition this is NOT achieved
(basic L3). If illustrated with a diagram, with explicit
written reference to production not being where
P=MC, then this achieves (good L3).
(diagram only L2).
Productive inefficiency arises (L1). This is usually
achieved where production takes place at minimum
AC (L2) OR where as few scarce resources are
used in production as is possible (L2). In SR
monopolistic competition, this is not achieved basic
L3). If illustrated with correct SR diagram, with
explicit written reference to not producing at
minimum AC this achieves 'good' analysis.
(diagram only L2)
Accept reference to dynamic efficiency being
improved (L1) if SR abnormal is invested (L2) to
satisfy more consumer wants (L3) OR being
alternatively dynamic inefficient (L1) due to lack of
incentive to invest/innovate (L2) as profits will be
competed away (L2) therefore consumer
satisfaction not maximised (L3).
Discuss the impact of a fall in market concentration on the economic
effieincy of a transport market of your choice - CORRECT ANSWERS-
Diagrams: Accept theory of the firm diagrams
showing a move AWAY from monopoly towards a
more competitive market (perfectly competitive
market). For L3 diagrams need developing in
terms of EITHER:
greater competition leads to lower ACs and,
,therefore, productive efficiency.
competition leads to lower prices and, hence,
allocative efficiency.
Increased allocative efficiency (L2) as firms want to
sell at a price equal to MC (L3) OR firms want to
sell exactly those goods and services which
consumers demand in order to remain in business
(L3).
Reduced X-inefficiency (L2) as firms have to
reduce costs to enable them to sell their products
at the lowest possible prices. (L3).
Increase consumer surplus (L2) as consumers
benefit from lower prices due to increased supply
(L3) increasing consumer welfare (L3)
Possible analysis of why a fall in market
concentration may not increase economic
efficiency includes:
Loss of economies of scale (L2). In markets where
significant economies of scale exist then small
firms will be unable to exploit the benefits of these
and, hence, productive inefficiency results as firms
produce at higher ACs (L3).
Loss of natural monopoly(L2) resulting in loss of
allocative or productive efficiency due to breaking
up large scale production and benefits of EOS (L3)
A fall in market concentration may result in firms
trying to cut costs in order to compete - hence,
possible rise in negative externalities (L2) and
allocative inefficiency (L3).
Possible loss of dynamic efficiency (L2). Smaller,
competitive firms may well make smaller profits
and, hence, have less to invest in research and
development: hence, in LR there may be greater
inefficiency. (L3).
,Analyse negative externatlities arising in transport markets -
CORRECT ANSWERS-Relevant negative externalities include:
congestion/time delays
noise
increased pollution
increased accidents
blight
visual intrusion (accept any negative
externalities associated with increased
infrastructure to cope with increased traffic).
Relevant analysis of these could include:
Congestion (L1) results from transport markets as,
with more and more vehicles on roads, journeys
become slower (L2). This imposes a cost on other
drivers who are already on roads OR to businesses
which now are unable to deliver products on time,
i.e. costs to third parties (L3).
Noise pollution (L1) is imposed on those who live
near to motorways and other transport
infrastructure (L2) and represents a negative
externality as these people had no role in the
decision being taken and, hence, are innocent third
parties (L3).
Pollution (L1) has increased with the growth of
transport markets, e.g. emissions from vehicles and
airplanes (L2). This is imposed on those who live
near motorways/airports and, therefore, represents
a cost imposed upon an innocent third party (L3).
Alternatively accept analysis of how negative
externalities result in market failure
External costs ignored OR full social costs not met
(L1)
Therefore under-priced and/or overconsumed (L2)
And hence allocative inefficiency OR too many
, scarce resources used (L3)
Accurate diagram (L2) - needs written comparison
between allocative efficiency and market
equilibrium for L3.
Discuss the effectiveness of using forecasts of transport trends to
meet the future needs requirments of transport markets - CORRECT
ANSWERS-nalysis of why forecasting is useful OR
analysis of different methods of forecasting
future trends include:
helps government make policy/resource
allocation decisions (L2) improving allocative
efficiency/best use of scarce resources (L3)
helps government make budgetary decisions
(L2) by identifying projects with highest NPV
(L3)
an important part of CBA (L2) enabling best
use of scarce resources (L3)
helps government work towards a
sustainable transport policy (L2) enabling
better allocation of future resources
the government will use GDP data (L2) in
order to forecast future demand for transport
needs. This is because higher levels of GDP/
household income can be expected to lead
to increased demand for goods and services
(with transport being a derived demand) (L3).
With higher incomes, people will buy more
goods and services and, hence, more goods
and services will need to be transported and
delivered (L3).
future transport needs and wants will also be
forecasted using fuel prices (L2). Higher fuel
prices may well mean that people look to
public transport alternatives to car use and,
therefore, switch to the cheaper public
Analyse the level of economic efficiency achieved in the short run in a
monopolistic competitive transport market - CORRECT ANSWERS-
Allocative inefficiency arises (L1). This is usually
achieved where P=MC (L2) but in the case of
monopolistic competition this is NOT achieved
(basic L3). If illustrated with a diagram, with explicit
written reference to production not being where
P=MC, then this achieves (good L3).
(diagram only L2).
Productive inefficiency arises (L1). This is usually
achieved where production takes place at minimum
AC (L2) OR where as few scarce resources are
used in production as is possible (L2). In SR
monopolistic competition, this is not achieved basic
L3). If illustrated with correct SR diagram, with
explicit written reference to not producing at
minimum AC this achieves 'good' analysis.
(diagram only L2)
Accept reference to dynamic efficiency being
improved (L1) if SR abnormal is invested (L2) to
satisfy more consumer wants (L3) OR being
alternatively dynamic inefficient (L1) due to lack of
incentive to invest/innovate (L2) as profits will be
competed away (L2) therefore consumer
satisfaction not maximised (L3).
Discuss the impact of a fall in market concentration on the economic
effieincy of a transport market of your choice - CORRECT ANSWERS-
Diagrams: Accept theory of the firm diagrams
showing a move AWAY from monopoly towards a
more competitive market (perfectly competitive
market). For L3 diagrams need developing in
terms of EITHER:
greater competition leads to lower ACs and,
,therefore, productive efficiency.
competition leads to lower prices and, hence,
allocative efficiency.
Increased allocative efficiency (L2) as firms want to
sell at a price equal to MC (L3) OR firms want to
sell exactly those goods and services which
consumers demand in order to remain in business
(L3).
Reduced X-inefficiency (L2) as firms have to
reduce costs to enable them to sell their products
at the lowest possible prices. (L3).
Increase consumer surplus (L2) as consumers
benefit from lower prices due to increased supply
(L3) increasing consumer welfare (L3)
Possible analysis of why a fall in market
concentration may not increase economic
efficiency includes:
Loss of economies of scale (L2). In markets where
significant economies of scale exist then small
firms will be unable to exploit the benefits of these
and, hence, productive inefficiency results as firms
produce at higher ACs (L3).
Loss of natural monopoly(L2) resulting in loss of
allocative or productive efficiency due to breaking
up large scale production and benefits of EOS (L3)
A fall in market concentration may result in firms
trying to cut costs in order to compete - hence,
possible rise in negative externalities (L2) and
allocative inefficiency (L3).
Possible loss of dynamic efficiency (L2). Smaller,
competitive firms may well make smaller profits
and, hence, have less to invest in research and
development: hence, in LR there may be greater
inefficiency. (L3).
,Analyse negative externatlities arising in transport markets -
CORRECT ANSWERS-Relevant negative externalities include:
congestion/time delays
noise
increased pollution
increased accidents
blight
visual intrusion (accept any negative
externalities associated with increased
infrastructure to cope with increased traffic).
Relevant analysis of these could include:
Congestion (L1) results from transport markets as,
with more and more vehicles on roads, journeys
become slower (L2). This imposes a cost on other
drivers who are already on roads OR to businesses
which now are unable to deliver products on time,
i.e. costs to third parties (L3).
Noise pollution (L1) is imposed on those who live
near to motorways and other transport
infrastructure (L2) and represents a negative
externality as these people had no role in the
decision being taken and, hence, are innocent third
parties (L3).
Pollution (L1) has increased with the growth of
transport markets, e.g. emissions from vehicles and
airplanes (L2). This is imposed on those who live
near motorways/airports and, therefore, represents
a cost imposed upon an innocent third party (L3).
Alternatively accept analysis of how negative
externalities result in market failure
External costs ignored OR full social costs not met
(L1)
Therefore under-priced and/or overconsumed (L2)
And hence allocative inefficiency OR too many
, scarce resources used (L3)
Accurate diagram (L2) - needs written comparison
between allocative efficiency and market
equilibrium for L3.
Discuss the effectiveness of using forecasts of transport trends to
meet the future needs requirments of transport markets - CORRECT
ANSWERS-nalysis of why forecasting is useful OR
analysis of different methods of forecasting
future trends include:
helps government make policy/resource
allocation decisions (L2) improving allocative
efficiency/best use of scarce resources (L3)
helps government make budgetary decisions
(L2) by identifying projects with highest NPV
(L3)
an important part of CBA (L2) enabling best
use of scarce resources (L3)
helps government work towards a
sustainable transport policy (L2) enabling
better allocation of future resources
the government will use GDP data (L2) in
order to forecast future demand for transport
needs. This is because higher levels of GDP/
household income can be expected to lead
to increased demand for goods and services
(with transport being a derived demand) (L3).
With higher incomes, people will buy more
goods and services and, hence, more goods
and services will need to be transported and
delivered (L3).
future transport needs and wants will also be
forecasted using fuel prices (L2). Higher fuel
prices may well mean that people look to
public transport alternatives to car use and,
therefore, switch to the cheaper public
