Transport economics keywords

Define: Transport

The movement of people and goods for personal and business reasons

Profit

The difference between revenue and costs

Define: mode of transport

Means of transport, basically road, rail, air and sea transport

Infrastructure

Anything that provides for the operation of transport

Define: Derived demand

Demand that depends upon the final output that is produced

Forecast

A future estimate usually based on past information

Define: Privatisation

Sale of state-owned business activity to the private sector

Demand

Is the quantity of a product consumers are wiling and able to buy at a particular price in a specified time period. Data to draw the curve is from a demand schedule.

Define :Effective demand

When a consumers desire to buy something is backed up by a willingness and an ability to pay for it

Define: National (Latent) Demand

Exists when there is a willingness to purchase a good or service, but where the consumer lacks the real purchasing power to be able to afford the product.

Derived demand

Where demand for one good/service occurs as a result of demand for another. E.g. demand for coal, leads to mining

Speculative Demand

Potential buyers are interested not just in the satisfaction they may get from consuming the product, but the potential rise in market price leading to capital gain or profit

Elasticity

The extent to which buyers and sellers respond to change in market conditions

Define: market power

Market power refers to the ability of a firm to influence or control the terms and condition on which goods

What is a contestable market?

A contestable market has no entry barriers - firms can enter or leave an industry costlessly. The threat of potential entry encourages imperfectly competitive to set price and output at or close to the perfectly competitive price and output.

Define asymmetric info

Occurs when somebody knows more than somebody else in the market. This can make it difficult for 2 people to do business togetherExamples are a mortgage lender does not know how likely a borrower is to repay their loan in future yearsA used car seller knows more about the quality of the car being sold than the buyers.

Consumer surplus

The difference between the price that consumers are willing to pay and the actual price of the good.

Producer surplus

Represents the difference between the price suppliers are willing to sell and the actual price of the good.

Labour 5

the quantity and quality of human resources available in any economy. In LEDCS there are large populations but a lack of skilled workers. In Germany and Italy there are declining populations so rely on immigrants to do skilled and unskilled jobs. The quality of labour is essential for economic progress, India is of growing importance to the global economy. The value of a worker is called human capital, increased by education and training.

Composite demand

When a good is demanded for two or more distinct uses

Joint demand

Where two or more complements are brought together

Joint supply

When two or more goods are produced together, so a change in supply in one will change the supply of the other.

Complement

A good that is bought with another good to satisfy a want, torch and batteries

Market clearing price

The price that there is neither excess demand or supply, everything offered for sale is purchased.

Productivity

Output per unit of input employed

Define: information failure

A lack of information resulting in consumers and producing making decisions that do not maximise welfare.

Normal good

A good where demand increases when income increasesInferior goodDemand falls when income increases

Competitive markets

The fact that markets are competitive means that prices fluctuateIf buyers hold back from purchasing a product or suppliers put more of a product on the market the price will fall.

Define: disposable income

Income after taxes on income have been deducted and state benefits have been added

Define: real disposable income

Income after taxes on income have been deducted and state benefits have been added and the result has been adjusted to take into account changes in price level.For example if your salary increases by 5% but prices rise by 3% then you get an increase of 2%. If rise in prices is greater than that of income then, real income falls, the ability to pay for goods and services has fallen.

Define: trade off

A trade off is the sacrifice of one item for another. E.g. govt might trade off more hospitals for fewer schools.

Economies of scale

refer to the reduction in long run unit costs that come when a firm grows in size and produces on a large scale.Mass production results in lower long run average cost.Internal economies of scale are the lower average costs an individual firm can gain as it grows in size. External economies of scale are the lower average costs an individual firm can gain from being in a growing industry.

Define: capacity utilisation

The extent to which firms are using their capital goodsIf they are at full capacity they are likely to increase investment

Define: Consumer durables

items that provide a flow of services to a consumer over a period of time.new cars, household appliances, audio-visual equipment, furniture etc. The real level of spending on durables has increased in the last eight years.

Define: GDP

Gross domestic productThe total amount of goods and services produced in a country, in a given period of time.

Define: Multiplier effect

The process by which any change in a component of AD results in a greater final change in real GDP

Protectionism

The protection of domestic industries from foreign competition

Example of privatisation

British Rail was privatised in 1994 but the failure of Railtrack led to the creation of Network Rail, a not for profit company in 2002. The Labour Government has continued to privatise or part-privatise other parts of the UK public sector since it came to power in 1997.

Define: Costs

The value of inputs

Fixed Costs

Costs that are independent of output produced

Define: Variable costs

Costs that are directly related to the level of output produced

Total costs

The total cost of production or provision of a service

Define: Average cost

The unit cost of productionMarginal costThe change in the total cost when one more unity of output is produced

Revenue

Receipts from sales

Define: Price maker

A firm that has control over the market price

Price taker

A firm in a competitive market that has to accept the market price

Total revenue

Quantity multiplied by price

Define: Average revenue

The total revenue divided by quantityMarginal revenueAddition of total revenue from one additional sale

Define: Short run

Time periods when a firm is unable to change factors of production except for one, usually labour

Long run

Time periods when all factor inputs can be changed

Define: Minimum efficient scale

The lowest level of output where long-run average cost (LRAC) is minimised

Technical economies

Increased capacity or a technological development that results in lower long run average costs

Define: Purchasing economies

Reduced unit costs due to bulk buying of inputs into a business

Managerial economies

Savings in long-run average costs due to the specialisation of management

Financial economies

The cost savings that large firms may receive when borrowing money

Define: Diseconomies of scale

Causes of an increase in long-run average costs beyond the point of minimum efficient scale

External economies of scale

Falling long run average costs that benefit all firms in an industry

Define: Price satisficing

Where a firm makes a reasonable level of profit that satisfies its stakeholders without maximising profit

Sales revenue maximisation

An objective where a firm produces where marginal revenue is zero

Define: profit maximisation

The objective of firms that is achieved where marginal cost= marginal revenue

Sales maximisation

An objective that involves the maximisation of the volume of sales

Define: Supernormal profit

Profit that s more than the normal profit

Cross-subsidisation

A business practice where revenue from profitable activities is used to support loss-making ones.

Define: Normal profit

The level of profit that keeps a firm in a particular activity

Market structure

The characteristics of a market

Barrier to entry

Obstacle to new firms entering a market

Define: Concentration ratio

The proportion of the total market share between the nth largest firms Allocative efficiency

Where price is equal to marginal cost

Monopoly

A single firm in a market

Define: Productive efficiency

Using the least possible amount of scarce resources to produce the maximum amount of output.Natural monopolyWhere a monopolist has overwhelming cost advantage

Define: Price discrimination

Where a monopolist charges different prices for the same product in different marketsContestable marketA set of conditions where there is always the threat of new firms being able to enter the market

Define: Dynamic efficiency

Where unit costs are lowered over timeMonopolistic competitionA market structure with many firms producing a differentiated product and where there are few barriers to entry and exit

Define: Product differentiation

Where there are minor variations in the types of products on offerDeadweight lossLoss to society of the firm producing where price exceeds capacity

Define: excess capacity

A consequence of firms producing at above the minimum point on the average cost curveNon-price competitiveCompetition between firms on the basis of for example branding, customer service, range of products, advertising etc.

Define: Oligopoly

A market dominated by a few large firmsKinked demandIndicative of price rigidity in oligopolyGame theoryA means of modelling the behaviour of firms

Define: Collusion

Where firms tacitly or otherwise agree to not compete on prices, service provision and other matters that might adversely affect mutual well-being

Interdependent

Where the actions of one firm provoke counter-action by others

Define: Hit and run entry

The way in which a firm enters a market where supernormal profits are being earned and leaves when profits return to normal

Contestability

The extent to which barriers to entry and exit in a marker are free and costless

Define: Deregulation

Occurs when the government deliberately remove official regulations that act as a barrier to competition in a market. Supply side policyFacilitates contestability

Define: Sunk costs:

the costs that cannot be recovered if a firm ceases operationFranchiseThe outcome of a competitive system to bid for the provision of services

Define: harmonisation

Establishing common set of rules and regulations to be followedThe means by which a level playing field is created in EU transport markets

Liberalisation

(same as deregulation)The means by which barriers to entry should be removed to give equal access in all national markets to transport providers based within the EU

Define

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