Transport Costs, Negative Externalities and Government Regulation

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THE COSTS OF TRANSPORT OPERATION:
-Fixed costs; These are independent of the use made or output derived from using a transport vehicle and as such they cannot be changed in the short run.
-Variable costs; These vary with the use made or output derived from using a transport vehicle and while they can be varied in the short run, by definition, they must be paid in full if a transport operation is to remain in business.
-Semi-fixed costs; These are costs incurred once a transport operation decides to operate a particular service.
Eg. An airline has to incur certain costs when it operates a particulars flight, these include crew costs, certain fuel costs, landing charges, all of which are incurred irrespective of the number of passengers on board.
Eg2. A road haulage company that might be delivering goods in a situation where the vehicle is not loaded to its full capacity. The drivers wage, some maintenance and fuel costs can be regarded as semi fixed costs.
-All of the above are private costs in the sense that they are incurred and have to be paid for by the user or provider of transport services.
-In many types of transport operation, the fixed costs are high in relation to total costs. This can present a effective barrier to entry to new firms.

PRIVATE CAR: fixed costs - purchase costs, insurance, road tax, depreciation / variable costs - fuel, maintenance
LARGE GOODS VEHICLES: fixed costs - capital costs, licenses, insurance, depreciation / variable costs - fuel, maintenance, drivers wages / other costs - depot costs, admin
RAIL: fixed costs - track charges, capital costs, lease costs, depreciation / variable costs - fuel, maintenance, labour / other costs - interchange costs, administration, depot costs
AIR: fixed costs - capital costs, depreciation, landing charges / variable costs - fuel, maintenance, labour, inflight services.

The cost structure for the main transport modes clearly indicates the high percentage of fixed costs in relation to total costs, even allowing for problems allocating semi fixed costs. In order to survive an airline must have an average load factor of around 65%, for low fare airlines the figure should be at 80-85%

-Private costs; costs that are paid directly by the user for the use of resources. This would include the cost of operating a transport vehicle, the cost of constructing a new stretch of road. For such costs, a market price is usually available.
-External costs; costs that have to be indirectly paid for by third parties and an arise as a consequence of this way in which transport is used. Eg. Additional costs that are incurred by road users as a result of increased congestion or the environmental costs arising from the increased demand for most forms of mechanised transport. In most cases it is not possible to calculate a market price so the cost has to be imputed, that is, a shadow price is estimated.
-Social Costs; this is the sum of private and external costs…

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