Transport is usually the movement of goods and people from one destination to another and transport economics is the study of the allocation of the resources used to move freight and passengers from destination to destination. The passengers and freight are moved all the way through a transport mode because a transport mode defined as the means of moving passengers and also freight. The largest parts of transport modes are rail, road, air, sea, and pipelines. Transport system normally helps in defeating the effects that arise as a result of distance.
Transport system can also provide other benefits such as enhanced opportunities for intercontinental trade and the economic assimilation, enlarged volume of market by making sure that domestic goods are sold worldwide as well as promoting the Just in Time (JIT) production techniques. In the economics of transportation components are delivered when required thus reducing a firm’s stock level therefore saving the unit costs. There is an improved mobility of labor because workers can live many miles from work and commute (young 3-4).
Transport infrastructure is defined as the social overhead capital that can be used to give support to the movement of freight and people. In any developed economy, a considerable sum of social capital is usually set aside to develop the transport infrastructure. Transport infrastructure generates both negative and positive externalities. Investments made in the local transport infrastructure are seen as the primary stimulus for the regional economic development. This is seen when roads unlock employment opportunities and market that can benefit the third parties which may include workers and local businesses.
Any time there is a change in the infrastructure, there are changes in the cost of travel and as a result the producer and consumer behavior becomes influenced (young 6). Economics of transportation comprises of transport operations which are considered as the assessments that dictate the type of transport mode that has to be employed. Transport operations decisions falls into two most important categories and they include supply side and demand side. The demand side decisions helps in choosing what journey to make, using what mode, and at what time can it be taken by firms and consumers.
In the other hand the supply side decisions deals with what transport mode to provide. Transport operators normally take an account of various types of elasticity in the arrangement of prices and predicting the output. This price elasticity of demand usually predicts the outcome of a change in charges on quantity demanded and also the effect of change in charges on total revenues and expenditure, the effect of change in indirect tax that may comprise road changing and the fuel duty on price and the quantity demanded as well as the effects of price unfairness (young 11).
Does transport generate externalities that can cause market failure? Literature Review According to Rodrigue transport sector is an equally important component of the economy that can bring impact to the welfare and the development of populations (para. 1). He argues that when transport systems are well-organized they are in a position of providing economic opportunities and social opportunities as well as benefits that lead to positive multipliers effects that comprise of improved accessibility to market, additional investment and employment.