ETS Chapter 12

Question 1

What is the second-best problem in transportation pricing?

Answer 1

The second-best problem handlar om att hitta en praktisk lösning när den ideala prissättningen (som baseras på full marginalkostnad) inte är möjlig.

Example: Public transport fares may be subsidized to encourage usage, even if not covering full costs.

Question 2

How does pricing change when a substitute has a price equal to the marginal cost?

Answer 2

When a substitute has a price equal to the marginal cost, competition remains efficient, and pricing does not create market distortions.

Example: Two competing airlines offering similar ticket prices prevent unfair market advantage.

Question 3

What happens when a substitute has a price that exceeds the marginal cost?

Answer 3

If a substitute’s price exceeds marginal cost, demand shifts to the cheaper option, potentially causing inefficiencies or congestion.

Example: High rail ticket prices push passengers towards overcrowded roads instead.