ETS Chapter 7 Flashcards
(6 cards)
What is the benefit function in transportation pricing?
The benefit function measures how much value a customer derives from a transportation service, influencing willingness to pay.
Example: A business may pay more for express shipping to meet urgent deadlines.
What role do external effects (e.g., pollution, congestion) play when setting prices for transportation?
External effects impose costs (or benefits) on third parties that are not reflected in the direct transaction.
Proper pricing (such as adding congestion or pollution fees) internalizes these externalities so that the true social cost of a trip or shipment is accounted for in the final price.
How does price discrimination work in the transportation industry?
Price discrimination means charging different customers different prices based on demand, time, or service level.
Example: Train tickets cost more during peak hours and less during off-peak times.
What is the significance of “consumer surplus” in determining optimal pricing strategies?
Consumer surplus is the difference between what consumers are willing to pay and what they actually pay.
Explain how “bridge tolls” can serve as an example of benefit-based pricing.
Bridge tolls often match the price a user pays to the benefit they get (i.e., saving time and distance by using the bridge).
Under benefit-based pricing, tolls can reflect factors like time of day, congestion levels, or the driver’s willingness to pay, ensuring that users with the highest valuation of the bridge pay appropriately.
How can demand fluctuations over time affect the pricing of a transport service?
If demand varies significantly (e.g., by season or by hour), uniform pricing can lead to inefficient use of capacity (empty vehicles in off-peak, congested vehicles in peak).
Operators may use variable or dynamic pricing to match demand levels, ensuring better capacity utilization and service quality.
