4/08/2005

The cost of a commute

In the article “The cost of a commute” Jeninne Lee shows public transportation fees are on an incredible rise. San Francisco with it 57 million dollar debt is proposing to increase the price of a trolley car ride from $3 to $5 dollars! While Chicago Transit faces a similar 55 million dollar budget gap and is looking to increase fares from $1.75 to $3.40. Now are these price jumps only based on the fact that the public transit is in debt? I argue not completely, the increasing price of gas has got to be an issue.

4 comments:

Jones said...

I guess the only real test of whether or not these jumps in prices are justifiable or not is what factors are influencing this price increase. Is population an issue? Maybe if the trolley car rides and the Chicago Transit are over populated then these cities can charge these new prices and get away with it. No doubt the increase in gas prices has got to be affecting these forms of public transportation as well. Think of how much gas these forms of transportation go through in just one day of running people back and forth.

heather said...

I agree with eric's observation about the major contributing factor for the rise in public transport fees being the cost of gasoline. The rate increases that are mentioned in San Francisco and Chicago are just about 100%, which is almost what we've seen with gas prices in the last 3 or 4 years.

C-Dizzle said...

It looks like there was a budget goof in the past and they may be making up for the past and adjusting for the future. Sure, gas has to be an issue but 55 or 57 million dollars in debt completely overshadows this.

Dr. Tufte said...

Eric - apply the economics you've learned.

Raising the price of something to close a revenue gap either means that demand is inelastic or that the managers are not maximizing profits.

I tend to think that the demand for public transit is not inelastic (other than in the very short-run).

This suggests that the managers are not maximizing profits. This is not unusual in bureaucracies where managers are unlikely to be fired for doing a lousy job.

In this situation, managers often price by marking up over average (total) cost. This strategy is doomed to fail.

If the managers are committed to average cost pricing, what they need to do is look for ways to cut costs and become more efficient. But, we all know that this is not something that managers of public agencies are very good at - and this is why these sort of problems don't go away.