This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
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.
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2 comments:
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.
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.
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