Economics Essay Question

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Discuss the problems of forecasting future trends in transport markets 15 marks

Transport is a derived demand. People and businesses demand transport not for its own sake, but because of the services that it provides. For example, air travel is demanded as people travel abroad for vacation or for business. However, forecasting the demand for transport comes with several difficulties.

The nature of the demand for transport makes such forecasting a difficult undertaking. This is partly because the provision of infrastructure may itself influence demand. For example, there has been considerable debate about the effect of road building and improvement schemes. It has been argued that road improvements have the effect of increasing the amount of traffic on the roads, rather than reducing congestion. The fact that much of the transport infrastructure is publicly provided means that such forecasting is an integral part of the process – and it also means that the authorities need a way of taking externalities into account when formulating a transport strategy. There also needs to be careful coordination of transport planning, given the interactions between the demands for different modes of transport. For example, decisions taken now about improvements to the rail network may have implications for the future demand for road transport, and hence for the present need to invest in the road system.

Another reason why forecasting is difficult is that the demand for transportation services is likely to change over time as real incomes change, and as relative prices move. The supply of transportation services will be influenced by the way that markets evolve through time, and by advances in technology that may bring about changes in the relative importance of different modes of travel.

Extrapolate future levels;…...

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