UNIT 1: Transport

Economics
• Lecturer: Dr. Helvi Petrus
• Email: h.petrus@ium.edu.na
 Course Learning Outcome
Upon successful discussing this topic the students will,
through assessment activities, show evidence of their ability to

Discuss the importance of

economics theory and its Identify the role players in
usefulness in analysing the transport market
transport issues;

Explain the link between Demonstrate an

Transport economics and understanding of transport
microeconomics and economics and its relevance
macroeconomics, and to economic development
Outline

1. The Sciences of Economics

• What should be Produced
• How should be Produced?
2. The Nature and Scope of Transport Economics
• Definition and Scope
• Role Players
• Characteristics of Transport
• Transport Economics and its Linkages
3. Importance of Transport
• General Importance
• Importance in Economics Development
 What is Economics
• The study of how societies allocate and manage their scarce resources.
• The study of how people use their limited resources in an attempt to
satisfy unlimited wants.
• Economics is the study of people in the ordinary business of life.
• Economics is the study of how societies use scarce resources to
produce valuable commodities and distribute them among different
groups.
Science of Economics
 Science of Economics continue
This resources includes
•the time and talent people have available,
Economics addresses the issues of how •the land,
•buildings,
people choose resources. •equipment and other tools on hand, and
•the knowledge of how to combine them to create useful products and service, this
are all factors of production.

Our needs are more than the goods and services available to satisfy all wants and needs.

Wants are human desires of goods and services. Our wants are unlimited since we all
want everything;

Needs are necessities, the essential items needed for survival, such as food, water,
clothing and security.
 Opportunity cost

• By making choices, some needs and wants will be satisfied and others not.
• When we are faced with choices, we measure the cost of the alternatives we
have chosen in terms of the alternatives we have to sacrifice.
• This is called opportunity cost.
• Economics is divided in to two distinct branches, namely microeconomics and
macroeconomics.
• “Micro” means small and Microeconomics is the study of decisions that
people and business make regarding the allocation of resources and prices of
goods and services.
• “Macro” means large and Macroeconomics, is the field of economics that
studies the behaviour of the economy as a whole and not just specific
companies, but entire industries and economies
 Micro and Macro Economics

Microeconomics Macroeconomics
Consumer behaviors Growth in the standard of living,
Business decisions low unemployment, and
How market for labour and other resources low inflation,
work, and how markets fail to work properly Gross Domestic Products
Limited resources vs unlimited wants
 Three economic problems

What goods and services to be How will each of the goods and services be produced?
How much of the scarce resources will be used in the
produced and in what quantities. production of each good?
This are output questions. These are input questions

This implies,
For whom will the various goods who will receive the goods and services?

and services produced. How much will they receive and,

Where will the production occur?
 Four factors of production
How should it be produced?

NB: resources are scarce and have to be used efficiently.

Four factors of production

a) Natural resources: Natural resources (also referred to as land)
consist of all gifts of nature.
• They are fixed in supply; hence their availability cannot increase if
we want more of them.
• Once they are used, they cannot be replaced.
• They are referred as non-renewable resources.
• These includes water, arable land, mineral deposits, natural forest,
vegetation, etc.
 Four factors of production
b) Labour: goods and services cannot be produced without human effort.
• Labour is the exercise of human mental and physical effort in the
production of goods and services.
• Such human effort is exerted with the aim of receiving monetary
wards.
c) Capital: capital comprise of all manufactured resources, such as
• machines,
• tools and buildings,
• which are used in the production of other goods and services.
Capital goods, for example, are not produced for their own sake, but for
what they can produce.
• Tangible things used to produce other things.
 Four factors of production
d. Entrepreneurship: entrepreneurs combine and organize the
factors of production in expectation that they will be sold.
• The word “entrepreneur” means to undertake.
• The entrepreneur is the driving force behind production.
• They are also innovators and initiators who introduce new
production methods on a commercial basis.
 In Groups (25 min)
Identify the factors of producing the following products?
• Train
• Bus
• Airplane
• Ship
• Road/highway
• Bridge
• Parking ticket machine
• Cellphone
• Traffic lights

NB: Keep in mind the four factors of production!

 Factors of Production

https://www.youtube.com/watch?v=h8nddK1NZSk
https://www.youtube.com/watch?v=GBAJb9gR8ns
https://www.youtube.com/watch?v=SBcUnUCbEsg
 Important Concepts
Gross domestic product (GDP): the GDP of a country refers to
the value of all goods and services produced within the
borders of that country within a specific period.
Inflation: inflation refers to the general rise of the prices for
goods and services in a specific economy over a period of
time.
• This rise in price will in effect mean that you can buy less
with your currency.
• Purchasing power is subsequently reduced.
 The Nature and Scope of Transport
Economics
Transport is simply the movement of people and goods from one point to another,
or transport connects people and places.
Transport economics is a study of the allocation of and movement of (scarce)
resources in order to meet the needs and wants of a society.
• Transport economics analyses transport issues on a microeconomics and
macroeconomic level.
• On a micro level, transport economics involves relations between industries.
• The demand and supply of freight passenger transport and pricing issues are
examples of aspects related to microeconomics.
• On a macro level, Transport Economics study the effect that transport has on
national productivity, globalization of trade or labour force migration.
 Role Players
• The users of transport services
• The role of the users is to make decisions that will maximize his or her
needs or wants.
• Users are on the demand side and pay for the services offered.

• The providers of transport service

• This group is on the supply side and supplies the services as required.
• Providers can be from the public or private sector.

• The government
• The role of the government in the transport market is to regulate and
control the provision of transport to specific economic groups in society.
 Characteristics of Transport
• Transport is not really demanded in its own right.
• the demand for transport is derived from other needs and activities.
• transport is a means to an end.
• We mostly travel to obtain benefits at a final destination. E.g. you travel to go to work; your
work place is your final destination in this example.
• There are, of course, exceptions to this rule, as some people practice transport for the fun of it,
take for example 4x4 trips or motor bike runs.

• Transport demand takes place over space and time.

• This characteristics distinguishes transport economics from other branches of economics.
• Transport journey are made over a particular distance between start and end points and take a
particular amount of time.

• Transport is often divided into a fixed and mobile component.

• The fixed component consist of infrastructure, and the mobile component of vehicle and
operations.
 Transport Economics and its Linkages
1. Financing and Transport Economics
• Method of Financing Transport network maintenance and the
improvement and expansion of transport infrastructure,
• Issues of funding relates to the taxation (e.g. general taxes,
income tax or variable taxes), user fees (e.g. Tolls, Congestion
charges and fares).
• Other method of financing such investments which may
include Loans, public private partnerships and concessions.
Financing is not relevant to transport Economics.
Do you agree or disagree?
 Transport Economics and its Linkages
Cont’d..
2. Project Management and Transport Economics
• Sophisticated Method of Project appraisal and evaluation have
been developed and applied in transport sector.
• Appraisal refers to the assessment before the project take off.
• Its compare cost of the project with the benefit, Using the Cost
benefit analysis.
• Appraising is important as it determined whether the project
should be carried out, or not.
• Evaluation refer to the assessment after the project had been
complete.
 Transport Economics and its Linkages Cont’d..
3. Supply Chain Management and Transport management
• Supply Chain Management encompasses the planning and
management of all activities involved sourcing, procurement and
conversion, as well as logistics management activities .
• It also includes coordination and collaboration with channel
partners (who can be supplier, intermediaries, third-party services,
and customer).
• Supply Chain is a system of organisations, people, technology,
activities, information and resources involved in moving a product or
services from supplier to a customer.
• Are you for or against the following statement?
Transportation economics plays a role in the supply chain management.
 Transport Economics and its Linkages
Cont’d..
4. Logistics and Transport Economics
• Logistics is the function responsible for moving materials
through their supply chains.
• Logistics Management as that part of supply chain
management involves planning, implementing, and
controlling the efficient, effective, forward, and reverse flow
and storage of goods, services and related information
between the point of origin of consumption to meet
customer requirements.
 Importance of Transport

• Transport has widened cultural opportunities

• People to live and work apart.
• Increases the lifestyle options open to people, give them the
choice of geographical separation of employment and leisure.
• Transport has, in effect, change our lifestyle.
• Transport has an important role in bringing nations together, as
it facilitates moving of people from one country to another.
 Importance of Transport in Economic
Development
1. Role of Transport in Production
• Transportation plays a major role in the production process.
• It enables the entrepreneur to assemble more easily the raw
materials and labour input needed to make a specific product.
• The same transportation system moves intermediate goods to
other producers for subsequent use in their production
process, and its move finished goods to the customers.
• An efficient transportation system enable Just in Time (JIT)
production Techniques.
 Importance of Transport in Economic
Development Cont’d..
2. Employment opportunities and job creation
• Transport also Contributes to Economics development through
job creation, which can be direct or Indirect.
• Direct employment will be created in the industry itself, such as
drivers, logistics manager, and pilots.
• Indirectly, jobs are created in for example the insurance and
financing industry, related to the assets of transport
companies.
• Transport labour mobility
• Transport system allows workers to relocated and take
advantages of better job opportunity.
 Importance of Transport in Economic
Development Cont’d..
3. Geographic Specialisation
• The development of a transport system has enables regions to
specialise in producing its most efficient output.
• The most important contribution that transport has made to the
production process is that by widening the market areas that a
producer reach,
• It has encouraged the introduction of efficient, large scale
production techniques.
 Importance of Transport in Economic
Development Cont’d..
4. Trade
• Transportation has enables countries to trade with other
countries throughout the world.
• International transportation has led the way to more world
trade, and this enable nations or region to specialise in
producing whatever it can do best.
• Market size has increased, as domestic goods can now be sold
globally.
• Enhanced opportunity for international trade and benefits
• Efficient transport enhances competition, as the potential
markets for goods and services increase.
 Importance of Transport in Economic
Development Cont’d..
5. Tourism
• The airline industry has specifically contributed to the growth in
this market, due to airlines being fast, safe and relatively cheap.

• The car rental industry is part of the transport industry and has
also been positively affected by tourism development.
 Importance of Transport in Economic
Development Cont’d..
6. Others
• Time Utility
• The demand for a particular commodity can only exist during
certain period of time.
• If a product arrives at a market at a time when there is no
demand for it, then possesses no value.
• Efficient transportation creates time utility by ensuring that
the product are at the proper location when needed.
 Importance of Transport in Economic
Development Cont’d..
6. Others
• Place Utility
• The reduction in transport cost between A and B gives a
commodity a place utility.
• This place utility will encourage market area to purchase products
from distant supplier that might be locally produced.
• Reduction in transport cost in much greater for long distances
than for short distances, because of fixed prices.
• Quantity Utility
• Transportation gives goods a quantity utility through the assurance
that the good will arrives without damage.
• This helps assure that the quantity demanded is the same as
quantity delivered.
• THANK YOU