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Transport Economics: CIVE97119
Answer THREE questions from FIVE
Answer each question on a new piece of paper
All questions carry equal marks
Monday 11th May 2020, 12:00 – 14:00
Note: Instructions for End of Examination
The Checklist for the end of the examination is on the final page of this paper
For internal students of the Intercollegiate Courses at Imperial College London and
University College London
© 2020 Imperial College London/University College London
1. (a) A group of consumers are considering their mix of consumption between train
journeys to work, and overseas holidays. What is an indifference curve? Using diagrams,
explain how these curves reflect consumers’ preferences. What is the consumers’
Marginal Rate of Substitution (MRS)?
(35%)
(b) The public train service is provided at a fixed price per journey. Assuming that
the cost of each overseas holiday is also a fixed cost per trip, use diagrams to explain the
production curve in these circumstances. What is the producer’s Marginal Rate of
Transformation (MRT)?
(25%)
(c) Critically analyse the equilibrium state where consumers choose between train
journeys to work and overseas holidays – given both have a fixed production cost. What
is Pareto Efficiency? Explain why goods will not be distributed efficiently among
consumers if the marginal rate of transformation is not equal to the consumers’ marginal
rate of substitution. Discuss, with diagrams, what happens if the group of consumers
have no interest in overseas holidays?
(40%)
Continued
2. (a) What is an externality and what are their implications? With the help of
diagrams: explain what is the marginal external cost? What is the marginal cost of
abatement of an externality? How do these curves interact and how do they relate to the
quantity of the externality?
(30%)
(b) Starting by defining pure pollution, go on to explain when and why it is more
appropriate to use a standard (regulation) to control pollution.
(40%)
(c) Imagine a situation where the marginal externality cost is linear where Y = X.
Conversely, the marginal costs of abatement are linear Y = 50 – X. Cost per unit of the
negative externality is on the y-axis and quantity is on the x-axis.
A price P = 10 is placed on the production of the externality. Critically analyse with
diagrams what is happening in this situation. What would be the optimal solution to this
scenario?
(30%)
Please turn over
3. (a) What are the key steps of Cost and Benefit Analysis (CBA)? Define and analyse
each step.
(35%)
(b) Lambeth council would like Transport for London to build a new Overground
railway station in South London. They would like to evaluate the cost and benefit over a
ten-year time period in order to persuade TfL of the project’s merits. The initial
investment is GBP 150 million in year 0. Lambeth estimates that the journey times saved
and other economic benefits will be equal to GBP 20 million annually from year 2 to 10.
The annual running costs net of estimated revenues is an expense of GBP 1 million.
Only in year 2 will the station be operational therefore assume zero cost and benefits in
year 1. Calculate the present discounted economic value of the project by assuming that
the discount rate is 10%. Show your calculating process. Comment on the results and
their implications by discussing whether or not TfL should agree to construct the railway
station.
(45%)
(c) Define optimism bias. Why do we encounter optimism bias, and how might it be
mitigated?
(20%)
Continued
4. (a) What is a public private partnership (PPP)? On what basis might a PPP project
be evaluated on the basis of Value for Money? How does PPP differ from alternative
transport procurement mechanisms? Provide examples of both PPP and non-PPP
transport infrastructure development contracts.
(45%)
(b) What are the potential risks of a public private partnership? Use examples to
critically explain which risks you consider most important.
(25%)
(c) With respect to the public procurement of transport infrastructure, explain the
concept of a contestable market. What are the key ways for public private partnerships
(PPP) to incorporate the concept of contestability?
(30%)
Please turn over
5 (a) Define economies of scale and returns to scale. What is the difference between
the two?
(30%)
(b) Identify and discuss three sources of economies of scale relevant to
transportation. Provide examples from transportation for each type. Which two other
broader types of economies of scale are relevant to a hub and spoke transport supply
network? What is trans-shipment?
(50%)
(c) Define price elasticity of demand. Imagine a company that operates in the UK
and in the EU. Use algebra to show how Brexit might impact the pricing strategy of this
firm.
(20%)
End of paper
Checklist at the end of the Examination
i. Your CID number is clearly written on each page (top centre)
ii. Each page is sequentially numbered (bottom centre)
iii. Question number and sections (as appropriate) are clearly indicated.
iv. Scan, compile and save to .pdf
v. Save as: CIVE97xxx-CID (paper-specific)
vi. Upload to Bb Submission Box
a. Once you press “submit”, allow time for the process to complete
b. Consider switching off all other devices to preserve bandwidth.
c. You should receive a confirmation email when your upload has been successful.
Please retain this for your records.
d. If there is a delay, maybe beyond five minutes, take a screenshot clearly showing
the time.
e. Try uploading using another browser
f. If after 10 minutes the submission has not gone through, email the contact email
[email protected] both to report the issue and to seek potential
resolution. The "subject line" in all emails should adhere to the following format:
CIVE97xxx - Transport Cluster
• Upload a backup copy of all files and images to OneDrive [if using an android phone,
use the Office Lens app to avoid page-limit issues]
• Retain all of your handwritten scripts and all images, in the event of upload failure,
poor quality scans, or queries. You are required to retain all such related files and
documents in accordance with the College's Retention Schedule. We recommend up
to one year from completion of the programme.