Transportation Economics

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Assignment # 1 – Introduction, Chapters 1, 2 and 3 – Due Feb, 7th. Describe the factors that facilitate trade between Alberta and Ontario. Also, once a need for trade has been determined, what are the factors involved in transportation decisions, specific to the trade between the two provinces.

Labour, Oil and Natural Gas are the main factors that facilitate trade between Alberta and Ontario. Specialization in the production process: Complex jobs can usually be less expensively completed by a large number of people each performing a small number of specialized tasks than by one person attempting to complete the entire job. The idea that specialization reduces costs, and thereby the price the consumer pays, is embedded in the principle of comparative advantage. Division of labour is the basic principle underlying the assembly line in mass production systems.

Trade framework can be developed that illustrates the impact of transportation costs and the precise nature of the derived demand for transport. The Law of One Price (LOOP) holds that all prices are connected geographically by differences in logistics costs. The principle logistical cost in export trade is transportation. Trade thus creates a derived demand for transportation. The interregional trade model that is based on LOOP is presented in this section. The interregional trade model presents transportation as a facilitator of trade rather than as a factor in the production process. Assume a world of two regions where price differences for a product exist in the absence of trade because of differences in factor endowments. Region A is a low cost producer, while Region B is a high cost producer of this product

Explain how the advances in communication have lead to growth in the transportation industry and how these same advances can reduce the demand for transportation. Also, discuss how the correlation between communication and transportation has lead to a globalized economy.

International businesses have been undergoing a period of rapid transformation. Trends towards globalization, integrated logistics and the development of Information and Communication Technologies (ICT) are all reshaping the world’s trading patterns and consequently physical trade flows. Such restructuring is contributing to economic growth, better allocation of resources and more freedom of choice for consumers, as well as increased competition. In order to be internationally competitive, businesses are organizing strategic worldwide networks that can deliver an efficient and high-quality response to demand from any segment of the world market. The efficient and integrated organization of such activities is often referred to as global logistics or supply chain management (SCM), and it has become the core of global competitive power. Information technology and the Internet have revolutionized the way companies do business. They have changed the way organizations operate by enabling the re-engineering of sourcing, production and logistics processes. Electronic business and the Internet have begun to influence the demand for transport, the means by which transport is produced, and the market structure of transport:

* E-business can diminish or transform the demand for transport by 'dematerializing' physical products (reducing their size and weight or shifting them from actual to digital products). * E-business can improve supply chain management and create new distribution patterns through on-line selling — influencing transport services with respect to what, how much, when and where they are required. * Transportation firms can use e-technology to improve internal business processes, customer relationship management, procurement and supply chain co-ordination. * The Internet enables the growth of market exchanges or electronic marketplaces that provide a new medium for shippers to buy and carriers to sell transportation. * Dematerialization — the long-standing...
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