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Demand
Demand for highway transportationSame concept as demand for goods
and servicesWe pay a price to satisfy our travel
demand
1. Existing Traffic
2. Diverted Traffic
3. Generated Traffic
4. Growth or Decline
Components of Demand (Traffic Demand)
Traffic Demand1. Existing traffic traveling at a lower cost2. Traffic gets diverted to a new and
improved road3. New destinations are created due to new
or improved roads4. Natural growth or decline must be
accounted for in the estimation of demand
Unmet Demand
Cost of travel changes with age of facility
- since volume is a function of price/cost
As cost of travel reduces
-volume increases
-the curve shifts.
The cost of travel changes over: time of day, day of week, seasons and etc.
1 yr
.
6 yr
s.
11 y
rs.
16 y
rs.
21 y
rs.
26 y
rs.
31 y
rs.
Veh/hr
Pri
ce (
cost
) $
These show growth of traffic
= cost of travel, say at 6:00 pm
XX
Optimum Traffic Volume
D
D
Avg. Fixed Cost
Avg. Total Cost
Marginal CostDemand
Pri
ce/C
ost
Volume (VPH)V1 V V2
Optimal Volume
C1
C2
X2
X1
O
Marginal Cost is the rate of change of cost per unit increase in volume
If Traffic Volume = OV1
Cost/Trip = OX1
Marginal Cost = OC1
If price is slightly reduced, then volume increases
For price OX2 volume is OV2
Marginal Cost = OC2
Since OC2 is greater than OX2 The additional trips are not worth its cost
Optimum Traffic Volume
Nature of Costs
1. Cost of Highway
- Construction
- Maintenance
- Operation
2. Cost of Vehicle Operations
3. User’s Personal Costs
Fixed Costs Right-of-Way Development costs Planning and Design Construction costs Maintenance costs Administration costs Cost of Operation Loss of Property Tax
Variable Costs
Vehicle Costs Fuel Costs Maintenance Wear and Tear Insurance
Community Costs Loss of Amenity Air and Noise Pollution
Avg. Fixed Cost
Avg. Total Cost
Marginal CostP
rice
/Cos
t ($
)
Marginal Cost is the rate of change of cost per unit increase in volume
O Volume (VPH)
Avg. Variable Highway Costs
Chapter 2
Economics:
Social science that studies the production distribution and consumption of commodities
Economy:
Thrifty or economical use of material resources
• That phase of engineering which involves engineering works, equipment and processes to determine the relative amount of the net economic gains.
• Process of comparing engineering work using compound interest to arrive at a measure of profitability of the proposal.
Engineering Economy
Engineering Economy in Highways
Construction should be planned with an eye for the future
Roads should be built only to the extent and of such types as will pay themselves.
There must be enough traffic and type of improvement shall be such that the savings in cost of transportation is at least equal to the cost of improvement.
Basic Premise of EngineeringEconomy
Economy
1. Instinctive desire to save
- Save for future use
- Save for different use
2. Conservation of commodities
- Future use
3. Conservation of Labor
- Alternative use
4. Long range result of conservation of resources
- Growth with least amount of resources
5. Public versus Private
- Public viewpoint - Welfare of everyone
- Private viewpoint - Welfare of one
Basic Premise of Engineering(Continued)
Principles of Analysis
1. Complete Objectivity- Selection of Factors- Selection of Cost- Selection of Vest Charge
2. Economic analysis is not a management decision
3. “Hunch” has no place in economic analysis
4. Study all possible alternatives
5. Always consider the “Do Nothing” alternative
6. Separate market and non-market factors
- Factors of general socio-economic consequences are excluded from calculations
7. The analysis is a study of future conditions
- Careful forecasting is necessary
Principles of Analysis (contd…)
8. Past events and investments are irrelevant.9. Use same time periods for all factors10. Analysis period should not extend beyond
the period of reliable forecasts.11. Same time frame for all factors12. Differences in alternatives are controlling13. Common factors of equal magnitude may
be omitted
Principles of Analysis (contd…)
14. Use the net basis for all costs and consequences
15. Analysis for economy is independent of financing
16. Uncertainties need to be acknowledged
17. Separate decisions are made at separate levels of management
18. Viewpoints should be established before final decisions are made
Principles of Analysis (contd…)