CHAPTER 2- DEMAND THEORY
The Demand for Transportation
Situation 1.
Town A- a surplus of food is
generated/agricultural production
center
Town B- no food
production/industrial town
Result:
-carry small quantity of highly prized
food products by mule back
-great difficulty of transporting
products
-selling price higher than the
production center
-few people can afford
• The increase in traffic resulting from the improvement in the transportation system is the direct
result of the increase in the amount sold at B that is brought about by the reduction in selling price.
Situation 2.
A trail or clearing is established
between town A and B wherein it is
now possible to use horse-drawn
carriages for transport.
Result:
-travel time is now cut in half from
what it was in the mule back case.
-deterioration of products is
reduced.
-reduce selling price at town B thus
sell foodstuffs to more people.
-amount of traffic is increase.
Situation 3.
A primitive road is built between two
towns in such a way as to permit
small trucks to operate.
Result:
-further reduces transportation cost.
-transport larger quantities at lower
costs.
-further reduce selling price at town
and more people will be able to buy
the products
-traffic from A to B will again
increase.
• Demand for transportation between A and B depends on the type of transportation system that
connects them and that demand can be increased by improving it.

• We can define demand for transportation as the potential for traffic flow wherein the potential itself
is related to production and consumption activities at town A and B.
• "Transportation cost" includes all the attributes that make for the difficulty of transporting the
foodstuffs between A and B.
-also known as generalized cost
• The actual amount of traffic flowing between A and B is resulting from the interaction between a
demand and a transport cost.

Microeconomic Demand Theory

Demand is approached at two levels.
• Consumer Demand - individual level
• Market Demand - aggregate level
Consumer Demand
1. The consumer has a choice.
2. Every consumption good possesses certain characteristics that give utility or satisfaction to the consumer.
3. The consumer has a consistent preference structure that is based on the relative utilities of the various goods
available.
4. The consumer is assumed insatiable.
5. The choice of the consumer is limited by a budget constraint.

Market Demand
• The traffic generated by a single individual or household is only of limited interest in transportation
planning.
• If all individuals in the system were that similar, then there would be no theory.
• If all individuals in society had significantly different utility functions, budgets and costs, then
demand analysis would be intractable and would involve immense amounts of data and very cumbersome
computations.
• Most probably large groups of individuals whose behavioral characteristics are sufficiently close
that for the purpose of demand analysis, they can be considered similar.