Economic affects on the trucking industry

Solution Preview

Issue of Price elasticity

Elasticity is the proportional change in one variable relative to the proportion change in another variable. The concept of elasticity can be used whenever there is a cause and effect relationship. The causal variable is often called the independent variable, while the affected variable is called the dependent variable.

In economics, the price elasticity of demand (PED) is an elasticity that measures the responsiveness of the quantity demanded of a good to its price. The elasticity of the portion of the demand curve facing a firm determines how its revenue will change in response to changes in price. Elasticities of demand with an absolute value greater than 1.0 are "elastic", and a decrease in price will be outweighed by the greater quantity of goods sold, causing revenue to increase. Elasticities of demand with an absolute value less than 1.0 are "inelastic", and the decrease in price will be not be made up for by the greater quantity of goods sold, causing revenue to decrease.

(Wikipedia)

On the other hand of elasticity of supply is the degree of responsiveness with which quantity supplied changes with a given change in the price. The elasticity of supply also shows variations in its value for different commodities.

Now we will discuss the elasticity of US trucking industry
The industry is having elastic demand as increase in price leads to fall in demand.
High Fuel Prices
The industry is growing, but fuel prices are increasing which have persuaded many to switch or provide value added services. It is estimated that in 2004 the truck industry spent $62 billion on diesel fuel, $10 billion more than in 2003. This reflects the average annual price which was 20% higher than in 2003 . Thus the industry is reeling under cost pressure.
The growth in trucking over the last five years has been in line with what the economy has been doing. After all, 90 percent of valued goods that move by truck," Bishop said. "So all you have to do is look at the growth rate of goods manufactured and available for distribution for the last five years, and that is exactly the same kind of growth that the trucking industry has had." Thus if there is increase in price will lead to reduction in demand.
http://www.garymaxwellonline.com/trucking.pdf.

Positive and negative externalities

Thus it has to adapt these technologies to grow especially with higher fuel services, environmental concern and increase in other cost.
'Externalities' is the economic term for the costs (e.g. environmental and social) of an economic activity which are not borne by the operator, but instead by the wider community. Hence externality occurs when a decision causes costs or benefits to third party. It can can be positive and negative.
For example, if a forestry ...