All right, here’s a doozy for you. This is a chart that I pulled out of one of David’s engineering articles. I’m not sure I understand it. Maybe you can explain it to me.
The best I can do is that this chart shows that demand for travel (e.g. the desire to drive in a car down the road or freeway) is not constant, but shifts in relation to the supply of roadway (i.e. congestion). In other words, if we build more roads, people will drive more because it’s easier. If we build fewer roads, people will drive less because its more difficult.
This seems really important, somehow.
Essentially what’s happening here is
(1) the supply is changed from S1 to S2, represented by the two curves. For each of these two curves (a fixed supply), the price (y axis) goes up as the quantity of travel goes up (x axis).
(2) A single curve is shown for demand. From the demand side, the quantity of travel goes up as the price decreases.
(3) Supply intersects demand one for each case, low supply (S1) and high supply (S2). Each of those points has corresponding values on each the price and quantity of travel axis. When the supply is increased, the price drops from P1 to P2, and the quantity of travel increases from Q1 to Q2.
To make a long story short: induced demand.
… all of which follows from the basic assumptions economists start with. If you believe people respond to price incentives, then you believe in induced demand, even without this figure.
To put it even more simply: if you make it cheaper to travel, people will travel more and increasing the available supply of travel makes it cheaper.
As a qualitative statement, I don’t see any way it’s anything but a fact. I wonder how much effort has been made to quantify it.
This makes me miss my economics classes…
How do we know the shape of the S curve? It seems to me that a lot depends on the angle of that bend, i.e. the ratio of delta-S to delta-Q…
Yeah that’s what I was saying, this is just a schematic to make a qualitative point. The question is how much research has gone into figuring out those elasticities (the slopes of the curves).
Doesn’t help that it’s a lousy chart. But many Economics charts are. Ideally, they would have used color. Forced to use B&W, should have used different dashes for the lines, and shadings for the area between them. At the least, they could have used different line weights.
If you think this chart is lousy, you just wait…
What’s all this fancy talk? Back in my day of economics classes…