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structure 
@ Mainly to understand m 
economic behavior
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internally or by acquisition
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not incurred
rates
@ Maximize return on
investment
  
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Primarily a variable cost carrier. The majority of the
cost of motor carriage is made up of items that are
considered to be variable costs (Labor, Fuel,
Maintenance)

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Primarily because they don·t have to construct their own
´right-of-way.µ The U.S. Govt. picks up the cost of
constructing the highways. Carriers simply pay a ´user
feeµ for use of the road.
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Considered to be primarily a fixed-cost carrier because they
have to construct their own ´right-of-way.µ They must build
their own rail line if they wish to expand service to a new
location. (As a result, volume is the name of the game)

@ &
Monopoly within lanes or referred to as a natural monopoly

@ 6ecent mergers reduced the number of players

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The initial ´up-frontµ cost of the plane is substantial,
however, over the long run, air transportation is
primarily a variable cost industry. Over the life of the
plane, the majority of the cost of operation is variable
cost (labor, fuel, maintenance)

@ &
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 Ô
@ Many different types of costs
@ Many different ways to view a cost

@ For exampleá
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‰ Ô&A non-cash expense that systematically
allocates the cost of an asset over its useful life.
‰ Accounting also has fixed costs, variable costs etc.
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´Opportunityµ cost is the cost of a lost opportunity.
‰ If I didn·t invest in a new manufacturing machine I could
have invested in a new computer system or purchased a
common stock

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The cost of pollution on the environment.
‰ Each cost has different impacts on an entity, the economy,
and society as a whole and each cost acts differently.
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traceable to the fixed in total but
product or service vary by unit
(egá hourly wage for
a worker)

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Phone service has a fixed per unit.
basic fee and then
charges additional 
for heavy use) ! 

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@ The goal is to understand costs so that we can use past

information as a good predictor of future costs.

@ This is important for strategic planning and budgeting

purposes.
 


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flight scheduling baggage handling catering

ground services maintenance Flyer programs

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equity holding selling seats on
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2. Foreign 3.
Exchange Comparative
6ates Advantages

. Balance 4. Trade
of Trade Policies
The
Basics
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@ The balance of trade is the difference of momentary value

between imports and exports, over a certain period of time
for a country.
@ This gives a current account balance, which can either be
positive (surplus) or negative (shortage).
@ It is measured by the difference between the income that one
country earns from the rest of the world and the income that
the rest of the world earns from that country (imports and
exports of agricultural goods).
@ Exampleá U.S. agricultural current trade account balance is in
surplus; we are producing and exporting more than we are
importing and consuming.
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To positively affect/improve our trade balance, the goal is to import
raw materials and export manufactured goods. Most agricultural
products are raw materials.

@ A government budget deficit can cause a drop in the value of the

dollar.
(e.gá If the value of the U.S. dollar is low compared to foreign
currency, this creates an incentive for exporting and is a factor that
affects the balance of trade)

@ Surpluses and deficits correspond with the business cycle. So it is

alright to have some surplus (in a good economy) and some deficits (in
recession). If we did not, we would not be able to spend our way out
of a recession. Economists only want the trade to balance out in the
long run
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@ The exchange of currency from one nation to another.
Exampleá The U.S. dollar to the European Euro.

@ Also referred to as FO6EX.

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dominant when compared to two or three other currencies.
‰ A stronger currency means a consumer can buy more.

@ ^ - when the value of a currency is not as valuable as

its ´normalµ amount.

@ Ô
‰ Measured using the Consumer Price Index (CPI).
‰ The CPI measures the changes of the purchasing power of
the dollar over time.
‰ If the CPI increases the dollar is buying less and vise versa
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 Is the situation presented where someone can produce a
good at a lower opportunity cost than someone else.

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Entities can produce something using a smaller number of
inputs than another party producing the same product.
‰ Xust because someone has an absolute advantage does not
mean they have the comparative advantage.

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Production means are dedicated to one product instead of
multiple
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A tariff is a tax on an import or export
Specific Tariff- a specific tax on each unit
Ad Valorem Tariff- a percentage of the goods value
Quota - the amount of product a country can import or export
A quota can either be in terms of volume or value
  
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- Bilateral trade is trade between
2 countries
- Bilateral is known for it·s Free
Trade Agreements (FTA)
- Multilateral trade is trade
between 3 or more countries
- A tariff is a tax on an import
or export
-  * a specific
tax on each unit
- - * a
percentage of the goods value
- <$ - the amount of
product a country can import
or export
- A quota can either be in terms
of volume or value
 
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@ Importance of federal government role
‰ Defined through laws, regulations, funding programs
‰ No unified federal transport policy

@ Congress and the President

@ Over 60 federal agencies involved

@ 30 congressional committees

@ Two independent regulatory agencies

@ Department of Xustice
 ^!Ô^ 
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@ Significance of transportation

@ Capital requirements

@ Need for government assistance

@ Public ownership sometimes necessary

@ Policyá framework for allocating resources

 Ô  !

@ ICCTA(Interstate Commerce Commission Termination Act) spelled

out federal policy for STB(Surface Transportation Board regulation
of modes (except air)
@ Policy interpretationsá
‰ 6ecognize and preserve inherent advantages
‰ Safe, adequate, economical and efficient service
‰ 6estatement of common carrier obligations ² 6easonable
charges, unjust discrimination, undue preference, unfair
competitive practice
‰ Fair wages and working conditions
‰ Meet needs of commerce, U.S. Postal Service, and national
defense
@ Specific direction for rail and motor
 6egulatory
agencies

Congressional Xudicial system

committees

^ho
Executive Industry
Branch establishes associations
policyu
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@ No air carrier policy

@ Overlooks exempt motor and air

@ No attempt to define reasonable charges, discrimination,

unfair competition-defers to regulatory agencies]

@ No definition of inherent advantages and

inconsistencies of interpretation-changing advantages
9 =;