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Transportation Economics Assignment 2

Public Transport vehicles in Kathmandu valley run very crowded during peak hours, while daytime
vehicles have passengers much below capacity. Economists see this situation as demand-supply gaps.
Describe the situation with the help of demand and supply curves. Develop your solution based on
your analysis.

More than half of the world’s population lives in urban areas. The urbanization rate in developing
nations is expected to be higher than that of developed countries. By 2020, the total population in urban
areas in less developed region expected to be around 3.3 billion (UNDESPD, 2012). So changes in
population affect the economic condition as well as many other factors. In the same way, centralization
of the government system causes the urban growth in Kathmandu Valley. From economic point of view,
demand is number of passengers who are willing to use the transportation for their task. Demand varies
with time. According to department of Transportation, peak hour starts after 8:30 AM which lasts till 11
AM. And again peak hour starts after 5PM which last till the 7 PM. But there is no any fluctuation of fare
in normal hour and peak hour.

Normal time:

During normal time, transportation problem in Nepal is inelastic in supply and slope of supply is flatter.
Also equilibrium rate falls below the Rs. 15 and there is supply of 50 thousand passengers. If the rate is
made lesser during daytime, vehicles will have full capacity passengers.

Peak time:

During peak time transportation problem is inelastic in demand and slope of demand is also flatter and
also there is shortage of 3 lakh passengers. If we increase the fare price up to Rs. 30, then it will come in
equilibrium. Increasing fare during peak hours can reduce congestion in public buses.

Submitted by: Kiran Basukala(073MSCM303)