Question:

Explain, using the elasticity of demand, the possible reasons why in some countries there has been an increased use of private transport instead of public transport.

Elasticity of Demand:

The elasticity of demand constitutes a tool of economics for assessing how demand for (or the desire to purchase) goods or services can increase or decrease dramatically. We can see elasticity of demand at work in restaurants, retail industry, and even in transportation.

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In some countries individuals have had increases in their income or wealth, while other countries have remained the same or decreased. People probably have some elasticity of demand for transportation. They want to go to different locations, and they would pay extra for private transport if they can afford it. Therefore, due to the elasticity of demand, those can afford to upgrade to private transport do so. This has occurred in several countries as they have industrialized, becoming wealthier. By contrast, in other countries that retain their use of public transport, they have less wealth, so their elastic demand for private transport is less than in the wealthier countries. Note that this may occur to price elasticity of demand (responsiveness to prices), or income elasticity of demand (responsiveness to income), for example.