Consider the total cost of traveling from point A to point B

The cost of traveling by car would include the cost of gasoline and the opportunity cost of time; the cost of hopping on a bus would include the bus ticket and the opportunity cost of time. Assume that the bus ticket costs less than the gasoline. Does this imply that using a bus to get to the destination involves lower total costs than getting there by car? What if the bus doesn't take the fastest route from point A to point B?


The statement is not always true. Traveling by bus is often much slower than traveling by car. This is more likely to be true if the bus does not take the shortest or fastest route. A bus, for example, might not travel on a highway so that it can make more stops to allow more passengers to get on and get off. If the value of the extra time it takes to travel by bus is greater than the difference between the cost of the gas and the bus ticket, then it is cheaper to travel by car. For example, suppose it would take 30 minutes to travel by car, one hour to travel by bus, people value their time at $10 per hour, the cost of a bus ticket is $1, and the cost of gas is $4 . Then the total cost of traveling by car would be (1/2 x $10) + $4 = $9 and the cost of traveling by bus would be $10 + $1 = $11 .

Economics

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