Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

for all quantities, we conceive of the transport industry as having an
industry supply curve, S t , the intersection of this supply curve and
the transport demand curve will determine the solution prices and
quantities.
Before introducing costs associated with service attributes into
the analysis it will help to take a closer look at Fig. 3.4. The ex-
cess demand curve gives the "price," the total money outlay, which con-
sumers in B would be willing to give in order to obtain additional
units of the product. The excess supply curve represents the addition- •
al quantities of the product which producers in A would be willing to
supply at various "prices," dollar amounts realized by these producers.
If transport were completely costless these two curves could be set
equal. However, if there are any costs of transportation whatever,
excess demand price cannot be equated with excess supply price, since
the amount paid by the consumer is no longer the amount realized by
the producer. Thus far we have been assuming that the only cost of
transportation is the rate charged by the transport industry. As long
as this is the case, the price to the consumer is equal to the price
received by the producer plus the transport rate. This is the situation
illustrated in Fig. 3.4. However, if there are costs associated with
the transportation of goods from market to market other than those
covered by the transport rate, this treatment also becomes inadequate.
Excess demand price must then cover excess supply price plus the trans-
port rate plus the other costs.
This new situation is illustrated in Fig. 3.5. Here the curve
T a represents the quality associated costs which the shipper must
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