Public transport is not a close substitute for private cars for a different reason why private cars are not a close substitute for public transport.

Introduction

Substitutes are goods which are consumed in place of one another such as Coke and Pepsi. The cross elasticity of demand (XED) for a good with respect to another good is a measure of the degree of responsiveness of the demand for the first good to a change in the price of the second good, ceteris paribus.

Many students think that public transport is not a close substitute for private cars for the same reason why private cars are not a close substitute for public transport. This economic misconception will be discussed in economics tuition at Economics Cafe.

Exposition

Private cars and public transport are substitutes as the two goods are consumed in place of one another. However, although some students argue that the two goods are close substitutes, some students argue that they are not. The truth is, whether private cars and public transport are close substitutes varies from individual to individual. However, the problem is that many of the students who argue that private cars and public transport are not close substitutes have not fully understood the relationship between the two goods. In particular, they think that public transport is not a close substitute for private cars for the same reason why private cars are not a close substitute for public transport. This is erroneous. Assume that private cars and public transport are not close substitutes. Private cars are not a close substitute for public transport as private cars are substantially more expensive. However, the converse is not true. Public transport is not a close substitute for private cars not because public transport is substantially more expensive. Indeed, public transport is substantially cheaper than private cars. Rather, public transport is not a close substitute for private cars as public transport differs quite substantially from private cars in terms of accessibility, travelling time and comfort. Therefore, public transport and private cars are not close substitutes for each other due to different reasons. It follows that although the cross elasticity of demand between private cars and public transport is positive, the cross elasticity of demand for private cars with respect to the price of public transport is different from the cross elasticity of demand for public transport with respect to the price of private cars.

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