ABSTRACT
This chapter discusses the particular reference to the transport sector. It begins by recognising two distinct components in our understanding of an optimum situation. This basic distinction is between: The resource allocation or 'efficiency' optimum and the income distribution or 'equity' optimum. The attractively simple conclusion that the market mechanism will automatically select and support the most efficient operators in a competitive situation is subject to several important qualifications, relating to the following issues. These are external effects, public goods, market structure and the economies of scale, the adequacy of perception and Indivisibilities. The inevitable interaction between issues of efficiency and those of equity, and the great disparities of alternative product characteristics and productive techniques preclude the possibility of a simple, self evident solution appearing. Paradoxically, recognition of the limitation is perhaps the greatest strength of the economist's contribution to the study of transport.
