Sunday, August 27, 2017

This Is How It's Supposed To Work - Air Fare To Delhi Soars To RS 26k

The trains between Chandigarh and Delhi have been largely cancelled for today and there is concern that air fares are soaring as a result. Well, yes, this is how things are supposed to work in a market. If supply changes then prices change, if demand changes then prices change. It is the change in prices which then match changed supply with changed demand. This is not an error or mistake, this is the point of using the system itself:

With all 36 trains from the city cancelled, air fare to Delhi soared to Rs 26,000 on an Air India evening flight — almost 15 times the normal fare for the one-hour flight. The scenario will remain the same on Sunday as well with the cheapest air ticket to the capital selling at Rs 6,600 on the 7.55am IndiGo flight. On average, the Sunday price for a Chandigarh-Delhi ticket on Sunday will cost anywhere between Rs 17,000 and Rs 18,000.

There are five direct flights between Chandigarh and Delhi and there are fears that a ticket cost could zoom to between Rs 56,000 and Rs 57,000, if passengers book on the spot.

Ambala division railways manager Dinesh Kumar announced on Saturday that all trains playing from Chandigarh railway station or the Ambala railway station will remain cancelled till Monday (August 28), with service to resume only on Tuesday.

That was later revised to only a few trains will be running, not the full service roster. At which point we've got to ask, well, what are we going to do about this?

36 trains quite obviously carry rather more people than 5 airplanes. We simply cannot therefore fit everyone who wishes to travel between the two cities on the available transport (this is to assume that the trains run full but we've got to assume something). How do we decide among those who do get to go to Delhi and those who don't?

We need some form of rationing and the most obvious method is to ration by price. For the joy of that system is that that very variation of price changes the demand to be able to go to Delhi. Some might well have gone to Delhi at Rs 500. Or 1,000. But won't want to go at 10,000. Or 50,000, whatever the price becomes. Changing the price thus changes the decision to want the service--and those who still desire it at the higher price are clearly those who value the opportunity to go to Delhi the most.
27/08/17 Tim Worstall/Forbes

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