Home > China, Microeconomics > Prices, Substitutes and Opportunity Costs

Prices, Substitutes and Opportunity Costs

A New York Times article on China’s high speed rail system compares the price of tickets on the fast and slow trains from Guangzhou to Changsha. Since I’m taking the slow train tonight (!) now’s as good a time as any for some comments:

1) The author quotes the prices as $51 for the 2-hour trip and $15 for the 9-hour trip. But these prices aren’t the only ones that should be compared, because on the slow trains, many people (like me) buy a sleeper berth for the overnight trip. There’s a huge difference in sitting for 2 hours and sitting for 9 hours, so much so that a large portion of my fellow passengers tonight will not have bought the $15 seats–they will have bought the $30 bunks. That’s the more comparable price. The gap for most passengers is going to be just 40%.

If we’re thinking in terms of substitutes, for most people the overnight bunk is the closest substitute for a seat on the fast train, not the seat on the slow train.

2) The author says the high-speed rail ticket is “expensive for a migrant worker from Hunan who might earn only $160 to $400 a month in wages in Guangzhou.” Of course it is: if you are earning $4 a day, why spend $20 more to save seven hours? But for an office worker making a typical Guangzhou salary, saving $3 could be well worth it. I know college students who tutor for more than that. If they could stay an extra day in Guangzhou and merely tutor a few more hours, the more expensive ticket would be worth it.

And who really thinks a manager’s time in Guangzhou is worth less than $3 an hour? Maybe 15 years ago…certainly not today.

A final, anecdotal reason the tickets are not likely to be “too expensive”–I couldn’t buy one, even days before my departure date. Every seat, sold out, on every fast train.

That means for enough people, the opportunity cost of the slow train is higher than the ticket price of the fast train. When people become more productive–as the average Chinese worker steadily has in the past 30 years–their opportunity cost of time goes up, too.

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Categories: China, Microeconomics
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