Heavy Lifting - thoughts and web finds by an economist
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Friday, February 23, 2007

Is transportation a normal good?

In a principles class I would suggest that private transportation, at least, is a normal good. At low levels of income individuals might ride mass-transit or walk or bike. As income increases, the desire and ability to own your own car will increase as well. Eventually, with enough money you can hire someone to drive you around - the private version of mass transit.

I am also amazed by how much money people spend on cars. Seriously - it's just a car. If you spend $60k on a Lexus you are, in my book, a moron. If you spend $30k on a 1969 Camaro Convertible you are, in my book, a person to be envied.

Spending a lot of money on a late model car is something that should be reserved to the very wealthy - as it used to be - and the rest of us should be happy driving their used castoffs as our taste of the good life. Unfortunately, there are a lot of people who are putting too much car in the garage and, evidently, are finding it hard to make ends meet.

This article describes the trend of overbuying in cars, much like I suppose there has been considerable overbuying in homes and other products over the past five or six years.

The story contains estimates of how much is being spent on transportation as a function of income

Income range 2005 spending % income (at mean)

Less than $19,179 $2,742 14.3
$19,179 to $35,999 $5,330 19.3
$36,000 to $57,659 $7,437 15.8
$57,660 to $91,704 $10,504 14.1
More than $91,704 $15,691 10.4 (asuuming income = $150k)
All households $8,344 18.54 (assuming income = $50k)

This suggests that as income increases we do spend more in absolute terms on transportation - which can loosely be interpreted as transportation being a normal good. On the other hand, the percentage of income spent on transportation is surprisingly constant even using the broad categorical data provided in the story. Spending 20% of take home income on transportation seems a bit high.

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