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Reducing the Opportunity Cost of Waiting in Gridlocked Traffic, at a Price

Four decades ago, Howard Becker, founder of Becker Automotive, Inc., started a Los Angeles business installing sound systems in homes and vehicles. His company is still based in that area, but now it specializes in reducing the opportunity cost of the hours that people spend traversing congested highways and surface roads. Becker’s customers are individuals who had previously been among U.S. commuters who devote a combined 7 billion hours per year self-driving their vehicles slowly through nearly gridlocked traffic instead of pursuing other activities.

At prices that typically start at $150,000, Becker’s firm converts chauffeur-driven vans and limos into mobile offices or custom-built homes away from home. Becker’s converted vehicles provide amenities that include built-in touchscreen devices with remote access to cloud-based information networks and home-film library systems, bathrooms, and even exercise bicycles. Many vehicles provide sufficient seating—and, if desired, accessories and equipment—for several passengers, including clients, personal assistants, or secretarial support staff. Thus, buyers of Becker’s converted vans and limos can, while paying chauffeurs to traverse the thick traffic, avoid sacrificing time that they could devote to activities they otherwise would pursue at home or in an office setting.

Critical Thinking Questions

1. How must the dollar values of the opportunity costs of time compare for a typical purchaser of a vehicle converted by Becker Automotive, Inc., versus commuters who do not purchase them? Explain briefly.

2. Why do you suppose that economists have estimated the dollar value of the combined opportunity costs of time that U.S. commuters spend in gridlocked traffic to be in excess of $150 billion per year? Explain your reasoning.

Answer 1

a.) In the simplest of terms, an opportunity cost is the cost that is incurred by not choosing the next best alternative. The dollar values of the opportunity cost for individuals who purchase the converted car from Becker Automotive Inc. have a lower monetised opportunity cost than people who do not purchase the vehicles. The reason behind this is that people with the converted cars do not end up spending time solely commuting and giving up on activities that could reap monetary compensation, but they can now use the time spent commuting on activities that would garner them monetary compensation such as doing office work, attending meeting via video call etc. People who do not have the converted cars would end up spending the time commuting only, and therefore would have to give up more time they would have rather spent working.

b.) Economist have estimated the dollar value of combined opportunity costs of the time US commuters spend in gridlocked traffic to be in excess of $150 billion per year because the time spent by commuters in their cars in gridlock can be spent on productive activities that generate economic value. The cumulative opportunity cost of spending the time in gridlocks in your car is to work and generate goods or services of economic value, be it making pens in a factory, or activities with more expensive opportunity costs such as traders who could make millions in the time they spend in gridlocks.