Question

An article in the Los Angeles Times about driverless trucks stated, "Trucking will likely be the first type of driving to be fully automated - meaning there's no one at the wheel." The article added that there is a financial incentive for automating trucks because "trucking is a \$700-billion industry, in which a third of costs go to compensating drivers." How are driverless trucks likely to affect costs to businesses of transporting goods? How are they likely to affect the short-run aggregate supply curve and the long-run aggregate supply curve?

Short answer

Driverless trucks would likely reduce the costs to businesses of transporting goods significantly by saving on labor costs. In terms of supply curves, both the short-run and long-run aggregate supply curves would shift to the right. This shift indicates increased quantities of goods and services supplied at the same price levels due to increased efficiency and lower costs.

Step-by-step solution

Impact on Costs

One should understand that if trucks become fully automated, companies would save significant costs on compensating drivers. As the article states, a third of the costs in the trucking industry, equivalently, about \$233 billion, goes to driver compensation. With the automation, these costs would likely substantially decrease, reducing the overall costs of transporting goods.

Impact on Short-Run Aggregate Supply (SRAS) Curve

The short-run aggregate supply curve shows the total quantity that firms across the economy will produce and sell at each price level in the short-term period when the prices of resources (like labour) are fixed. With driverless trucks, labour costs for transport are reduced, increasing profitability for firms and enabling more production at the same price level. Thus, the SRAS curve will shift to the right, meaning a greater quantity of goods and services supplied at the same price levels.

Impact on Long-Run Aggregate Supply (LRAS) Curve

The long-run aggregate supply curve shows the total quantity that firms across the economy will produce and sell at each price level when the prices of resources can fully adjust. Automation increases efficiency and reduces resource costs (in this case labour), thus increasing the economy's potential output. Therefore, the LRAS curve would also shift to the right, indicating an increase in the natural level of output at the same price levels.

Key concepts

Short-Run Aggregate Supply

Driving down the road of economics, driverless trucks are like a turbo boost for the short-run aggregate supply curve, often referred to as the SRAS. Imagine that businesses suddenly find themselves saving bundles of money on driver wages, thanks to automated trucking. These savings can be funneled into producing more goods without needing to raise prices instantly.

The SRAS curve represents this scenario by showing how with less pressure from labor costs, companies can crank up their production levels. As they do so, the curve itself shifts to the right.

• This rightward shift indicates that, at any given price level, a higher quantity of goods and services is being supplied.
• In the short-term, resource prices like wages remain constant, meaning businesses enjoy enhanced profitability.
• Ultimately, the economy becomes capable of offering more without causing inflationary pressures.

Long-Run Aggregate Supply

Now let's shift gears and look at the long-run view, officially known as the Long-Run Aggregate Supply or LRAS curve. Over time, as automation continues to play a more significant role, its influence is seen in the whole economic picture. In this phase, prices and wages have the flexibility to adjust, and the economy moves to a new normal.

Unlike in the short-run, the long-run is about adapting and optimizing all resources, not just labor.

• Driverless trucks contribute to efficient resource allocation and increase the overall productive capacity.
• This efficiency means more items can be produced without additional cost, causing the LRAS curve to shift to the right.
• This rightward shift signifies an increase in the nation's potential output, effectively raising what’s known as the natural level of output.

With greater output potential, the wheels of growth spin faster, allowing economies to maintain stable growth over the long term.

Transportation Costs

The advent of driverless trucks is set to drastically change the way businesses calculate transportation costs. Why? Because one-third of this massive $700 billion industry is made up of driver wages, which could soon become obsolete with automation.

Without the need to pay drivers, companies could drastically reduce their shipping expenses. Here's how these savings might be realized:

• Reduced labor costs can lower the overall price of transporting goods long distances.
• Lower costs also enable businesses to pass savings onto consumers, potentially driving down retail prices.
• Companies can reallocate funds to improve infrastructure, invest in technology, or boost other areas of their operations.

As transportation costs plummet, the effects ripple throughout the economy, fostering a more competitive market landscape.