Review of Environmental Economics and Policy

Question: Discuss about the Review of Environmental Economics and Policy. Answer: Introduction: In the area of economics, most of the economists believe that economic models are false and also unable to provide actual predictions to the growth of the economy of a nation. It is because of most of the economic models are incomplete and therefore they may provide false predictions to the government of a nation (Feedman, 2011). Along with this, it is also true that there is an absence of accurate economic models in the field of economics. So, the government should ignore the predictions of the existing economic models for the growth of the economy of a nation. Apart from this, the government should use the scientific methods to make actual predications for the growth of the economy. Moreover, the economic models are false due to several reasons. For example, the major reason behind it is that, economic models mainly depend on the market uncertainty. So, due to the market uncertainty, economic models are unable to predict market conditions, and demand supply accurately (Gilboa, Pos tlewaite, Samuelson Schmeidler, 2014). As a result, the economic models affect the predictions/estimations related to the production, demand, supply and economic growth in a negative manner. On the other hand, the reliability and acceptability of economic models depend on the three major criteria: Accuracy, Convenience, and Uniformity (ACU). But, it is not acknowledged that any economic model satisfies all the above three criteria in an effective manner. Along with this, there is not a single economic model that is useful to fulfill the goals related to the economic growth of a nation. The government of a nation is obliged to use different economic models to make accurate predictions for the growth of the economy. It is because of all the economic models use past data/ facts to predict future trends. But, the market uncertainly always affects the prediction figures of these economic models (Monga Lin, 2015). In this situation, the government uses budgets to predict the further spending, tax collections, and surpluses/deficits accurately. In addition to this, it is also true that; budget is not an appropriate way to make predictions for the economic growth of the nation. Furthermore, no matter how many veteran economists the government hires; and no matter how carefully the economist experts use economic models; but they are also unable to make a budget that is precise or accurate (Ebert, 2015). There is not a single economic model or economist that can make exact predictions related to the production, demand supply, inflation rate, national production, exchange rate, import/ export trends and other economic factors for the economic growth of a nation. It is because of all these kinds of predictions only depend on the upcoming economic trends, internal external demand of products/services, cost of raw materials labor, inflation rate, employment rate, and accurate economic factors. So, it is clear that, economic models do not consider economic facts and therefore they generate inaccurate or false predictions/results (Feedman, 2011). Consequently, the government of a nation should ignore the predictions of these economic models. The law of demand explains relationship between elasticity of demand such as: changes in prices of a particular good that have impact on its quantity demand in the market. Price elasticity of demand is related to the increased/decreased demand of product. It is because of there can be seen an increase or decrease in the demand of a product because of the increase or decrease in the price of the product. There are three types of price elasticity of demand: inelastic (less than one), elastic (greater than one) and perfectly inelastic (zero) (Fouquet, 2014). If the price elasticity demand of a product is inelastic (very low); then demand would fall or rise slightly in response to price changes. For example, if price elasticity of a particular good is about -0.2 then demand would fall by 2% for a 10% increase in price. In addition, if the demand for a good is elastic (greater than one); then demand of good will increase/decrease in response to change in price. For example, if price elast icity of demand for a good is elastic (1); then demand for that good would fall by similar rate (Hainmueller, Hiscox Sequeira, 2015). On the other hand, three different products are used to estimate the price elasticity of demand in an appropriate manner. For example, the price elasticity of demand for soft drinks products such as: Pepsi and Coca-Cola can be seen elastic (greater than one) in the Australian market. It is because of there is high availability of substitutes of soft drinks in the Australian market. It enhances the demand of soft drinks and makes the price elasticity of demand is more elastic in the market. Moreover, a 10% increase in the prices of soft drinks will reduce the demand by 8% to 10% in the market. It is because of the high prices the Australians will choose substitutes of soft drinks (Andreyeva, Long Brownell, 2010). In addition to this, in the Australian market, the demand of salt is 0.1. It points towards the inelastic demand of salt in the market. Moreover, an increase in price of salt by 10% represents 1% decline in the demand of salt in the market. The main reason behind it is that salt is a basic need of the people and also used by people on the daily basis. So, the elasticity of demand for salt is very low or inelastic. Moreover, people will not shift from one brand to another brand of salt quickly (Hamilton Rquillart, 2016). In the same manner, demand of the airlines travel is 2.4 in the market. It means there is high elastic demand of passenger/airline tickets. Currently, there can be seen high competition in the airline industry. Moreover, if Qantas Airways declines its prices by 10% then the demand will increase by 24% automatically. In the Australian market, Qantas, Jetstar, Regional Express Airlines, and so on are the close substitutes for passenger/airline tickets (Mumbower, Garrow Higgins, 2014). Moreover, due to high elasticity in the industry, if an airline company reduces its tickets prices; then the consumers will quickly shift towards the lower priced airline company. In this way, it can be said that, the price elasticity of demand is totally connected to the increased or decreased demand of a product or service. References Andreyeva, T., Long, M. W., Brownell, K. D. (2010). The impact of food prices on consumption: a systematic review of research on the price elasticity of demand for food. American journal of public health, 100(2), 216-222. Ebert, S. (2015). On skewed risks in economic models and experiments. Journal of Economic Behavior Organization, 112, 85-97. Feedman, D.H. (2011). Why Economic Models Are Always Wrong. Retrieved from: https://www.scientificamerican.com/article/finance-why-economic-models-are-always-wrong/ Fouquet, R. (2014). Long-run demand for energy services: Income and price elasticities over two hundred years. Review of Environmental Economics and Policy, reu002. Gilboa, I., Postlewaite, A., Samuelson, L., Schmeidler, D. (2014). Economic models as analogies. The Economic Journal, 124(578), F513-F533. Hainmueller, J., Hiscox, M. J., Sequeira, S. (2015). Consumer demand for fair trade: Evidence from a multistore field experiment. Review of Economics and Statistics, 97(2), 242-256. Hamilton, S. F., Rquillart, V. (2016). Market Competition and the Health Composition of Manufactured Food. Health Economics. Monga, C. Lin, J.Y. (2015). Title The Oxford Handbook of Africa and Economics: Policies and practices. USA: Oxford University Press. Mumbower, S., Garrow, L. A., Higgins, M. J. (2014). Estimating flight-level price elasticities using online airline data: A first step toward integrating pricing, demand, and revenue optimization. Transportation Research Part A: Policy and Practice, 66, 196-212.