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Report is prepared in relation with economics in which information related with whether developing the predictions on the basis of the economic models will be useful or not will be made. Understanding related with the economic model will be developed with the help of this report. Price elasticity will also be discussed in this report. 5 aspects related with the price elasticity with the company examples will be discussed in this report which will help the company to sustain in the market.
“Economic model are false and so government should ignore their predictions.”
Economic models are based on forecasting and forecasting does not guarantee success. There are various analysis attached with economics which helps predicting the market as well as economic conditions (Ahmad, 2015). Economists make the predictions on the basis of various anomalies which ensure to provide the support to the market. In some cases economic models provides success as they provides accurate figures and predictions but in some cases it fails to deliver the appropriate set of information due to which various aspects of market gets affected.
For Economists it is necessary that they should develop the economical models which could help in delivering accurate information because in prediction of the market conditions accuracy is one of the aspects which matters a lot (Rassenfosse, et. al., 2011). False information could affect the whole market conditions as well as economy of the country.
The theoretical constructs which represents economic processes by a set of variables and by the set of logical quantitative process is known as economic model. These models help in managing the economic aspects of the country as well as market. Economists can logically isolate and solve the complicated chains of cause and influence between various interacting elements in the economy (Shen, & Lew, 2012). There are certain economic available which helps the economists to make the predictions. These economic models which helps in the prediction process are: visual model, mathematical model, empirical model and simulation model.
Primary features of these models are:
Visual Model: Visual models shows the information of the abstract economy, there are certain graphs and lines that help in illustrating the economy and provide information related with the economy. Visual methods helps in providing summarized and quantitative information related with the economy (Ziomek, 2010).
Mathematical Model:Formal abstract of the economy could be shown with the help of mathematical model (Ahmad, 2015). Mathematical model include proper set of description of the economy, there are various calculations included with the effect of which information is delivered.
Empirical Model:The models which are designed to be used with proper set of data are known as empirical models. Various statistical techniques are being used in the mathematical data which helps in providing proper set of evaluation of the economy of the country.
Simulation Model:The model in which computer techniques are being used is known as simulation model. It is the model which helps in bringing more accuracy in the prediction. With the help of computer techniques more clear and concise predictions are made in simulation model (Ziomek, 2010).
Hence, it could be understood that economic models are being developed so as to make the prediction system more effective. It could be said that ignoring the prediction with the help of the economic models will not deliver the solutions are plans are made with the help of the predictions made on the basis of the economic models which helps in providing better and effective support to the economists and ensure that the economic fluctuations could be minimized (Rassenfosse, et. al., 2011).
Price Elasticity of Demand:Responsiveness of the quantity demanded of goods and services in the market is seen to the change in its price is known as price elasticity of demand. Price elasticity of demand helps the economists and the businessman to evaluate the responsiveness of the quantity that is being demanded by the people available in the market with the changes in the price which are made by them (Shen, & Lew, 2012).
Price elasticity of demand could be evaluated with the help of:
Percentage change in the quantity demanded / percentage change in price of the products.
When the price of the products increases than demand of the products declines which means that price and demand are inversely related with each other. Change in the price and affect occurred on the demand of the product is being evaluated by the economists with the help of price elasticity of demand.
There are five types of price elasticity of demand these are:
Perfectly Elastic Demand:It is the situation when small change in the price of the product causes a major change in the demand of that particular product. For example: if price of Nokia will increase in the market then demand for it will reduce because there are many substitutes available in the market.
Perfectly Inelastic:It is the situation in which change in the price of the product does not have any impact on the quantity demanded. For example: increase in the price of salt will not impact in the quantity demanded. Salt is a necessity for every household and people will prefer to purchase salt whether its price goes up or down.
(Coglianese, et. al., 2016)
Relatively Elastic:Relatively elastic demand is the demand when the proportionate change in the demand is greater than the proportionate change in the price of the products. For example: Decrease in the price of coca cola will increase its demand as more people will prefer to drink coca cola if their price drops (Rassenfosse, et. al., 2011).
Relatively Inelastic Demand:The situation in which percentage change in the quantity demanded is relatively less than the change in the price (Shen, & Lew, 2012).
Unitary Elastic Demand:It is the situation when proportionate change in the quantity demanded has a less impact on its price. It means that in case if the demand of the products and services will increase then its price will not get much affected and vice versa.
It could be concluded that economics is one of the most important aspects attached with the evaluation of the market situation. It is necessary that economic models should be developed so as to make the predictions related with the market. Prediction is based on forecasting which could be done with the help of the economic models. Understanding the price elasticity of demand and making decisions related with the products and services will help the manufacturer to maintain the supply of the product.
Ahmad, S. (2015). Need For A Need-Based Economics: A Critical Look At The Conventional Demand-Supply Curve. The International Journal Of Social Sciences And Humanities Invention, 56-65.
Rassenfosse, G., & Potterie, B. (2011). On the Price Elasticity of Demand for Patents*. Oxford Bulletin Of Economics And Statistics, 74(1), 58-77.
Shen, Y., & Lew, A. (2012). A family of discontinuous Galerkin mixed methods for nearly and perfectly incompressible elasticity. ESAIM: Mathematical Modelling And Numerical Analysis, 46(5), 1003-1028.
iomek, A. (2010). Economics Performance and Institutional Economics in Poland After 1989. American Journal Of Economics And Sociology, 69(5), 1553-1565.
Coglianese, J., Davis, L., Kilian, L., & Stock, J. (2016). Anticipation, Tax Avoidance, and the Price Elasticity of Gasoline Demand. Journal Of Applied Econometrics, 32(1), 1-15.