[ Correct ] Principles of Transportation Economics

Question 1

What is an economic model and ideally what characteristics would we like our economic models to satisfy

Trevor Jones (2005 ) wrote that economics identifies various market failures that make the community worse off (p . 38 . In this line of thinking , he said that [economic] models of the market assume that private and social costs and benefits coincide (Jones , 2005 ,

. 38

More specifically , an economic model is the representation of certain economic activities or processes of a specific economic entity . This model might be a diagrammatic , mathematical , written or

verbal representation . Let 's consider the economic model of a business Hirschey (2002 ) created a mathematical model of the primary goal of a business - that is , profit maximization in the short run and expected value maximization in the long run (pp . 5-6 . The author clarified that [the] value of the firm is the present value of the firm 's expected future net cash flow (pp . 5-6

Figure 1 shows the foregoing economic model of a for-profit organization

Source : Hirschey , 2002 ,

. 6

Where ?1 ?2 ?n represent the expected profits in each year , t and i is the appropriate interest or discount rate for that business

The characteristics that I would want my economic model to satisfy are

First , it should be able to provide the information that the users of the model needs in decision making

Second , it must be able to compare alternatives

Third , it must also take into account several economic information that are difficult to quantify

The economic model should be parsimonious (Skeels , 2006 ,

. 257

The model can be used by a different economic entity within the same setting (Saatcioglu , Korap Volkan , 2007 ,

. 51

Question 2

Suppose that you have a simple economic model that shipper demands for transportation services depend upon the transportation rate charged (a ) Identify the cause and effect relationship in this model

The economic model for this situation is mathematical , and it would appear like this

Dt f (tx

Wherein Dt represents the shipper demands for transportation services and tx is the transportation rate charged

The above mathematical representation of the model means that the amount of transportation services shipper demands is a function of the transportation rate . In other words , as the transportation rates charged by shipping companies the amount of transportation a shipper demands goes down . Consequently , as the transportation rate goes down , then the transportation demanded by a shipper increases . This type of relationship between two or more variables is called inverse relationship (b ) Why is this model a qualitative model of shipper demands

The economic model of the shipper demands for transportation services which depend upon the transportation rate charged is qualitative because

the model tries to test the hypothesis that the shipper demands for transportation services depend on the transportation rate charged

in general , qualitative model [describes] systematic structures and processes (Heise Durig , 1999 . In this scenario , the model is describing the structure governing the shipper demands for transportation services and

although , the model...