1. According to Atkinson and Hackler, what do neoclassical economists view as the most effective policy in addressing the challenges of climate change?

First of all, they believe that economic growth is achieved by maximizing allocative efficiency, One is that the economy is built upon the interaction of firms and consumers in markets determined by price signals. Indeed, allocative efficiency revolves around the responsiveness of economic agents to price signals. Consequently, neoclassical economists emphasize “price mechanisms” like interest rates, currency values, inflation, and other monetary factors that determine the value of capital and labor more. Also, they point out that supply normally meets demand is another neoclassical principle. In this paradigm, the economy is simply a large market of goods and services that is generally in equilibrium and usually best left to itself. Their final relevant principle of neoclassical economics is that individuals act in response to incentives to rationally maximize their own self-interest, and that the collective pursuit of individual self-interest will also maximize public interest.

5. The authors discuss their theory of “Innovation Economics.” What reasons do authors cite as to why Innovation Economics offers a more effective framework for addressing the economic realities of the 21^st century.

The author cites three factors to prove that innovation economics offers a more effective framework for addressing the economic realities of the 21^st century. He point out that, First, each doctrine focuses in an almost Newtonian way on adjusting the demand or supply of capital and labor to keep the economy in equilibrium and to secure economic growth, which undervalues the importance of innovation. Second, each concentrates on macroeconomic factors, particularly prices, rather than on the institutional- and technological-change factors that drive growth, albeit in different ways in different countries and times.4 Finally he said that, none of the prevailing doctrines’ principles focus on the complex process of technological innovation and the messy and complicated world of firms, industries, and national innovation systems as these institutions relate to economic growth.