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David answered on
Dec 21 2021
Running Head: NEOCLASSICAL ECONOMICS
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NEOCLASSICAL ECONOMICS
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Neoclassical Economics
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Institution
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Word Count 2498
Neoclassical Economics
Introduction
Neoclassical economics is attributed to great economists who include Karl Marx, Adam Smith, David Ricardo, Thomas Robert Malthus, and John Stuart Mill. These founders are credited for transforming their field of interest into a scientific theory, which presently serves as the basis upon which activities in the global market system are coordinated. These economists developed their theories with the help of 19th century physics equations. They used simple strategies where they substituted elements in physics with various economic variables. For instance, energy was substituted with utility, which is a measure of economic well-being, and potential and kinetic energy was replaced with the sum of utility and expenditure. Despite the many criticisms received by these economists, they did not change their minds. They remarked that they had changed their field into a scientific theory of economic behaviour.
In the mid nineteenth century, neoclassical economists shared a perspective on distribution and value theory. They came to a consensus that the worth of something is established by the cost of production involved. Consequently, product or output of an economy was thought to be distributed or divided among different social groups in accordance with the cost caused by those groups in having the output produced. The neoclassical economics framework was then summarised as, buyers try to maximize their utility from getting goods, and achieve this by making more purchases until what is gained from an additional unit equals what ought to be given out. Perhaps, this concept is what formed the basis upon which the presently used theory of economic behaviour is built on. Therefore, it is apparent to assert that neoclassical economics was indeed a crucial stage in the development of an authentically scientific unified theory that explains economic behaviour.
This discourse examines the contribution of neoclassical economics from an absolutist point of view. In its analysis, the discourse examines core neoclassical characteristics, which have played a significant role in the development of a theory of economic behaviour. First, the discourse looks at the contributions made by neoclassical economics on the scientific theory of economic behaviour. Comparison and contraction of different opinions put forth in response to the contributions of neoclassical economics is analysed in relation to presently held theory of economic behaviour. Second, an analysis is made on policies that have influenced works of neoclassical economics. A discussion is made on how such policies have influenced the contribution of the neoclassical economics and their relevance significance. Third, alternative scenarios are also outlined. Finally, a conclusion, which summarises main points, is given to end the discussion.
Contributions of Neoclassical Economics on the Theory of Economic Behaviour and Relevant Opinions
Rationality
Neoclassical economics assumes that all individual behaviour is rational. Individuals are thought to have well-identified goals and to be self-interested in a most efficient way possible. In so doing, they maximize something, which is utility. This is achieved subject to what can be afforded by an individual. Consequently, firms or producers are believed to maximize their profits subject to what they can technically achieve.
This is a very significant contributing factor in the presently held scientific unified theory of economic behaviour. In present business environment, consumers always seek to maximize their utility subject to the resources they have (money). They do that by comparing the best alternatives at hand in order to ensure that whatever action they take results to the best possible outcomes. Similarly, producers are often seen undertaking motives that maximize their profits subject to the resources they have. They do that to ensure that they derive the best outcomes from the production process in order to meet costs involved and continue being in existence. Therefore, it is apparent to assert that neoclassical economics has and continue to form the basis upon which behaviours of different agents involved in the production chain are explained.
Opinions are laid forth by different individuals in response to this contribution of neoclassical economics. For instance, evolutionary economists reject the notion of agents maximizing their utility. According to them, agents behave they way they do in order to achieve a satisfactory outcome through adaptation mechanism that responds to previous experiences. Therefore, maximizing utility is not a conscious effort pursued. Evolutionary economists question whether the goals of individuals are as given; rather they are produced by forces of an economy. They suggest that values beyond profit and pleasure inform human behaviour that they can also act out of habit, a sense of obligation, a desire of status, or concern for others.
Equili
ium
Neoclassical economics puts more focus on models that minimize complexity found in the real world economy. In order to achieve this, neoclassic economics concentrates much on the analysis of equili
ium. Equili
ium is termed a situation in which an aspect of the economy is at rest because no individual portrays any incentives of changing whatever he or she is doing unless a change is made on external factors. According to neoclassical economics, a single market is said to be in equili
ium when market price is such that all buyers are able to buy a lot and all dealers are as well able to sell a lot since they wish at that price. This price is then termed the equili
ium price. Under such circumstance, no buyer or seller has any motive of changing what he or she is doing, leading to a persistent status quo unless an alteration results from external forces.
This notion plays a key position in the inception of a truly scientific unified theory of economic behaviour. This is based on the fact that unified theory of economic behaviour aims...