Table of Contents
- Historical Context and Evolution
- Core Assumptions and Principles
- Theoretical Framework
- Criticisms and Limitations
- Contemporary Relevance and Applications
- Conclusion
- Think!
- Essay Suggestions
- Research Suggestions
- Further Reading
Neo-classical economics, a dominant paradigm in the field of economic theory, emerged in the late 19th century and has profoundly influenced both economic thought and policy. This framework builds upon classical economics, primarily the works of Adam Smith, David Ricardo, and John Stuart Mill, integrating mathematical models to articulate the mechanisms of market equilibrium, consumer behavior, and production efficiency. The neo-classical approach is characterized by its focus on individual rationality, market dynamics, and the allocation of scarce resources through the price mechanism.
Historical Context and Evolution
Neo-classical economics arose as a response to the limitations of classical economics, particularly its inability to explain value and distribution adequately in the face of increasing industrial complexity. The marginalist revolution, spearheaded by economists such as William Stanley Jevons, Carl Menger, and Léon Walras, marked the beginning of neo-classical thought. These economists introduced the concept of marginal utility, shifting the focus from labor and production costs to the subjective valuation of goods and services by consumers.
The development of neo-classical economics continued through the contributions of Alfred Marshall, who synthesized the marginalist principles with classical economics, emphasizing the interplay of supply and demand in determining prices. Marshall’s “Principles of Economics,” published in 1890, became a foundational text, elucidating concepts such as consumer surplus, elasticity, and the partial equilibrium analysis.
Core Assumptions and Principles
Neo-classical economics rests on several key assumptions that underpin its theoretical models:
