Search Investopedia

Neoclassical Economics

Filed Under » ,
Dictionary Says

Definition of 'Neoclassical Economics'

An approach to economics that relates supply and demand to an individual's rationality and his or her ability to maximize utility or profit. Neoclassical economics also increased the use of mathematical equations in the study of various aspects of the economy. This approach was developed in the late-nineteenth century, based on books by William Stanley Jevons, Carl Menger and Leon Walras.
Investopedia Says

Investopedia explains 'Neoclassical Economics'

Since its inception, neoclassical economics has grown to become the primary take on modern-day economics. Although it is now the most widely taught form of economics, this school of thought still has its detractors. Most criticism points out that neoclassical economics makes many unfounded and unrealistic assumptions that do not represent real situations. For example, the assumption that all parties will behave rationally overlooks the fact that human nature is vulnerable to other forces, which cause people to make irrational choices. Therefore, many critics believe that this approach cannot be used to describe actual economies.

Neoclassical economics is also sometimes blamed for inequalities in global debt and trade relations because the theory holds that such matters as labor rights will improve naturally, as a result of economic conditions.

Related Definitions

  •

    Positive Economics

    The study of economics based on objective analysis. Most economists today focus on positive economic analysis, which uses what is and what has been occurring in an economy as the basis ...
    Read More »

  • Microeconomics

    The branch of economics that analyzes the market behavior of individual consumers and firms in an attempt to understand the decision-making process of firms and households. It is ...
    Read More »

  • Macroeconomics

    The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena such as changes in unemployment, national income, rate of ...
    Read More »

    • Classical Economics

      Classical economics refers to work done by a group of economists in the eighteenth and nineteenth centuries. They developed theories about the way markets and market economies work. The ...
      Read More »

    • Keynesian Economics

      An economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.
      Read More »

    • Mainstream Economics

      A term used to describe schools of economic thought considered orthodox. It is not a branch of economics as of itself, but is used to describe theories often considered part of the ...
      Read More »

    • Neoliberalism

      An approach to economics and social studies in which control of economic factors is shifted from the public sector to the private sector. Drawing upon principles of neoclassical ...
      Read More »

    • Accelerator Theory

      An economic theory that suggests that as demand or income increases in an economy, so does the investment made by firms. Furthermore, accelerator theory suggests that when demand levels ...
      Read More »

    • Endogenous Growth Theory

      An economic theory which argues that economic growth is generated from within a system as a direct result of internal processes. More specifically, the theory notes that the enhancement ...
      Read More »

    • Solow Residual

      A measure of the empirical productivity growth in an industry or macroeconomy over comparable time periods, such as from year to year and decade to decade. The measure is deemed residual ...
      Read More »

Articles Of Interest

Sponsored links
Hot Definitions
Partner Links
Suggested Definitions