Neoclassical Economics

What is 'Neoclassical Economics'

Neoclassical economics is 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.

BREAKING DOWN '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 TERMS
  1. Mainstream Economics

    A term used to describe schools of economic thought considered ...
  2. Theory Of The Firm

    A microeconomic concept founded in neoclassical economics that ...
  3. Neoclassical Growth Theory

    An economic theory that outlines how a steady economic growth ...
  4. Heterodox Economics

    The analysis and study of economic principles considered outside ...
  5. Applied Economics

    The application of economic theories and principles to real world ...
  6. Kenneth Arrow

    An American neoclassical economist who won the Nobel Memorial ...
Related Articles
  1. Economics

    Macroeconomics: Schools Of Thought

    By Stephen Simpson The field of macroeconomics is organized into many different schools of thought, with differing views on how the markets and their participants operate. ClassicalClassical ...
  2. Investing Basics

    Explaining Rational Behavior

    Rational behavior guides the decision-making process toward choices that maximize an individual’s benefit.
  3. Economics

    Economics Basics: Introduction

    Economics may appear to be the study of complicated tables and charts, statistics and numbers, but, more specifically, it is the study of what constitutes rational human behavior in the endeavor ...
  4. Investing

    The Science of Making Better Investment Decisions

    Neuroeconomics attempts to bridge neuroscience, cognitive psychology and economics in order to understand the mechanisms underlying economic decision making.
  5. Economics

    Economics 101

    Economics is the study of how individuals, governments, businesses and other organizations make choices that effect the allocation and distribution of scarce resources.
  6. Term

    Understanding Rational Choice Theory

    Rational choice theory assumes an individual will always make prudent and logical decisions that yield the most benefits.
  7. Economics

    The History Of Economic Thought

    Economics is a vital part of every day life. Discover the major players who shaped its development.
  8. Professionals

    Economics and The Time Value of Money

    Economics and The Time Value of Money
  9. Forex

    Economics

    There is a strong relation between economic reports and exchange rates, get a better understanding here.
  10. Economics

    Is Infinite Economic Growth on a Finite Planet Possible?

    While the finite nature of Earth's resources limits the direction of economic growth, it does not mean that infinite economic growth is impossible.
RELATED FAQS
  1. How does the neoclassical growth theory predict real GDP?

    Understand what neoclassical growth theory is and how the ideology come about. Learn how the neoclassical growth theory predict ... Read Answer >>
  2. How does neoclassical economics relate to neoliberalism?

    Read about neoliberalism and neoclassical economics, two political and economic movements that argued for lower taxes, less ... Read Answer >>
  3. According to the neoclassical growth theory, what factors influence the growth of ...

    Read about neoclassical growth theory in economics, a model developed by Robert Solow in the 1950s that pointed to technology ... Read Answer >>
  4. Do all economists believe in perfect competition?

    Find out why neoclassical economists use unrealistic perfect competition models, and learn why other economists criticize ... Read Answer >>
  5. What is the difference between marginal utility and marginal benefit?

    Learn more about the different interpretations, uses, and implications of marginal benefit and marginal utility in economic ... Read Answer >>
  6. What is the homo economicus?

    Homo economicus or "economic man" is the characterization of man in some economic theories as a rational person who pursues ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center