Neoclassical Economics

Neoclassical economics is a theory that represents the relation between supply and demand and utility of any individual. Neo-classical economics is a theory that mainly states that supply and demand plays a vital role in determining the rationality of any individual. It assumes that man has a rational behaviour and its main aim is to maximize utility. Thus, Neo-classical economics emphasis on the fact that demand and supply forces present in any economy lead to maximization of utility buy any individual.

Neo-classical economics not only emphasized on theories but also gave ample attention to mathematical derivations. Thus, with conceptual theories and relevant mathematical derivations, neo-classical economics had evolved as a new branch among economic theories. Existence of neo-classical economics was found in nineteenth-century in which there was a wide usage of mathematical tools. The mathematical tools were mainly used for analyzing various concepts of economics. Some of the renowned works on neo-classical economics were contributed by economists like William Stanley Jevons, Carl Menger and Leon Walras.

Neo-classical economics has said laid the foundation of modern-day economics. Several theories used in today’s economics have found its root in the works of neoclassical economists. Some of the common thoughts of neoclassical economists that are used in modern-day theories of economics can be summarized as:

• Neo-classical economics advocated that economics mainly studies the allocation of resources. Economics is a study of human behaviour, the way a human reacts after there is a proper allocation of resources.

• Neo-classical economics was positive economics, all the economists of the neo-classical era believed that economics was a positive concept. They regarded the allocation of resources an appositive concept and not a normative concept.
• Neo-classical economics also supported the concept of the free market. The common belief was that if there is a free market free of any kind of interventions then the allocation of resources that place in a proper way. If there is any interference or limitation in the functioning of the market then the allocation of resources cannot be done efficiently.

Neoclassical economic theory has sill now maintained a dominant position in spite of various rejections and objections.

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