Classical and neoclassical
economic theories mark distinct phases in the evolution of economic thought.
While they share certain similarities, their fundamental principles, and
approaches to comprehending economic phenomena diverge significantly. This
comparison aims to examine the differences between classical and neoclassical
economic thought.|
Classical |
Neoclassical |
|
Introduced during the 18th to mid-19th century |
Emerged late 19th and early 20th centuries |
|
Key thinkers: Adam Smith, David Ricardo, and John Stuart Mill |
Key thinkers: Alfred Marshall, Leon Walras, and Vilfredo Pareto. |
|
·
Labour theory of value which asserts that the value of a good is determined by the amount of
labour required to produce it |
Subjective theory of value which suggests that the value of a good or service is determined by
the preferences and utility of individual consumers. |
|
Supply and demand forces naturally reach the equilibrium |
Formal supply and demand curves, provide a more detailed market equilibrium analysis. |
|
Minimum government intervention |
Minimum government intervention but they believe it might be necessary to address market failures or externalities. |
|
Concentrated on perfect competitive markets |
Analyzed various market structures. (Monopoly, oligopoly, and perfect
competition) |
|
This theory did not incorporate the formal concept of utility to
explain consumer choices |
They try to maximize their individual well-being and introduce the concept of marginal analysis, focusing on incremental changes in decision-making. This framework influenced microeconomics, emphasizing how individuals make choices at the margin. |
Classical and neoclassical
economic theories mark distinct milestones in the evolution of economic
thought. While classical economics provided the foundational principles,
neoclassical economics brought forth pivotal innovations, including utility
theory, mathematical precision, and a laissez-faire policy.
Written by:
Dhananjana Dilshan & Shehari Nikesha
References:
https://ecozhdc.wordpress.com/2020/09/18/the-journey-le-neoclassicals/
7 Differences between Classical and Neoclassical Economics | Analytics Steps
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