The neoclassical school has two founding members WS Jevons and L. Walras, who wrote their key projects in the 1870s. The difference made by the neoclassical school in relation to the classical school is that it uses the principles of utilitarianism of the human nature in the sphere of economy. The man is a rational person looking for the maximum satisfaction of his/her needs, for getting the maximum utility by directing his/her actions towards the increase of his/her pleasure and the reduction of his/her pain. Thus, for the neo-classical economists, the consumer seeks the combination of goods that maximizes the utility derived from consumption and the producer seeks to maximize profits, while each individual chooses the combination of work and leisure that maximizes his/her satisfaction. Also, they argue that the value of goods results from the satisfaction they provide and not from the work they incorporate as the classical economists believed.
From the text:
- the market failure to achieve efficiency and justice;
- imperfect competition;
- equality of power;
- external consequences
Table of Contents
1. Introduction
2. The market failure to achieve efficiency and justice and the theoretical justification for state intervention
2.1 Imperfect competition
2.2 Why are monopolies / oligopolies considered to result in a loss of social welfare?
2.3 Equality of power
2.4 Market failures
2.5 External consequences
3. Conclusion
Objectives and Topics
This work examines the theoretical foundations of the neoclassical school of economics, specifically focusing on the justification for state intervention in the economy when market mechanisms fail to ensure optimal efficiency and social welfare.
- Neoclassical principles of utilitarianism and rational individual behavior.
- Conditions required for Pareto optimal resource allocation.
- The impact of imperfect competition and market failures on social prosperity.
- State intervention as a "second-best" solution to address market inefficiencies.
- Economic implications of monopolies, oligopolies, and external consequences.
Excerpt from the Book
The market failure to achieve efficiency and justice and the theoretical justification for state intervention
But what if the real economic competition cannot reach the perfect and many of the imperfections and market failures are inherent? In this case, the neoclassical economic theory of welfare justifies state intervention as a second best option following the one of the perfect competition, which is the first choice.
The economy according to Pareto is efficient only when it meets the following four conditions: perfect competition, lack of market failures, perfect markets and perfect information. When these do not apply, state intervention can improve resource allocation and hence the efficiency of the economy (Barr 1998).
The neoclassical economic theory of welfare accepts that government intervention may be justified for reasons of correcting the uneven distribution of income and wealth in the case of social assets.
Chapter Summary
Introduction: This chapter introduces the neoclassical school, its founders Jevons and Walras, and the core utilitarian principles regarding rational human behavior and utility maximization.
The market failure to achieve efficiency and justice and the theoretical justification for state intervention: This section explores the fundamental theorems of welfare economics, detailing why state intervention becomes necessary when perfect market conditions are not met.
Conclusion: The conclusion reflects on the historical development of neoclassical theory, positioning it as the dominant modern economic paradigm and contrasting its focus on resource allocation with classical political economy.
Keywords
Neoclassical economics, market failure, Pareto optimality, state intervention, perfect competition, social welfare, utility maximization, monopolies, oligopolies, public goods, external consequences, resource allocation, utilitarianism, economic policy.
Frequently Asked Questions
What is the central focus of this academic work?
The work explores the neoclassical economic perspective on why economic policy and state intervention are considered necessary when markets fail to achieve perfect efficiency.
What are the primary thematic areas covered?
The key themes include neoclassical theory, Pareto optimal allocation, market failures, the impact of imperfect competition, and the theoretical justifications for government involvement in the economy.
What is the primary research objective?
The objective is to explain how neoclassical welfare theory provides the conceptual framework for identifying market deviations and justifying state intervention as a second-best option.
Which scientific methods are employed?
The author uses a theoretical analysis approach, synthesizing the contributions of key neoclassical economists like Pareto, Pigou, and Samuelson to evaluate economic systems.
What topics are discussed in the main body?
The main body examines market failures, including imperfect competition, monopolies, unequal power distribution, public goods, and externalities like pollution.
How can this work be characterized by its keywords?
It is best described by terms such as neoclassical economics, Pareto optimality, market failure, public goods, and social welfare.
Why do neoclassical economists view monopolies as problematic?
They are seen as causing a loss of social welfare because they restrict production quantities to achieve higher prices, resulting in a deviation from Pareto optimal resource allocation.
How does the text define "pure public goods"?
Pure public goods are defined by the inability to exclude non-paying users and a lack of competitiveness in consumption, where the marginal cost of an additional user is zero.
- Citar trabajo
- Fotini Mastroianni (Autor), 2016, New Classical economists. Why do New Classical economists believe that economic policy is ineffective?, Múnich, GRIN Verlag, https://www.grin.com/document/351391
