NEW INSTITUTIONAL ECONOMICS
What is the difference between New Institutional Economics and Neoclassical Economics? Ans: Neoclassical Economics
Neoclassical Economics is the name given to an economic theory that was developed at the end of the 19th and the beginning of the 20th Century in Europe. The main contributors to this theory were Léon Walras (1834-1910), Alfred Marshall (1842-1924) and Vilfredo Pareto (1848-1923). The term was originally introduced by Thorstein Veblen in his 1900.The Neoclassical economics is characterized by several assumptions common to many schools of economic thought. There is not a complete agreement on what is meant by neoclassical economics, and the result is a wide range of neoclassical approaches to various problem areas and domains ranging from neoclassical theories of labour to neoclassical theories of demographic changes. Neoclassical economics rests on three assumptions, although certain branches of neoclassical theory may have different approaches. They are i)
People have rational preferences among outcomes that can be identified and associated with a value. ii)
Individuals maximize utility and firms maximize profits. iii)
People act independently on the basis of full and relevant information. From these three assumptions, neoclassical economists have built a structure to understand the allocation of scarce resources among alternative ends, in fact understanding such allocation is often considered the definition of economics to neoclassical theorists. The above assumptions of neoclassical economics comes a wide range of theories about various areas of economic activity. For example, profit maximization lies behind the neoclassical theory of the firm, while the derivation of demand curves leads to an understanding of consumer goods, and the supply curve allows an analysis of the factors of production. Utility maximization is the source for the neoclassical theory of consumption, the derivation of demand curves for...
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