NEO-CLASSICAL

SCHOOL
GROUPMATES: JABINES,TAN, TANDUGON
 CONTENTS
01 HISTORICAL BACKGROUND

02 ECONOMISTES

03 MAJOR TENETS

04 WHOM DID THE SCHOOL BENEFIT FROM?

05 VALID AND USEFUL IN ITS TIME

06 CRITICISM AND ADVANTAGES

07 LASTING CONTRIBUTIONS
 NEO-CLASSICAL
Neoclassical economics is a broad theory that focuses on supply and
demand as the driving forces behind the production, pricing, and
consumption of goods and services.

For Neoclassical economics, the utility of the goods to it’s

consumer is what makes the value of the said good, not it’s cost
of production.
 HISTORICAL
BACKGROUND
Neoclassical This approach was developed in
the late 19th century based on
books by William Stanley Jevons,
Carl Menger, and Léon Walras.
Economic theory that combines
theory from classical economics
and concept of utility
maximization and marginalism
 HISTORICAL
BACKGROUND
Neoclassical
The theory was thought of as
'classical' because it was founded
on the principle that economic
activity is regulated by
competition, which results in
efficient use of resources, thereby
creating market equilibrium
between demand and supply.
 ECONOMISTES
ALFRED MARSHALL
(1842-1924)
Father of Neo-classical economics
made the Principle of Economics
(1890)
the advent of the supply and
demand diagram and the beginning
of models to explain human behavior
 ECONOMISTES
WILLIAM STANLEY JEVONS
(1835-1882)
One of the three men to
simultaneously advance the
marginal revolution.
developed the theory of marginal
utility.
 ECONOMISTES
LEON WALRAS
(1834-1910)
One of the founders of the marginal
revolution.
developed the the general equilibrium
theory.
made a process that would simulate an
artificial market process that would get
the system to equilibrium, a process he
called “tâtonnement” (french for
“groping”).
 ECONOMISTES
VILDREDO PARETO
- Laid the foundation of modern welfare
economics with his concept of the so-
called Pareto Optimum, the optimum
allocation of the resources of a society is
not attained so long as it is possible to
make at least one individual better off in
his own estimation while keeping others as
well off as before in their own estimation.
MAJOR TENETS
of the Neoclassical School Of Thought
 MAJOR TENETS
RATIONALITY

Neoclassical economists assume that individuals and firms are

rational actors who make decisions based on their self-interest and
attempt to maximize their utility or profits.
 MAJOR TENETS
MARGINAL ANALYSIS

Neoclassical economics focuses on analyzing decisions at the margin,

considering the incremental changes in costs and benefits
associated with small changes in production, consumption, or
investment.
 MAJOR TENETS
MARKET EQUILIBRIUM IS AN ECONOMIC
PRIORITY

The paramount importance of market equilibrium between supply and

demand is one of the essential assumptions of neoclassical economics.
This general equilibrium, theoretically, allows for a balanced allocation of
resources among all consumers. Neoclassical economists believe a
midpoint synthesis of supply and demand is what leads to such a sense of
equilibrium.
 MAJOR TENETS
UTILITY THEORY

Neoclassical economics employs the concept of utility to explain

individual preferences and decision-making. It assumes that
individuals seek to maximize their utility, which is a measure of
satisfaction or well-being derived from consuming goods and
services..
 MAJOR TENETS
METHODOLOGY

Neoclassical economists often use mathematical models and formal

analysis to study economic phenomena and make predictions about
economic outcomes.
 WHOM DID THE SCHOOL BENEFIT?

BUSINESS

Can be used by businesses to set prices and expand their business

operation to maximize profit.

GOVERNMENT AND
BANKS

Impact economic policy and market regulation

 WHOM DID THE SCHOOL BENEFIT?

CONSUMER OR
INDIVIDUAL

Consumers compare goods and make the purchase decision based on the
perceived utility.
 HOW WAS THE SCHOOL VALID, USEFUL
OR CORRECT IN ITS TIME?

Markets are self-regulating.

Competition leads to efficiently allocated resources. The interaction of
supply and demand creates equilibrium, which allows markets to adjust
to changes without needing to be rebalanced by fiscal or monetary
policy.
 CRITICISM AND ADVANTAGE

CRITICISM

Doers not take into account real-world factors that

influence consumer decision, this includes:

>Limited Access to information

> Unequal distribution of resources
>Social constraints
>Emotional thinking
 CRITICISM AND ADVANTAGE

ADVANTAGE

Efficient allocation of limited productive

resources
It treats wages, interest, and land rents
Consumer sovereignty
Efficiency Emphasis
 LASTING CONTRIBUTIONS

Recognized the importance of individual or group behavior

and emphasized human relations.
Equilibrium: Whatever aspect of the economy is being
modelled is at rest because no individual has any incentive
to change what they are doing (unless external factors
change).
 LASTING CONTRIBUTIONS

PARETO EFFICIENCY NEO-CLASSICAL MODEL

 LASTING CONTRIBUTIONS

MARKET EQUILIBRIUM
 REFERENCES
EconLib, Info about the Economist

Britannica, Alfred Marshal

Investopedia, Neoclassical Economics