Question

I would like more clarity on how neoclassical economic theory responds to the significant social inquiry of what, how and for whom to create which products and ventures.

Answer 1

NEO CLASSICALECONOMIES

It is the approach to economies focusing on the determination of goods , output and income distribution in market through supply and demand .There are three assumption .

1)people have rational preferance .

2)Individual have maximum utility and firms hqve maximum profit

3)People act independenly on the basis of full and relevant information .

Market supply and demand are aggregrate across firms and individual .Their interaction determine eqilibrium output and price . Regulation in economies are explained by methodological individualism , the position that economic phenomenon can be explained by aggregating over the behaviour of agent.

Developed in 18th and 19th CE that included a value theory and distribution theory . The value of a product was thought to depend on cost involved in producing that product . The explanation on cost in classical economies was lead to the explanation of distribution .A land lord receive rent, workers receive wages, and capitalist tenant receive profit on their investment .

Neo classicals proposed a theory that the value of product was to be explained the difference in Utility. The third step from political economy to econmies was the introduction of marginalism.Suppose a person decide to buy a second burger based on how far he /she is after the first one, a firm hire a new employee based on the expected in increase in profit  the employee will bring .

Marshall explain price by the intersection of demand and supply curve .The introduction of different market 'period' was an important innovation of marshall.They are :

1)Market period :The good produced for sale on the market are taken as given data .Eg: in a fish market, price quickly adjust to clear market

2) Short period : the level of output , employmentand the input of raw materials are considered to know industrial capacity . Economic rent exist in short period equilibrium for fixed factors.

3)long period : The stock of capital goods like machines and factories are included 4)very long period :technology , population ,trend , habit and custom etc

The paradigmatic core of neo classical theory forms today's economic mainstream and dominate economic education and research . The central economic problem (according to neo classics) is the organisation and allocation of scare resources. This implies that efficiency is understood the optimal usage of the availability of resouces in order to maximized individual utility and thus increase the welfare of the society .