Question

give a 5-6 paragraph . talk about  Neoclassical (second generation). explain the characteristics of each of the three schools of thought and compare and contrast each of them with the characteristics of today's economy.

Answer 1

Neo Classical School of Economics and it's characteristics ( Second Generation ) :-

The Primary Neo Classical School of Economics was introduced in the 1900 which assumed that people have rational preferences and act independently on the basis of full and relevant information . Individuals maximise their utility and firms maximise their profits .

This approach used supply and demand markets , income distributions and outputs to form it's theories .

The second generation of neo classical economics occurred around 1933 when Joan Robinson and Edward Chambelin introduced models of imperfect competition. They also introduced the general equilibrium theory .

New tools such as indifference curves ,ordinal utility etc were introduced . Also Paul Samuelson contributed to the methods of mathematical modelling.

Schools of economics thought :-

1) Classical School of economics :-

The classical school of economics was founded by Adam Smith followed by Robert Malthus and David Ricardo .They emphasised on self correcting mechanism of market with laissez-faire where price mechanism acts as a powerful invisible hand to allocate resources to where they are best employed .

According to this theory the economy would return to full employment state which did not matched with today's economy.

2) Neo Classical School of economics :-

This led to the foundation of Neo classical economics after 1870 which used more scientific methods to determine equilibrium . It emphasised more on the concepts of marginal values such as marginal cost and marginal utility

3) Keynesian School of economics :-

Keynesian School of Economics was founded by British economists John Maynard Keynes in the 20th century . Keynesian theory is a theory of aggregate demand and how to best manipulate it through macro economic policy. Keynesian school of economics was criticized on the basis of the fact that government intervention would change the whole scenario.