Question

What is the actual difference between neoclassical and classical economics? Which one is used today in America? Which one is better? What critiques and issues are unique to each.

Answer 1

Classical Economics deals with theory that free market operate under the law of supply and demand and can and will regulate themselves. The central idea of neoclassical economics is markets and competition. Producers supply goods and services to the markets and sell them to consumers who demand goods and services and buy them from the producers. Supply and demand are the driving forces behind the production,pricing,and consumption of goods and services.

The basic difference between neoclassical economists and classical economists are classical economists put more of an emphasis on the supply side, neoclassical economists put more of emphasis on the demand side,how do consumers get the greatest satisfaction at margin.

Classical Economists assumes that the most important factor in a product's price is its cost of production. Neoclassical economists argue that the consumers perception of a product's value is the driving factor in its price. One of the key early assumption of the neoclassical economics is that the utility to the consumers, not the cost of production is the most important factor in determining the value of product or services.