Question

IV) Discuss some similarities and differences between the economic ideas of the Classical Economists and the Marginalists.

Answer 1

Classical economics was concentrated towards the advancement of the common interest as defined by the political centres of the state, but neo classicism is defined in a social and political way. Although, the former related realistically to an excess supply of labour, while the latter assumes full employment. These differences have certain implications for income distribution, accumulation, growth and development. Classical economists encouraged free trade to increase domestic productivity and employment at steady growing real wages. Contemporary globalization arranges the classical surplus labour economy to reduce domestic wage levels through moving domestic production from high to low wage areas around the globe. Free trade is necessary so that the goods produced abroad can be imported into capital exporting countries. Anyway, without a corresponding growth of exportables, the trade balance must be adversely affected. And also adverse changes in income distribution decreases the domestic demand for goods. The policy of globalization may become self-defeating.

Marginalism refers to both an economical method of analysis and a theory of value. According to marginalism, individuals make economic decisions "on the margin"; that is, value is determined by how much additional utility an extra unit of a good or service provides. It must be difficult to overstate how important this concept is to contemporary economic understanding. The development of marginal theory is commonly referred to as the Marginalist Revolution and is seen as the dividing line between classical and modern economics.

Neoclassical economics is a broad theory compared to marginalism that focuses on supply and demand as the driving forces behind the production, pricing, and consumption of goods and services. It has been emerged in around 1900 to compete with the earlier theories of classical economics.One of the key early assumptions of neoclassical economics is that utility to consumers .It is the most important factor in determining the value of a product or service. This assumption was developed in the late 19th century based on some books such as William Stanley's Jevons, Carl Menger, and Léon Walras.Neoclassical economics theories lay under modern-day economics, along with the tenets of Keynesian economics. Although the neoclassical approach is the most widely taught theory among the theories of economics, it has its detractors.