Neoclassical Economics

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  • A branch of economics that emphasizes the marginal cost-benefit theory of value. It is believed that the expression was originally used by the American economist Thorstein Veblen. Neoclassical economics is an algorithm (metatheory) for constructing economic theories. Its fundamental assumptions give it a generic theoretical appeal: (a) economic agents have preferences, (b) economic agents are maximizers of benefits and minimizers of costs, and (c) decisions are driven by the information available.

    Classical economists, in the tradition of Adam Smith, David Ricardo, Jean-Baptiste Say, and to some extent Karl Marx, advanced the theory that the ultimate value of a good is the price or the value of labor required to produce it. The free market represented the reward to factor input (distributional aspect).

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