The Structure of the Neoclassical Theory

Neoclassical theory emerged in the latter part of the nineteenth century. It shares the classical approach’s long-run method of analysis but utilizes an altogether different set of data. In particular, preferences and resource endowments are sufficient to determine the demand and supply curves, as well as the equilibrium prices and quantities in a pure exchange economy. Production is introduced with the use of technology, initially hypothesizing the employment of non-produced means of production (labor and land). Production is conceptualized as an indirect exchange, wherein people, by demanding goods, essentially demand the services of the factors of production. Additionally, we introduce Walras’s Law and its difference from Say’s Law. The production with produced means of production is discussed and critically evaluated in this Chap. 9 .