Neoclassical economics

Neoclassical economics analyzes how individuals and firms allocate scarce resources through choices under constraints. It emphasizes marginal decisions, prices, and equilibrium in markets.

Marginalism: An approach that explains choices through changes in costs and benefits at the margin. Marginal changes, rather than total quantities alone, drive many neoclassical explanations.
Consumer choice: The selection of goods and services by consumers given preferences, prices, and income. Its constrained optimization model derives demand from preferences and purchasing power.
Marginalist revolution: The late nineteenth-century shift toward explaining value and choice through marginal utility and marginal analysis. It established the marginal reasoning that became central to neoclassical economics.
Keynesian economics: An economic tradition emphasizing aggregate demand, short-run fluctuations, and the role of stabilization policy. It challenges the view that flexible prices reliably restore full-employment equilibrium.
Welfare economics: The study of how resource allocation and economic policies affect social welfare. It uses equilibrium models to assess efficiency and the gains from exchange.
Utility: A measure of how well an outcome satisfies an individual's preferences. Consumer choice is modeled as selecting the most preferred affordable option.
Profit maximization: The selection of production and input choices to achieve the largest possible profit. This assumption gives firms a rule for responding to costs and market prices.
William Stanley Jevons: A British economist who developed a mathematical theory of utility and exchange in the nineteenth century. His work helped establish marginal utility as an explanation of value.
Institutional economics: An approach that explains economic behavior through institutions, social rules, and historical change. It places structures often simplified or omitted by neoclassical models at the center.
Pareto efficiency: An allocation is Pareto efficient if no one can be made better off without making someone else worse off. This criterion became a central standard for evaluating market allocations.

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