Traditional Neoclassical Economics

Traditional neoclassical economics:
An approach to economics that focus on the utility, profit maximization, market

efficiency, and determination of equilibrium
Strength and weakness of the neoclassical and the traditional approach are as
follows:
Strengths:
1) This theory created a unified system, which combined classical and marginal
methodological achievements, such as “laisses—faire” a
principle, justification of marginal indicators, etc., and the researching of
man’s activity and his rational& nature.
2) Active use of quantitative research methods for analyzing and evaluating

economic phenomena and processes of individual subjects economic activity that
enabled widely using mathematical apparatus.
Weaknesses:
1) The attention was given only to macroeconomic analysis, but macroeconomic

level, the problems of growth and development of the economy were ignored.
2) Neglects the function of aggregate demand, while claiming that only the supply
can affect the demand.
3) Recognizing that the main instrument of regulating the economy is the monetary
policy.
4) This theory ignores& irrationality of life and tries to squeeze an infinite variety
of economic phenomena in dry rational schemes and abstractions. It describes a
man as a perfect being, which completely controls itself and its actions are aimed
exclusively at achieving utility.
But maximization as a strong form of rationalization, not always adequately
describe the behavior of economic agents in the real economic life.
The Advantages of a political Economy

Less Inequality
Because the government controls the means of production in a command economy,
it determines who works where and for how much pay. This power structure
contrasts sharply with a free market economy, in which private companies control
the means of production and hire workers based on business needs, paying them
wages set by invisible market forces.
In a free market economy, the law of supply and demand dictates that workers who
have unique skills in high-demand fields receive high wages for their services,
while low-skill individuals in fields that are saturated with workers settle for
meager wages, if they can find work at all.
Low Unemployment Levels
Unlike the invisible hand of the free market, which cannot be manipulated by a

single company or individual, political economy, government can set wages and
job openings to create the unemployment rate and wage distribution that it sees fit.
Common Good versus Profit Priority

Whereas the motivation for profit drives most business decisions in a free market
economy, it is a non-factor in a command economy. A political economy,
government, therefore, can tailor products and services to benefit the common
good without regard to profits and losses. For example, most true political
economy, governments, such as Cuba, offer free, universal health care coverage to
their citizens.
The Disadvantages of a political Economy
Lack of Competition Inhibits Innovation:
Critics argue that the inherent lack of competition in command economies hinders
innovation and keeps prices from resting at an optimal level for consumers.
Although those who favor government control, criticize private firms that esteem
profit above all else, it is undeniable that profit is a motivator and drives
innovation. At least partly for this reason, much advancement in medicine and
technology has come from countries with free market economies, such as the
United States and Japan.
Inefficiency:
Efficiency is also compromised when the government acts as a monolith,

controlling every aspect of a country's economy. The nature of competition forces
private companies in a free market economy to minimize red tape and keep
operating and administrative costs to a minimum. If they get too bogged down with
these expenses, they earn lower profits or need to raise prices to meet expenses.
Ultimately, they are driven out of the market by competitors capable of operating
more efficiently. Production in political economies is notoriously inefficient as the
government feels no pressure from competitors or price-conscious consumers to
cut costs or streamline operations. They also may be slower to respond or even
completely unresponsive to consumer needs or changing tastes.

Traditional Neoclassical Economics

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Traditional neoclassical economics:

An approach to economics that focus on the utility, profit maximization, market

2) Active use of quantitative research methods for analyzing and evaluating

1) The attention was given only to macroeconomic analysis, but macroeconomic

The Advantages of a political Economy

Unlike the invisible hand of the free market, which cannot be manipulated by a

Common Good versus Profit Priority

The Disadvantages of a political Economy

Lack of Competition Inhibits Innovation:

Efficiency is also compromised when the government acts as a monolith,

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