School of Mathematical Economics

The Neoclassical School of Economics

The neoclassical school of economics is a broader economics approach that places emphasis on the role of market forces in driving economic activity. This approach to economics was developed most notably by 19th century economists such as Alfred Marshall and Leon Walras, who sought to use mathematics and statistics to create models of economic behavior. Neoclassical economics puts emphasis on supply and demand, and how these forces drive prices and production. This approach is based around individual optimization and the concept of market equilibrium where supply and demand balance each other out. While neoclassical economics is the dominant approach in economics today, other schools of economic thought and approaches exist, such as the Austrian school and Marxist economics.

At the core of neoclassical economics is the concept of utility maximization. This means that, according to neoclassical economics, people are rational actors who will always attempt to maximize their own utility and satisfaction. This means that individuals will seek to purchase goods and services that provide them with the greatest amount of satisfaction relative to their resources. For example, an individual may choose to purchase a meal that offers them the greatest amount of satisfaction given their available money. Neoclassical economics also puts emphasis on market equilibrium, the point at which supply and demand are the same, and stability is achieved. Market equilibrium is assumed to be the preferred outcome in neoclassical economics because it provides the greatest amount of efficiency, ensuring that resources are being used optimally.

Neoclassical economics also explains the concept of how prices are determined. Prices are based on the interaction between supply and demand. The quantity of goods that consumers are willing to purchase and the price that producers are willing to supply them for, will dictate the prevailing market price. Thus, prices tend to move towards a point of market equilibrium, where there are no excesses of either supply or demand.

It is important to note that while the neoclassical school of economics has long been the dominant approach in mainstream economics, there have been criticisms of this approach. Some economists have argued that it takes too simplistic of an approach to economics, assuming that all economic actors are rational and that market equilibrium will be achieved without fail. This has led to the development of other economic schools which take a more nuanced approach to economics, such as the Austrian school and Marxist economics.

In conclusion, the neoclassical school of economics is a broad economic approach that has formed the basis for much of contemporary economics. This approach assumes that people are rational actors looking to maximize their own utility, and that market equilibrium is the preferred outcome. Criticisms of this approach have led to the development of other economic schools and approaches, such as the Austrian school and Marxist economics.

The school of Mathematical Economics, first put forward by French Economist Jean-Baptiste Say, is a very important school in economics. It was developed by the British classical school of economics, the French Classical school, and the German historical school. Advocates of the school of Mathematical Economics believe that economics is a science of quantitative and analytical research. This school of economic thought is based on the use of mathematical modeling and reasoning to explain economic phenomena and their interrelationships.

The school places a lot of emphasis on equilibrium theory. This law states that when market supply and demand, and other factors, reach an equilibrium state, then no force in the market has the power to make a change. This law, derived from mathematical models, has great influence on economic theory.

Advocates of Mathematical Economics also believe that economic resources and production can be optimized through the use of mathematics. By relying on mathematical models, economists can target the best resource allocation, assurance of the optimal use and optimal production mix of the resources, and therefore ultimately achieve the most efficiency and cost-effectiveness.

The school of Mathematical Economics also lays emphasis on econometrics - the idea that economic theories can be tested, compared and verified with tangible data. Through mathematical modeling and data analysis, economists can build economic models to accurately describe current economic trends, observe economic relationships and build economic theory with testable predictions.

Finally, the school of Mathematical Economics also places great importance on the deductive method of reasoning. This involves taking a general economic concept or proposition and breaking it down into axioms and then forming logical conclusions based on the axioms. This helps economists construct economic theory with logical proofs, rather than relying on assumptions or emotional judgment.

The school of Mathematical Economics is essential in modern economics, especially in understanding the complex global economy. It has provided rational, logical, and mathematical theories and models which are useful to describe, explain, and predict economic phenomena, guide decision making and formulation of economic policy.