This comprehensive book provides an essential exploration of neoclassical economics, tracing its evolution from classical roots to the analytical foundations of modern microeconomics. It equips readers with a clear understanding of utility, market equilibrium, value determination, and the theoretical frameworks that shape contemporary economic thought. It provides an overview of the core principles defining the neoclassical school, highlighting its emphasis on methodological individualism, marginal analysis, and rational agent behavior. Explores the shift from the classical labor theory of value to the subjective value theories of the 1870s. Examines Jevons's pivotal role in formalizing the concept of marginal utility, illustrating how consumers derive decreasing satisfaction with each additional unit of a good. Discusses Menger's independent discovery of marginal utility and his foundational contributions to the Austrian School, emphasizing subjective valuation and human action. This book explores Walras's groundbreaking work in formalizing a mathematical system that explains how multiple markets interact and stabilize simultaneously. Details how the incremental satisfaction derived from consuming goods dictates market valuation and exchange ratios. Covers the mechanisms of consumer choice, including indifference curves, budget constraints, and utility maximization. Analyzes how supply and demand interact to determine prices and facilitate market clearance. Delves into how firms optimize inputs based on the marginal revenue product to maximize output. Examines the relationship between production costs, firm size, and optimal output levels. Analyzes the theoretical benchmark of perfect competition, focusing on price-taking behavior, market efficiency, and equilibrium. Details Marshall's famous "scissors" analogy, explaining how he reconciled marginal utility with classical cost-of-production theories to build the supply and demand framework. Explains how the distribution of income is determined by the marginal productivity of labor, land, and capital. Discusses the neoclassical approach to capital accumulation, time preference, and the determination of interest rates.
Dr. Alistair Sterling is a leading voice in economic theory. His work explores the delicate balance between rational market behavior and global resource scarcity. Born in Oxford in 1978, Sterling's fascination with resource allocation and consumer rationality began during his undergraduate studies at the University of Cambridge. He later completed his Ph.D. at the University of Chicago, where he honed his expertise in mathematical modeling and general equilibrium frameworks. Over the last two decades, Sterling has bridged the gap between academic theory and real-world application. Before returning to academia full-time in 2020, he served as a Senior Policy Advisor for the UK Treasury, translating complex pricing models into actionable national policies. His ongoing research focuses heavily on the modern implications of supply, demand, and marginal utility. Known for his engaging and critical writing style, Sterling draws heavily on historical and contemporary data. In Neoclassical Economics, Sterling avoids relying solely on complex mathematics, opting instead to guide students through the philosophical and behavioral roots of the free-market model. When he is not lecturing or writing, he consults for international think tanks on how to optimize wealth distribution and promote sustainable growth in shifting global markets.
Preface Chapter 1.Introduction to Neoclassical Economics Diamond-Water Paradox Resolution Concepts of Early Neoclassical Economics John Bates Clark and Marginal Productivity Eugen von Böhm-Bawerk and Capital Theory Francis Edgeworth and Mathematical Economics Neoclassical Theory of Demand Neoclassical Theory of Production Neoclassical Theory of Distribution Static Versus Dynamic Analysis Marginalism and Optimization Major Neoclassical Economists Neoclassical Synthesis and its Critics Thorstein Veblen’s Institutionalist Critique Wesley Mitchell and Empirical Economics John R. Commons and Collective Action Alfred Marshall’s Cambridge School Léon Walras’s Lausanne School Carl Menger’s Austrian School Major Neoclassical Texts Neoclassical Economics and Ideology Neoclassical Economics Spread beyond Europe Neoclassical Economics and the Great Depression Neoclassical Economics and Environmental Economics Neoclassical Economics in Economics Education Neoclassical Economics and Professional Identity Neoclassical Economics Assessment Chapter 2. Intellectual Background and the Marginalist Revolution Intellectual Ferment of Mid-Nineteenth Century Europe Stanley Jevons and the Theory of Political Economy Diminishing Marginal Utility and its Implications Marginal Productivity and Distribution Theory Eugen von Böhm-Bawerk and Capital Theory Knut Wicksell and Monetary Theory Irving Fisher and American Neoclassical Economics Development of Demand Theory Marginalism and Methodology Diffusion of Marginalist Ideas Marginalism and the Professionalization of Economics Legacy of the Marginalist Revolution Chapter 3. William Stanley Jevons and the Theory of Utility Jevons’s Intellectual Formation and Scientific Method Foundations of Utility Theory in Jevons’s Work Jevons on Coal Question and Resource Scarcity Principles of Jevons’s Economic Theory Jevons and the Measurement of Utility Jevons’s Relationship to Classical Economics Jevons and the Development of Index Numbers Chapter 4. Carl Menger and the Austrian School Foundations Subjective Value Theory and the Marginal Revolution Methodological Individualism and its Implications Mises and Praxeological Foundations Capital Theory and Business Cycle Analysis Entrepreneurship and Market Process Austrian Economics and Political Philosophy Austrian Economics in Contemporary Context Chapter 5. Léon Walras and General Equilibrium Theory Intellectual Background of Walras’s Economics Concept of Tâtonnement and Market Adjustment Numéraire and Relative Prices Problem of Existence of General Equilibrium Uniqueness and Stability of General Equilibrium Walras and the Development of Microeconomics Chapter 6. Concept of Marginal Utility and Value Determination Foundations of Marginal Utility Theory Marginal Utility and Demand Theory Marginal Utility and Welfare Economics Marginal Utility and Uncertainty Marginal Utility and Environmental Economics Marginal Utility and Agricultural Economics Marginal Utility and International Economics Marginal Utility and Financial Economics Chapter 7. Demand Theory and Consumer Behavior Utility, Scarcity, and the Marginal Revolution Utility Maximization and the Rational Consumer Income and Substitution Effects of Price Changes Critiques and Limitations of Neoclassical Demand Theory Chapter 8. Production Theory and Marginal Productivity Concept of Production Function Law of Diminishing Marginal Returns Propositions of Marginal Productivity Theory Production with Multiple Inputs and Substitution Representative Firm and Industry Supply Clark’s Static Analysis of Distribution Marshall’s Contributions to Production Theory Wicksell’s Integration of Capital and Production Bulleted List: Major Debates in Neoclassical Production Theory Empirical Estimation of Production Functions Production Theory and Growth Economics Production Theory and Industrial Organization Production Theory and the Theory of the Firm Legacy of Neoclassical Production Theory Chapter 9. Cost Theory and the Theory of the Firm Firm as Rational Optimizing Agent Total, Average, and Marginal Cost Relationships Short-Run Cost Curves and their Shapes U-Shaped Average Cost Curve Marginal Cost and Supply Decisions Firm’s Response to Input Price Changes Tax Incidence and Firm Behavior Cost Minimization and Input Choice Derived Demand for Factors of Production Firm and Market Structure Oligopoly and Interdependence Internal Economies and Firm Growth Quasi-Rent and Returns to Fixed Factors Firm’s Boundaries and Transaction Costs Cost Theory and the Boundaries of the Firm Cost Theory and International Trade Cost Theory and Regulation Cost Theory and Antitrust Chapter 10. Market Structures and Perfect Competition Foundational Concepts of Marginal Utility Firm as Price Taker in Competitive Markets Allocative Efficiency and Welfare Maximization Perfect Competition and Income Distribution Consumer Theory and Demand Analysis Concept of Economic Rent Technological Change and Competitive Dynamics Monopolistic Competition and Product Differentiation Alfred Marshall and Partial Equilibrium Analysis Continuing Relevance of Perfect Competition Chapter 11. Partial Equilibrium Analysis and Alfred Marshall Marshall’s Intellectual Development Scope and Method of Economics Partial Equilibrium Method Market Period Analysis Short Run Analysis Producer Surplus and Rent Earnings of Management and Profit Marshall on Welfare and Public Policy Major Students and Followers of Marshall Pigou and Welfare Economics Development Marshall’s Mathematical Approach Marshall’s Place in Economic Thought History Marshall and Women in Economics Marshall’s Influence on Pigou Marshall’s Contribution to Economic Policy Reasons for Studying Marshall Today Marshall’s Travels and Observations Marshall’s Principles Reception and Reviews Marshall’s Place in History of Economic Thought Chapter 12. Price Determination and Market Adjustment Supply and Demand: Two Blades of the Marshallian Scissors Law of Demand and Consumer Behavior Law of Supply and Producer Behavior Price Determination Under Different Time Horizons Price Determination and Factor Markets Wage Determination and Labor Markets Price Controls and Market Interference Price Formation in Financial Markets Chapter 13. Distribution Theory and Factor Pricing Marginal Productivity Theory of Distribution Product Exhaustion Theorem and Wicksteed’s Contribution Wage Theory in Neoclassical Economics Rent Theory and Land Pricing Entrepreneurship and Profit Theory Functional versus Personal Distribution International Trade and Factor Price Equalization Distribution and Economic Growth Technological Change and Factor Shares Empirical Testing of Distribution Theory Chapter 14. Capital Theory and Interest Concept of Capital in Classical Political Economy Fisher’s Time Preference and Investment Opportunity Theory Knut Wicksell and the Cumulative Process Capital in Socialist and Planned Economies Capital as Embodied Technical Progress Capital Theory and Institutional Frameworks Bibliography Index
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