What is Neoclassical Economics? | Explained | IB Microeconomics | IB Economics Exam Review

Summary

In this video, Brad Cartwright introduces neoclassical economics, which emerged in the late 1800s with key influencers like Jevons, Walras, Menger, and Marshall. It shifted focus from supply to demand, with value derived from consumer utility rather than production costs. The law of diminishing marginal utility was introduced, measuring happiness from consumption. Marshall's supply and demand diagram marked a move towards using mathematics to analyze economic behavior, transitioning economics into a more scientific discipline.

Takeaways

• 🌐 Brad Cartwright introduces his website, designed for Ivy Economics students worldwide.
• 📚 The video provides a free preview of the educational content available on BradCartwright.com.
• 📈 The script discusses the evolution from classical to neoclassical economics, starting around 1870.
• 👤 Key influencers of neoclassical economics include William Jevons, Leon Walras, Carl Menger, and Alfred Marshall.
• 🔄 Neoclassical economics shifted the focus from supply to demand-side economics.
• 💡 The value of goods was redefined from production costs to consumer utility and happiness.
• 📉 The law of diminishing marginal utility was introduced, explaining how additional units of a good decrease in value as consumption increases.
• 📊 Mathematics became integral to economics during this period, particularly in measuring utility.
• 📖 Alfred Marshall's 'Principles of Economics' in 1890 marked the advent of supply and demand diagrams.
• 📚 Economics began to model human behavior, moving from philosophical discussions to a more scientific approach with the use of graphs.
• 🔄 The neoclassical model emphasized rational economic behavior and the optimization of self-interest by consumers and producers.

Q & A

Who is Brad Cartwright and what is his website about?

Brad Cartwright is the presenter in the video, and his website, bradcartwright.com, is designed for Ivy Economics students worldwide, providing them with information to feel empowered for unit tests, semester exams, and the IB exam.

What is the main focus of the video script?

The video script focuses on the evolution of classical economics into neoclassical economics, which began in the late 1800s, particularly around 1870.

Who were the major influencers of neoclassical economics mentioned in the script?

The major influencers of neoclassical economics mentioned are William Jevons, Leon Walras, Carl Menger, and Alfred Marshall.

How does neoclassical economics differ from classical economics?

Neoclassical economics differs from classical economics by shifting the focus from supply to demand, and from the costs of production to the utility or happiness of consumers.

What is meant by 'utility' in the context of neoclassical economics?

In neoclassical economics, 'utility' refers to the satisfaction or happiness derived from consuming a product, which determines the value of a good rather than its production cost.

Can you provide an example from the script that illustrates the shift in focus to demand?

The script uses the example of fidget spinners, where their high value was not due to production costs but because of the high demand and willingness of consumers to pay for them.

What is the law of diminishing marginal utility mentioned in the script?

The law of diminishing marginal utility states that as a person consumes more units of a good, the additional happiness or satisfaction (utility) gained from each additional unit decreases.

How does the law of diminishing marginal utility relate to the consumption of ice cream cones?

The script explains that the first ice cream cone provides the most happiness, and with each subsequent cone, the additional happiness gained decreases, illustrating the law of diminishing marginal utility.

What role did mathematics play in the development of neoclassical economics?

Mathematics became a crucial component in neoclassical economics, allowing economists to quantify concepts like utility and represent economic theories graphically.

Who is credited with the advent of the supply and demand diagram?

Alfred Marshall is credited with the advent of the supply and demand diagram, which he introduced in his 1890 book, 'Principles of Economics'.

What does the supply and demand diagram represent?

The supply and demand diagram represents the interaction between the quantity of a product that producers are willing to supply at various prices and the quantity that consumers are willing to demand.

How does the neoclassical model view consumers and producers?

The neoclassical model views consumers and producers as optimizers, with consumers seeking to maximize their utility and producers aiming to maximize their profits.