Classical and Neoclassical Economics

Flashcards covering key terms and concepts from classical and neoclassical economics as discussed in the lecture notes.

Classical Political Economy

A school of thought in economics that focuses on market mechanisms, cost of production, and the distribution of income among labor, land, and capital.

Self-stabilizing mechanism

The idea that a market system can adjust itself through competition, without much external intervention, to maintain an efficient distribution of resources.

Invisible Hand

A metaphor introduced by Adam Smith to describe how individuals' pursuit of their self-interest inadvertently benefits society as a whole.

Division of Labor

The breakdown of production into specialized tasks, which increases efficiency but can impair workers' mental and physical condition.

Laissez-Faire Economics

An economic philosophy advocating minimal government intervention in market affairs, allowing supply and demand to dictate prices and outputs.

Natural Liberty

The concept that individuals should have the freedom to pursue their own interests unless it causes harm to others, as proposed by Adam Smith.

Say’s Law

The principle that supply creates its own demand, suggesting that production intrinsically generates the demand needed to purchase the goods produced.

Malthusian Catastrophe

A situation predicted by Thomas Malthus where population growth outpaces agricultural production, leading to crises such as famine and disease.

Comparative Advantage

The economic theory that countries can benefit from trade by specializing in the production of goods they can produce most efficiently.

Biased growth model

A developmental strategy that emphasizes the rise of a dominant industry, enabling rapid economic growth through capital and technological advancement.

Marginal Utility

The additional satisfaction or benefit gained from consuming one more unit of a good or service, key to the theory of consumer choice in neoclassical economics.

Pareto Efficiency

An economic state where resources are allocated in such a way that it is impossible to make one party better off without making another party worse off.

Functionalism

An approach in economics that emphasizes the relationships between institutions and their effects on economic output and social behavior.

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to a change in price, reflecting consumers' sensitivity to price changes.

Negative Externalities

Costs suffered by a third party as a result of an economic transaction, such as pollution impacting those not involved in the transaction.

Positive Externalities

Benefits experienced by third parties as a result of an economic transaction, such as the societal gains from education.

Institutional Economics

An economic perspective that emphasizes the role of institutions in shaping economic behavior and outcomes.

Critique of Neoclassical Economics

An assertion that neoclassical models fail to consider historically specific contexts, institutions, and the social ethics influencing economic activity.

Knowledge Economy

An economic system where the production and management of knowledge plays a prominent role, influencing growth and innovation.

Optimization

The process of making something as effective or functional as possible, commonly used in economics to analyze consumer and producer behaviors.