Law & Legal & Attorney Politics

Difference Between Neoclassical & Political Economics

    Theoretical Core

    • The core idea of neoclassical economics is that availability of supply and volume of demand for a product influence the market price. Individuals are assumed to be rational agents or, at least, have rational preferences for desired outcomes in purchase and production decisions. Individuals are also assumed to have all known information about purchase and production decisions. Finally, neoclassical economics assumes that individuals are always optimizing gain.

      Political economy attributes non-market forces, such as government intervention and collective activity, to the understanding of economic outcomes. It does not see individuals as purely rational agents, but sees all social activity as determinants in economic outcomes.


    • Political economy weighs the influence of government policies, including monetary policy, tariffs and taxes, on the economy. Monetary policy is of particular concern for political economists as it directly influences the rise and fall of inflation. When inflation is high, unemployment is also high.

      Neoclassical economics regards unemployment as a change in the forces of supply and demand. When consumers change their taste for a product, and the product's industry dies, the workers will be unemployed until new skills can be used to find gainful employment in a thriving industry.


    • Both political economists and neoclassical economists use mathematics to analyze economic systems and outcomes. However, political economists gauge the interaction between and individual and society in analyzing the numbers. For example, if African-Americans face higher rates of unemployment consistently, a political economist will weigh the social factors that may possibly contribute to the high rates of unemployment in light of the overall economic environment, such as disenfranchisement from mainstream society, and more limited access to jobs, education and childcare.

    Economic Influence

    • Neoclassical economics views the economy as a system of factors working independently to create the whole. A business, for example, pursues profits within the constraints of available resources and available demand. Individuals pursue purchases of a product up to the point where the sacrifices necessary to obtain the product are no longer worth making. These agents, acting independently, all influence the economy.

      The political economic view is that all forces are pushing against and shaping each other to a symbiotic whole. For example, social norms contribute more to how an employer pays his workers than the wages they are willing to take. Likewise, social conditions may also lower the wage expectations of workers despite their skill sets.

Leave a reply