Question

Standard neoclassical economic theory treats people as “rational beings” that make decisions by comparing “marginal benefits” to “marginal costs.” What do economists mean by this? Recognizing that assumptions are always simplifying, what are the strengths and weaknesses of this assumption in predicting economic behavior, both among individuals and in the economy as a whole? What other assumptions might work better?

Answer 1

The team neoclasical economics coas first wed in 1900. Neoclaural economist be love that a consumers's First no concent is to maximise Personal satisfaction. Therefore they moke bunchang decisions based on their evaluations of tity crtility of a product or service. This theory coincides with dictional behaviour theory which is totes that people act rationally when making economic decisions further neoclavical economics estipulates thot na prooduct or service often has value above & beyond its production costs - Neoclassical economist say that consumer tres perception of the value of a product offects its price & demond the * Strenth of this assumption in to predicting economic behalour One of the key early assumptions op neoclassical economists economics is that bully utility to consumers, not the cost of production, the most importont gactor in determining the value of product or service. The assumption states

that competition leads to an efficient allocation of chesarree Colth in an economy. The forces of demand & suboly Greate mo equilibrium * Weakness of this assumption in predicting economic behavior. Neoclassical approach connot accurately describe actual economies. They maintain that the assumption that consumers behave chationally in making choices igrores the vulnerability of humon behavious noture to emotiond Mesponses