Economics

Disciplines of economics, like those in philosophy, have their own special methods of analysis. Philosophy and economics when combined lead to fruitful and powerful results which can only be achieved when the two fields give synergy to each other. Criticism is an important aspect of developing a sound understanding of economical environment so as to cultivate the quality the field of economics requires in order to serve the dynamic world. For instance, the neoclassical maxims placed on individual inclinations have been criticized as excessively limiting hence bringing a challenge among the scholars to do a review on the concept. Neoclassicism has been identified by unsophisticated critics with models in which all the agents are entirely informed or sometimes rational instrumentally. Sometimes, the neoclassicism definitions on the basis of methodological individualism has been referred to as excruciatingly selfish which can only be linked back to the years of 1950s and never comparable anywhere closer in the modern age. As of today, the definitions on individual preferences leaves all the modern economic theories out of their proper meaning hence giving more power to the rejoinders of the mainstream. In the last three decades, the neoclassical economics has experienced an explosion of models where economic actors are often informed in an imperfect way and sometimes frequently irrational or what may be termed as bounded rational.

Although there have been numerous theoretical advances in the economic circles, none of these brilliant ideas have saved the neoclassical ship from its methodological dock it still retains its roots strongly within the broadminded social science of individualism. The problem of individual preference is that of the analytic and synthetic type which requires the socioeconomic scrutiny to fully understand the functioning at the individual level. This understanding of the socio economic phenomenon at the individual level will then be translated in the understanding of the modern complex social phenomena. However, this seems unlikely since the neoclassical axioms centered on individual preferences have been too restrictive.

Neoclassical economics has been thought of a methodological individualism where the ideology of socioeconomic explanation has to be sought at the individual agent level. However, there are two things to note about such analysis based on individual preference. First, the analysis was never the method used by prominent classical economists such as David Ricardo and Adam Smith neither did Keynes or Hayek apply the methodology. The second point to note is that the axioms have been applied predominantly in the mid of the 19th century as the Anglo Celtic liberal individualism. The Anglo Celtic liberal individualism imposes a tight differentiation between structure and agency thus insisting that the socioeconomic elucidations have to follow a specified channel from agency to structure. This imposition has been done axiomatically and the structure is often understood as the crystallization of the past acts of the agents.

The strict separation in the Anglo Celtic liberal individualism is essential in not only by definition but also in undermining the neoclassicism recent claims. It is undoubtedly right to argue that the neoclassicism in essence subscribe to the individualism methodology. In addition, the mainstream economists have often acknowledged that the agent is the social context creation thus the individual and the social structure are scrappily entwined with their models retaining the distinction and placing the burden of the elucidation on the individual. This indeed is overly restrictive scenario which gives no room for a wider approach.

The reason why this approach of individual preferences has received a wider criticism is because the effort of an individual worker is modeled nowadays as a function of unemployment in the sector such as the wage models efficiency. There seems to appear some interesting linkages between the macro phenomenon and micro agent (individual) but still the explanatory trajectory maintains that there has to be a unidirectional way of relating this phenomenon, from the agent to the social structure. The neoclassical theory is basically concerned with the problems of equilibrium enjoying economy at maximum employment. It is a theory concerned with an investment determined by savings, marginal rates of substitution and marginal utility.

The neoclassical axioms placed on individual preferences has received significant criticism and what might seem to be an advance on the neoclassical consumer theory is the revealed preference theory which is a method through which a possibility of discerning consumer behavior on the ground of variable incomes and variable prices is liable.  In revealed preference theory, a consumer with some given income will be able to buy a variety of products with the change in income implying that the variety of goods and services which will be transacted are also bound to change with the change in consumer income.

It is apparent that a consumer will only select a combination of goods and services which tend to be a little bit cheaper and discriminate on the expensive combinations. In other words, the consumer will try to relate on the previous choices of combinations and ensure that the current mixture do not surpass in cost. In this perspective, the revealed preference theory can be termed as the improvement of the neoclassical consumer theory. The revealed preference theory intentionally abandons the values of indifference and utility. However, the theory is an empirical utility in the field of economics which supersedes the primary utility that was originally set in consumer theory.

The neoclassical consumer will always maximize the utility and will make choices by fully preordering the feasible options and weighing the options when things are looking indifferent. The consumer can also choose the alternatives when indecisive or indifferent without the need to preorder the options or exhaust his or her budget. There is need for the preferences therefore not to be complete, non satiated or transitive although the preferences are assumed to be strictly adaptive and convex. The revealed preference theory provides the modern axioms which parallel the ideology of ambiguity aversion in the choices under uncertainty.

Preference or sometimes referred to as taste has often been applied in social science disciplines and it is also a term commonly used in economics. In consumer theory per se preference is related to the consumer demand curves through the budget constraints and indifference curves. The typical models which make up the consumer theory are utilized to represent visionary observable patterns of demand for an individual buyer on the constrained optimization hypothesis. With the assumption that prices are constant and there is a fixed income the indifference curves will behave differently. However, the modern economics looks at the changing trends of price change of products and the change of income which can better be elucidated in the theory of revealed preference. Here, the consumer may choose whichever point, either above or below the line of budget constraint. The line is usually diagonal. The whole concept explains that the amount spent on products is less or equal to the consumers income. Therefore, the consumer will tend to choose the point in the indifference curve where the utility is highest within the budget constraint.

The effect of income changes and those of price changes address issues on the change of price of products and the overall change in consumption of the products in the market. It is the theory of consumer preference which examines the decisions and trade offs which individuals make as consumers relative to their income and price changes. The consumer determines how the market price of products can be determined and the products which will be bought. With the changes in income, prices in the market tend to keep an unstable state they can either go up or go down. However, this does not apply to all forms of products in the market. There are exceptions of goods which may not obey this trend although the discussion on these goods is not the scope of this paper.

The theories of economics have been of importance in understanding the behavior of the market and especially the consumer who is the centre stage of an economist. An economist is interested on understanding the reasons behind the increase or decrease in consumer capability to buy a certain commodity in the market. With reference to this, several theorists came up with ideas which are even used in the modern economics. However, the theories are not devoid of criticisms-challenges are abundant and these have enabled the sound understanding of consumer behavior. The growth of classical economics to neoclassical economical was as a result of the criticisms, and then came the revealed preference theory which strengthened the neoclassical consumer theory.

The neoclassical economics in deed comprises of an array of several schools of thought which the field of economics address. However, a lot of controversy has been felt over a number of years on the true definition of neoclassical axioms in the field of micro economical analysis. These controversies have probably resulted because of the difference in the approaches to different problems of economics. These problems which are addressed include the neoclassical theories of labor and the demographic changes in neoclassical theories. There are three basic assumptions in the field of neoclassical economics. The first assumption is that individuals always have rational preferences among the consequences which can be identified and related to value. The second assumption is that individuals fully take advantage to maximize utility and firms will always work very hard to maximize their profits. The last assumption is that individuals will always act independently on the level of relevant and full information. The three paradigms of neoclassical assumptions have built a framework to better understand the process involved in allocating scarce resources among the alternative ends. The understanding of these alternatives is the main concept addressed in economics to every neoclassical theorist. A problem which is solved in neoclassical economics is the excellence in allocation of scarce resources with the various powers and needs remaining a variable factor. An individual who has a certain size of land and other resource materials will be challenged on how to employ different tools in production. The factors of production can be labor, capital, entrepreneur or land which must be applied to maximize the utility of production.

The basic assumption of the concept of neoclassical economics is derived from a diverse range of theories which explain various activities in economic setting. For instance, the concept of maximizing profits is basically the issue to do with the firms neoclassical theory. On the other hand, the concept of deriving demand curves comes to an appreciative of consumer goods. The supply curves also allow the analysis of various factors of production which must be applied appropriately to enhance good operation of production process.

The origin of consumption theory of neoclassical economics is the concept of maximizing utility, the derivation of reservation demand and labor supply curves and the demand curves for consumer goods derivation. The idea of market and supply is soaked in the minds of entrepreneurs who try to maintain a balance between the factors in order to run businesses in an appropriate way. The interaction between market supply and demand will determine the price and the equilibrium output. The process of deriving the market and demand for every factor of production is analogous to the process of deriving the factors of production for the final market output. In both perspectives, the necessity of determining the income distribution and the equilibrium income is emphasized. In the output market the factor demand incorporates the relationship of the marginal productivity of the factor in question.
Basically, neoclassical economics stresses the concept of equilibrium and the equilibrium is the answer to the problems of maximizing profits. The economical regularities are always made clear by the methodological individualism, a concept which suggests that economical issues can be illustrated by the keen study of the behavior of an agent. This emphasis is mainly typical to the area of microeconomics.