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Neoclassical economics refers to economics that study's prices based on the market forces of demand and supply. It is also based on the theory of production and distribution of income within markets. Its study and development is based on three assumptions:
- A firm’s main objective is profit maximization, while an individual’s objective is utility maximization.
- Value is the key determinant that drives people to have rational preferences with regards to outcomes.
- People act independently based on complete and pertinent information.
Political economics refers to economics that originated from household management and grew to community/society management as it was considered by notable economists like Adam Smith. In addition, Raymond Williams states that “political economy is the science of wealth…and efforts by man to satisfy wants and desires.” In essence, political economy deals with the generation of national wealth or income and its subsequent distribution based on established laws and the government.
While neoclassical economics deals directly with the individual, firms and markets, political economics deals with the state or practice of economic affairs with regards to social organizations. Their similarities come in the need of generation and distribution of wealth and income within their respective scopes.
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