Author Profile

Dr. Alistair Sterling is a leading voice in economic theory. His work explores the delicate balance between rational market behavior and global resource scarcity. Born in Oxford in 1978, Sterling's fascination with resource allocation and consumer rationality began during his undergraduate studies at the University of Cambridge. He later completed his Ph.D. at the University of Chicago, where he honed his expertise in mathematical modeling and general equilibrium frameworks. Over the last two decades, Sterling has bridged the gap between academic theory and real-world application. Before returning to academia full-time in 2020, he served as a Senior Policy Advisor for the UK Treasury, translating complex pricing models into actionable national policies. His ongoing research focuses heavily on the modern implications of supply, demand, and marginal utility. Known for his engaging and critical writing style, Sterling draws heavily on historical and contemporary data. In Neoclassical Economics, Sterling avoids relying solely on complex mathematics, opting instead to guide students through the philosophical and behavioral roots of the free-market model. When he is not lecturing or writing, he consults for international think tanks on how to optimize wealth distribution and promote sustainable growth in shifting global markets.

About The Book

This comprehensive book provides an essential exploration of neoclassical economics, tracing its evolution from classical roots to the analytical foundations of modern microeconomics. It equips readers with a clear understanding of utility, market equilibrium, value determination, and the theoretical frameworks that shape contemporary economic thought. It provides an overview of the core principles defining the neoclassical school, highlighting its emphasis on methodological individualism, marginal analysis, and rational agent behavior. Explores the shift from the classical labor theory of value to the subjective value theories of the 1870s. Examines Jevons's pivotal role in formalizing the concept of marginal utility, illustrating how consumers derive decreasing satisfaction with each additional unit of a good. Discusses Menger's independent discovery of marginal utility and his foundational contributions to the Austrian School, emphasizing subjective valuation and human action. This book explores Walras's groundbreaking work in formalizing a mathematical system that explains how multiple markets interact and stabilize simultaneously. Details how the incremental satisfaction derived from consuming goods dictates market valuation and exchange ratios. Covers the mechanisms of consumer choice, including indifference curves, budget constraints, and utility maximization. Analyzes how supply and demand interact to determine prices and facilitate market clearance. Delves into how firms optimize inputs based on the marginal revenue product to maximize output. Examines the relationship between production costs, firm size, and optimal output levels. Analyzes the theoretical benchmark of perfect competition, focusing on price-taking behavior, market efficiency, and equilibrium. Details Marshall's famous "scissors" analogy, explaining how he reconciled marginal utility with classical cost-of-production theories to build the supply and demand framework. Explains how the distribution of income is determined by the marginal productivity of labor, land, and capital. Discusses the neoclassical approach to capital accumulation, time preference, and the determination of interest rates.

Table of Contents

Preface
Chapter 1.Introduction to Neoclassical Economics
Diamond-Water Paradox Resolution
Concepts of Early Neoclassical Economics
John Bates Clark and Marginal Productivity
Eugen von Böhm-Bawerk and Capital Theory
Francis Edgeworth and Mathematical Economics
Neoclassical Theory of Demand
Neoclassical Theory of Production
Neoclassical Theory of Distribution
Static Versus Dynamic Analysis
Marginalism and Optimization
Major Neoclassical Economists
Neoclassical Synthesis and its Critics
Thorstein Veblen’s Institutionalist Critique
Wesley Mitchell and Empirical Economics
John R. Commons and Collective Action
Alfred Marshall’s Cambridge School
Léon Walras’s Lausanne School
Carl Menger’s Austrian School
Major Neoclassical Texts
Neoclassical Economics and Ideology
Neoclassical Economics Spread beyond Europe
Neoclassical Economics and the Great Depression
Neoclassical Economics and Environmental Economics
Neoclassical Economics in Economics Education
Neoclassical Economics and Professional Identity
Neoclassical Economics Assessment
Chapter 2. Intellectual Background and the Marginalist Revolution
Intellectual Ferment of Mid-Nineteenth Century Europe
Stanley Jevons and the Theory of Political Economy
Diminishing Marginal Utility and its Implications
Marginal Productivity and Distribution Theory
Eugen von Böhm-Bawerk and Capital Theory
Knut Wicksell and Monetary Theory
Irving Fisher and American Neoclassical Economics
Development of Demand Theory
Marginalism and Methodology
Diffusion of Marginalist Ideas
Marginalism and the Professionalization of Economics
Legacy of the Marginalist Revolution
Chapter 3. William Stanley Jevons and the Theory of Utility
Jevons’s Intellectual Formation and Scientific Method
Foundations of Utility Theory in Jevons’s Work
Jevons on Coal Question and Resource Scarcity
Principles of Jevons’s Economic Theory
Jevons and the Measurement of Utility
Jevons’s Relationship to Classical Economics
Jevons and the Development of Index Numbers
Chapter 4. Carl Menger and the Austrian School Foundations
Subjective Value Theory and the Marginal Revolution
Methodological Individualism and its Implications
Mises and Praxeological Foundations
Capital Theory and Business Cycle Analysis
Entrepreneurship and Market Process
Austrian Economics and Political Philosophy
Austrian Economics in Contemporary Context
Chapter 5. Léon Walras and General Equilibrium Theory
Intellectual Background of Walras’s Economics
Concept of Tâtonnement and Market Adjustment
Numéraire and Relative Prices
Problem of Existence of General Equilibrium
Uniqueness and Stability of General Equilibrium
Walras and the Development of Microeconomics
Chapter 6. Concept of Marginal Utility and Value Determination
Foundations of Marginal Utility Theory
Marginal Utility and Demand Theory
Marginal Utility and Welfare Economics
Marginal Utility and Uncertainty
Marginal Utility and Environmental Economics
Marginal Utility and Agricultural Economics
Marginal Utility and International Economics
Marginal Utility and Financial Economics
Chapter 7. Demand Theory and Consumer Behavior
Utility, Scarcity, and the Marginal Revolution
Utility Maximization and the Rational Consumer
Income and Substitution Effects of Price Changes
Critiques and Limitations of Neoclassical Demand Theory
Chapter 8. Production Theory and Marginal Productivity
Concept of Production Function
Law of Diminishing Marginal Returns
Propositions of Marginal Productivity Theory
Production with Multiple Inputs and Substitution
Representative Firm and Industry Supply
Clark’s Static Analysis of Distribution
Marshall’s Contributions to Production Theory
Wicksell’s Integration of Capital and Production
Bulleted List: Major Debates in Neoclassical Production Theory
Empirical Estimation of Production Functions
Production Theory and Growth Economics
Production Theory and Industrial Organization
Production Theory and the Theory of the Firm
Legacy of Neoclassical Production Theory
Chapter 9. Cost Theory and the Theory of the Firm
Firm as Rational Optimizing Agent
Total, Average, and Marginal Cost Relationships
Short-Run Cost Curves and their Shapes
U-Shaped Average Cost Curve
Marginal Cost and Supply Decisions
Firm’s Response to Input Price Changes
Tax Incidence and Firm Behavior
Cost Minimization and Input Choice
Derived Demand for Factors of Production
Firm and Market Structure
Oligopoly and Interdependence
Internal Economies and Firm Growth
Quasi-Rent and Returns to Fixed Factors
Firm’s Boundaries and Transaction Costs
Cost Theory and the Boundaries of the Firm
Cost Theory and International Trade
Cost Theory and Regulation
Cost Theory and Antitrust
Chapter 10. Market Structures and Perfect Competition
Foundational Concepts of Marginal Utility
Firm as Price Taker in Competitive Markets
Allocative Efficiency and Welfare Maximization
Perfect Competition and Income Distribution
Consumer Theory and Demand Analysis
Concept of Economic Rent
Technological Change and Competitive Dynamics
Monopolistic Competition and Product Differentiation
Alfred Marshall and Partial Equilibrium Analysis
Continuing Relevance of Perfect Competition
Chapter 11. Partial Equilibrium Analysis and Alfred Marshall
Marshall’s Intellectual Development
Scope and Method of Economics
Partial Equilibrium Method
Market Period Analysis
Short Run Analysis
Producer Surplus and Rent
Earnings of Management and Profit
Marshall on Welfare and Public Policy
Major Students and Followers of Marshall
Pigou and Welfare Economics Development
Marshall’s Mathematical Approach
Marshall’s Place in Economic Thought History
Marshall and Women in Economics
Marshall’s Influence on Pigou
Marshall’s Contribution to Economic Policy
Reasons for Studying Marshall Today
Marshall’s Travels and Observations
Marshall’s Principles Reception and Reviews
Marshall’s Place in History of Economic Thought
Chapter 12. Price Determination and Market Adjustment
Supply and Demand: Two Blades of the Marshallian Scissors
Law of Demand and Consumer Behavior
Law of Supply and Producer Behavior
Price Determination Under Different Time Horizons
Price Determination and Factor Markets
Wage Determination and Labor Markets
Price Controls and Market Interference
Price Formation in Financial Markets
Chapter 13. Distribution Theory and Factor Pricing
Marginal Productivity Theory of Distribution
Product Exhaustion Theorem and Wicksteed’s Contribution
Wage Theory in Neoclassical Economics
Rent Theory and Land Pricing
Entrepreneurship and Profit Theory
Functional versus Personal Distribution
International Trade and Factor Price Equalization
Distribution and Economic Growth
Technological Change and Factor Shares
Empirical Testing of Distribution Theory
Chapter 14. Capital Theory and Interest
Concept of Capital in Classical Political Economy
Fisher’s Time Preference and Investment Opportunity Theory
Knut Wicksell and the Cumulative Process
Capital in Socialist and Planned Economies
Capital as Embodied Technical Progress
Capital Theory and Institutional Frameworks
Bibliography
Index