Economics Vs Neoclassical Economics

The comparison between the neoclassical economics advocated by Kenneth Arrow and information economics by George Stigler show the different point of view towards the function of market and the economical mechanism to fix the market failure and improve the economic performance and social welfare. The two points of views differs mainly on whether the government should way in when the economy is facing trouble and need to resolve some market failures that are currently affecting the well-being of people. According to George Stigler, the benefits of governmental involvement is mainly through monetary supports including direct subsidy and flexible tax policy. However, Arrow believes that government should not involve too much in the business operation. …show more content…
(ECRI) Therefore, the recessions that we are experiencing each time are actually important features of the world economy. This is because when the world economy is working on increasing the productivity, the current production process is getting old and the supplies is rather increased. Although we believe that the free market will provide a balanced supply and demand, the massive industrial process need to be designed on a lagged basis in reaction to the market change. This is because through the massive national or even international distribution, storage, and wholesaling, the customer’s reaction to the products won’t happen until they are fully exposed to the products on the shelf. However, the companies need to anticipate the market demand before their products are even produced. This create the informational inefficiency that the expectation of the manufacturers is different from the actually market expectation, which results in the mismatch and changes the short-term price. At this time, there would be an imbalance pricing system that people either cannot get enough supply or the demand is too much that they cannot sell all of them. Under the Keynesian economics supported by George Stigler, the government should get in this market through providing incentives like subsidies to the manufacturers to increase their production volumes, or to the buyers to increase their purchase. This is similar to the history of Chinese consumption incentive plans announced by the central government that would give $125 million in incentives to boost the purchase of large electronics like refrigerators and televisions in rural areas. (CNA, 2015) Although it increased the demand and stimulated the production, these products were very outdated since the subsidy is by the pieces of shipments, and the more advanced

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