What are the differences between the neoclassical/ New Right policies and those of the Keynesian/ Welfare state approach to economy? Neoclassical theory or the theories of policies of new right deals majorly on the issues of income, price as well as output determination as far as the distribution of the market is concerned through the supply and demand. This kind of process is usually mediated by the utility maximization through individual constrained incomes of the profits. A number of factors such as production and the available information affect the process.
It is this theory that completely dominated the area of microeconomics all over the world but with conjunction with the Keynesian theory, they make up the synthesis neoclassical a theory that is the main dominant in the economics mainstream (Dimand, 1988, pp. 87). This theory is characterized by a number of approaches namely the existence of rational preferences especially with reference to the outcome used to identify as well as associate value, utility maximization of the individuals as well as the maximization of the firms profits and finally the issue of individual diversity in their actions towards the relevance as well as the fullness of the information received.
This theory also put so much emphasizes on the issue of equilibrium. This school of though differs from others in the sense that its subjectivity, modeling absence and praxeological methods are different as compared to the other theories. It is known to have the most realistic perspective as far as the uncertainty is concerned and its role in the system of economic is concerned, with reference to the uncertainty, the two theories, Keynesian and Austrian, differing in terms of the significances of money, time, and ignorance.
According to the school of thought presented by the theory, there are two uncertainties namely the faulty perceptions and the events specificity (Clark, 1998, pp. 69). According to the theory, it is the responsibility of the entrepreneur to ensure there is a situation of competition. This theory defines that perfect competition comes up due to existing differences in the creation of wealth as fart as the issue of resource allocation is concerned. According to the neoclassical theory, the following are the five environmental factors, which influence competition, public decisions on policies, consumer behaviors, competitor, and supplier’s actions, the societal resources from where the firm draws and institutions in the society.
The entrepreneur is said to exploit opportunities in the market, which brings about the aspect of competition. In such a situation, if the competing firms discovers they are at an inferior level as far as competition is concerned which leads to their disadvantages in competition then they are motivated by the need for superiority to neutralize the superior firm through the process of innovation and resource acquisition (Antonietta, 1987, pp, 323).
They do that through resource imitation or investing in some more superior resources. The meaning of superior resources is the investment of the resources, which are far much better than superior firms are in existence in terms of value and technology to increase its competitiveness.