Neoclassical Economics: Beyond the Assumptions

About Neoclassical Economics & This Model (Click to Expand)

Neoclassical economics often simplifies reality by assuming:

Perfect Information: Everyone knows everything relevant to their decisions.
Rational Actors & Simplified Profit Motives: Individuals and firms act perfectly rationally to maximize their utility or profit, often in a context where profit motives are simplified to gains from trade rather than complex production and innovation.
No Risk/Uncertainty (or perfectly manageable risk): Future outcomes are known or can be probabilistically assessed without ambiguity.
Equilibrium as a Natural State: Economies tend towards a stable equilibrium, like the initial state where Savings = Investment in this model.

These assumptions allow for elegant mathematical models but can struggle to explain or predict real-world phenomena like recessions, financial crises, innovation booms, or the impact of psychology and government policy.

This interactive model challenges these assumptions:

Changing Savings: When you change the savings level, a purely neoclassical model might assume investment automatically adjusts. Here, it doesn't, creating an imbalance.
Introducing Factors: You must then consider 'real-world' factors (Consumer Confidence, Technological Innovation, Government Spending, Global Conditions) to influence Investment and try to restore equilibrium. These factors represent elements often outside the scope of basic neoclassical models.
The Goal: By manually adjusting these factors, you experience how deviations from simple assumptions can affect economic outcomes and how more complex, realistic considerations are needed to understand how economies might find a new balance.

Savings: 100

Investment: 100

Adjust Savings Level (100):

Savings: 100

Investment: 100

Adjust Factors to Influence Investment: