1. Introduction

Neoclassical economic theory was formed in the late nineteenth century by various people including Alfred Marshall, Stanley Jevons, and Léon Walras and rooted in the eighteenth-century work of classical political economists such as Adam Smith, David Ricardo, and Robert Thomas Malthus. One might argue that the classical political economy school was broader in scope than later neoclassical theory, perhaps the classical approach—to use a contemporary term—was almost interdisciplinary in nature. Classical political economy took a “broad-brush” theoretical approach and studied how countries grew economically (e.g., through economic specialization or international trade) and how they declined (e.g., through unregulated population growth). By contrast, the neoclassical school narrowed the scope of study to more particular issues, today referred to as the efficient allocation of scarce resources. Basically neoclassical thought shifted the focus to how markets could be structured so that buyers and sellers mutually benefit and that resources—land, labor, and capital—are used efficiently. The shift from classical to neoclassical thought moved the analysis from factors explaining the rise and fall of nations to examining the relationship between suppliers and buyers in markets. This also meant a methodological shift from broad analysis to a focused model-based analysis. The scope of neoclassical analysis is quite sharp, examining the allocation of resources such as labor, land, and capital. This is generally done by creating models of suppliers and demanders using mathematical equations, determining the equilibrium conditions, and then testing the model using relevant data via econometric analysis.