Assumptions of Neoclassical Economics

1. Rationality: Individuals act in their own self-interests and make rational decisions based on the information and incentives available to them. 2. Perfect Information: Individuals have access to complete and accurate information and can perfectly forecast outcomes of their economic decisions. 3. Perfectly Competitive Markets: Markets operate based on perfect competition, meaning no one is large enough to influence price and all participants are sellers and buyers of equal size. 4. Efficiency: Perfectly competitive markets are efficient in their use of resources and all decisions made by economic agents will reach equilibrium without any external interference. 5. Marginalism: All decisions are made at the margin based on the incremental utility of additional units or action. Allocative efficiency is achieved when a marginal change in inputs or outputs has no further impact on total utility. 6. Equilibrium: Markets and economic agents reach equilibrium, whereby the supply and demand of goods and services match and there is no further downward or upward pressure on prices. All economic agents have reached a state of satisfaction with their current outcomes.