Shortcomings of neoclassical theory

1. Ignores Externalities: Neoclassical economic theory ignores the concept of externalities – costs, benefits, or impacts of economic activity that are felt outside the market itself and thus do not affect either the demand or supply curves. 2. Ignores Social and Economic Inequality: Neoclassical theory does not take into account social and economic inequality. It assumes that everyone has the same ability to pay and that market forces will always work to produce the most efficient outcome. 3. Assumes Perfect Information: Neoclassical theory assumes that everyone in the market has perfect information about prices and other factors that drive decisions. In reality, this is rarely true and leads to market inefficiencies and imbalances in power. 4. Over-Simplification of Complex Interconnected Systems: Neoclassical economics simplifies complex interconnected phenomena into one-dimensional models. This type of analysis is often inadequate for capturing and understanding the complexity of the real world. 5. Ignores the Role of History: Neoclassical theory ignores the role of history in shaping economic decisions, assuming that individuals are making decisions in a vacuum. In reality, the decisions people make are shaped by events and trends from the past.