Marginal Benefits

Economic Analysis Is Marginal Analysis
Economic choice usually involves some adjustment to the existing situation, or status quo. Amazon.com must decide whether to add an additional line of products.The school super- intendent must decide whether to hire another teacher.Your favorite jeans are on sale, and you must decide whether to buy another pair. You are wondering whether you should carry an extra course next term.You have just finished dinner at a restaurant and are deciding whether to have dessert.
Economic choice is based on a comparison of the expected marginal benefit and the expected marginal cost of the action under consideration. Marginal means incremental, additional, or extra. Marginal refers to a change in an economic variable, a change in the status quo. You, as a rational decision maker, will change the status quo as long as your expected marginal benefit from the change exceeds your expected marginal cost. For example,Amazon.com compares the mar- ginal benefit expected from adding a new line of products (the added sales revenue) with the marginal cost (the added cost of the resources required). Likewise, you compare the marginal benefit you expect from eating dessert (the added pleasure and satisfaction) with its marginal cost (the added money, time, and calories).
Typically, the change under consideration is small, but a marginal choice can involve a major economic adjustment, as in the decision to quit school and get a job. For a firm, a marginal choice might mean building a plant in Mexico or even filing for bankruptcy. By focusing on the effect of a marginal adjustment to the status quo, the economist is able to cut the analysis of economic choice down to a manageable size. Rather than confront a be- wildering economic reality head-on, the economist begins with a marginal choice to see how this choice affects a particular market and shapes the economic system as a whole. In- cidentally, to the noneconomist, marginal usually means relatively inferior, as in “a movie of marginal quality.” Forget that meaning for this course and instead think of marginal as mean- ing incremental, additional, or extra.