Marginal Analysis

Marginal Analysis

IS ALL about making your

final choice!

• Economic Choice is really just a cost -benefit model of how people make decisions.

1. How much utility each decision would bring2. Determine the opportunity cost of each

option3. choose the option for which the benefits

outweigh the costs

• Concept is called Marginal Utility

• Choices are not so much about whether to do something but instead how much.

• Example:• Remember: The amount of utility that a

given thing brings usually depends on how much of that given thing a person has already had.

• This is demonstrating the law of diminishing marginal utility. Each additional, or marginal, piece of pizza brings less utility than the previous piece so that the marginal utility brought by each additional slice diminishes.

• Economists though presume that people faced with a limited budget is to adjust the quantities of each possible thing they can consume to maximize their total utility.

• Each person has different preferences and the quantities of each good will maximize each person’s total utility are different.

Marginal Analysis

Marginal AnalysisIS ALL about making your final choice!

• Economic Choice is really just a cost -benefit model of how people make decisions.

1. How much utility each decision would bring2. Determine the opportunity cost of each

option3. choose the option for which the benefits

outweigh the costs

• Concept is called Marginal Utility

• Choices are not so much about whether to do something but instead how much.

• Remember: The amount of utility that a given thing brings usually depends on how much of that given thing a person has already had.

• This is demonstrating the law of diminishing marginal utility. Each additional, or marginal, piece of pizza brings less utility than the previous piece so that the marginal utility brought by each additional slice diminishes.

• Economists though presume that people faced with a limited budget is to adjust the quantities of each possible thing they can consume to maximize their total utility.

• Each person has different preferences and the quantities of each good will maximize each person’s total utility are different.