Last week, Tim Schilling, Federal Reserve Bank of Chicago, explained in very concise terms the concept of marginal thinking. My textbook defines "marginal" as the additional of next unit. Mr. Schilling defined marginal as a border or threshold for whom a change in a variable such as price makes or breaks the deal. Those on the margin are those whose actions can be measured. Those on the margin consider the opportunity cost of their choices before making an economic decision.
People are constrained by their income and the prices of related goods. In econ 101, we measure the marginal rate of substitution by how much of good y will be exchanged for one more unit of good x. Or, to put it another way, how much of good y will be forgone to get one more x.
I hope I have conceptualized what it means to be on the margin. When a good is nonrival in consumption and nonexcludable, this analysis is incomplete but works only when a private good is available for consumption.
I think both definitions for marginal are accurate, they are just to be used at different times.
ReplyDeletehey griff, some where i read that marginal analysis is related to utility...that means that there's a vertical interpretation of price...in other words, you stand on the x-axis and look up...thanks for the post...flad
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