In
economics
Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and interac ...
, marginal concepts are associated with a ''specific change'' in the quantity used of a
good or
service, as opposed to some notion of the over-all significance of that class of good or service, or of some total quantity thereof.{{citation needed, date=February 2012
Marginality
Constraints are conceptualized as a ''border'' or ''margin''.
[ Wicksteed, Philip Henry; ''The Common Sense of Political Economy'' (1910), Bk I Ch 2 and elsewhere.] The location of the margin for any individual corresponds to his or her ''endowment'', broadly conceived to include opportunities. This endowment is determined by many things including physical laws (which constrain how forms of energy and matter may be transformed), accidents of nature (which determine the presence of natural resources), and the outcomes of past decisions made both by others and by the individual himself or herself.
A value that holds true given particular constraints is a
''marginal'' value. A change that would be affected as or by a specific loosening or tightening of those constraints is a ''marginal'' change, as large as the smallest relevant division of that good or service.
[von Wieser, Friedrich; ''Über den Ursprung und die Hauptgesetze des wirtschaftlichen Wertes'' /nowiki>''The Nature and Essence of Theoretical Economics''/nowiki> (1884), p. 128.] For reasons of tractability, it is often assumed in
neoclassical analysis that goods and services are
continuously divisible. In such context, a marginal change may be an
infinitesimal change or a
limit. However, strictly speaking, the smallest relevant division may be quite large.
Some important marginal concepts
The
marginal use of a
good or service is the specific use to which an agent would put a given increase, or the specific use of the good or service that would be abandoned in response to a given decrease.
The
marginal utility
Marginal utility, in mainstream economics, describes the change in ''utility'' (pleasure or satisfaction resulting from the consumption) of one unit of a good or service. Marginal utility can be positive, negative, or zero. Negative marginal utilit ...
of a
good or service is the
utility
In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings.
* In a normative context, utility refers to a goal or objective that we wish ...
of the specific use to which an agent would put a given increase in that good or service, or of the specific use that would be abandoned in response to a given decrease. In other words, marginal utility is the utility of the
marginal use.
The
marginal rate of substitution is the rate of substitution that is the least favorable rate, at the margin, at which an agent is willing to exchange units of one good or service for units of another.
A
marginal benefit
Marginal utility, in mainstream economics, describes the change in ''utility'' (pleasure or satisfaction resulting from the consumption) of one unit of a good or service. Marginal utility can be positive, negative, or zero. Negative marginal utilit ...
is a benefit (howsoever ranked or measured) associated with a marginal change.
The term “
marginal cost” may refer to an
opportunity cost at the margin, or more narrowly to marginal pecuniary cost — that is to say marginal cost measured by forgone
cash flow
Cash flow, in general, refers to payments made into or out of a business, project, or financial product. It can also refer more specifically to a real or virtual movement of money.
*Cash flow, in its narrow sense, is a payment (in a currency), es ...
.
Other marginal concepts include (but are not limited to):
*
marginal physical product (sometimes also known as “marginal product”)
**
marginal product of labor
**
marginal product of capital
*
marginal rate of transformation, the rate at which one output or result must be sacrificed in order to increase another output or result
*
marginal revenue product
*
marginal propensity to save and
consume
*
marginal tax rate
*
marginal efficiency of capital
Marginalism
Marginalism is a theory of economics that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility. It states that the reason why the price of diamonds is higher than that of wa ...
is the use of marginal concepts to explain economic phenomena.
The related concept of
elasticity is the ratio of the incremental percentage change in one variable with respect to an incremental percentage change in another variable.
References