Overview
This lecture introduces the concept of "marginal" in microeconomics, explaining its importance in decision-making and optimization.
Marginal Concept in Economics
- "Marginal" means "one more" in economic terms, referring to the next or additional unit of a good or service.
- Marginal cost is the cost of acquiring one more unit (e.g., the cost of one more tub of margarine).
- Marginal benefit is the added benefit from consuming one more unit.
Making Decisions on the Margin
- Economists focus on the costs and benefits of the next additional unit, not the total.
- In decision-making, the relevant unit is always the "next" unit you could buy or use.
- Marginal benefit generally decreases with each additional unit consumed.
- Marginal cost tends to increase as consumption increases.
Optimization and Equilibrium
- The optimal decision point is where marginal cost equals marginal benefit.
- Buying beyond this point means costs outweigh benefits, leading to loss.
- Buying less than this point means you miss out on potential benefits.
Key Terms & Definitions
- Marginal — one more or the next additional unit of something.
- Marginal Cost — the cost of acquiring one more unit of a good or service.
- Marginal Benefit — the additional benefit gained from one more unit.
Action Items / Next Steps
- Review examples of marginal cost and benefit in real-life scenarios.
- Practice identifying the optimal point (where marginal cost equals marginal benefit) in sample problems.