Decisions Are Made at the Margin
Common Sense Economics: What Everyone Needs to Know about Wealth and Prosperity
Decisions are made at the margin: if we want to get the most out of our resources, options should be chosen only when the marginal benefits exceed the marginal cost. Actions should be undertaken when they generate more benefits than costs and rejected when they are more costly than the benefits derived. This principle of sound decision-making applies to individuals, businesses, government officials, and society as a whole.
Nearly all choices are made at the margin. That means they almost always involve additions to (or subtractions from) current conditions, rather than “all-or-nothing decisions.” The word “additional” is a substitute for “marginal.” We might ask, “What is the marginal (or additional) cost of producing or purchasing one more unit?” Marginal decisions may involve large or small changes. The “one more unit” could be a new shirt, a new house, a new factory, or even an expenditure of time, as in the case of a high school or college student choosing among various activities. All these decisions are marginal because they involve consideration of additional costs and benefits.
- While watching the video, think about some decisions you make “at the margin”. For example, imagine your favorite food is pizza. On Sunday, your ordered five pizzas for the game, anticipating friends would come over. But only half the group showed up, leaving you with 3 extra pizzas. So for the rest of the week, you ate leftover pizza. Now imagine another friend invites you out on Friday. Knowing you favorite food is pizza, they suggest a pizza restaurant. What, at the margin, is that pizza worth to you on that Friday night? Think of other real-life examples – your first, versus your fifth ride on a roller coaster. Your first s’more, versus your third. The first mile of a 10-mile hike, versus the last. And so on.
- “Fish and Guests stink after three days.” Analyze and rephrase this common saying in terms of marginal cost and marginal utility.
This reading is an excerpt from Certell’s Common Sense Economics eBook. Certell offers curriculum materials and eBooks free of charge for students and teachers. Click here to download the Common Sense Economics materials.
28, Aug. 2018, Monty Python box of thin mints [Digital image]. Retrieved from <google.com>.