Marginal concepts
Encyclopedia
In economics
, 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.
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. 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.
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
of a good or service is the utility
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 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 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 to marginal pecuniary
cost — that is to say marginal cost measured by forgone money.
Other marginal concepts include (but are not limited to):
Marginalism
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.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, 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.
Marginality
Constraints are conceptualized as a border or margin. 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
Marginal value
A marginal value is#a value that holds true given particular constraints,#the change in a value associated with a specific change in some independent variable, whether it be of that variable or of a dependent variable, or...
. 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. For reasons of tractability, it is often assumed in neoclassical analysis
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
that goods and services are continuously divisible
Continuum (theory)
Continuum theories or models explain variation as involving a gradual quantitative transition without abrupt changes or discontinuities. It can be contrasted with 'categorical' models which propose qualitatively different states.-In physics:...
. In such context, a marginal change may be an infinitesimal
Infinitesimal
Infinitesimals have been used to express the idea of objects so small that there is no way to see them or to measure them. The word infinitesimal comes from a 17th century Modern Latin coinage infinitesimus, which originally referred to the "infinite-th" item in a series.In common speech, an...
change or a limit
Limit (mathematics)
In mathematics, the concept of a "limit" is used to describe the value that a function or sequence "approaches" as the input or index approaches some value. The concept of limit allows mathematicians to define a new point from a Cauchy sequence of previously defined points within a complete metric...
. However, strictly speaking, the smallest relevant division may be quite large.
Some important marginal concepts
The marginal useMarginal use
As defined by the Austrian School of economics 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...
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 economics, the marginal utility of a good or service is the utility gained from an increase in the consumption of that good or service...
of a good or service is the utility
Utility
In economics, utility is a measure of customer satisfaction, referring to the total satisfaction received by a consumer from consuming a good or service....
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
Marginal use
As defined by the Austrian School of economics 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 rate of substitution
Marginal rate of substitution
In economics, the marginal rate of substitution is the rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility.-Marginal rate of substitution as the slope of indifference curve:...
is the rate of substitution 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 is a benefit (howsoever ranked or measured) associated with a marginal change.
The term “marginal cost
Marginal cost
In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good...
” may refer to an opportunity cost
Opportunity cost
Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...
at the margin, or to marginal pecuniary
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
cost — that is to say marginal cost measured by forgone money.
Other marginal concepts include (but are not limited to):
- marginal physical productMarginal productIn economics and in particular neoclassical economics, the marginal product or marginal physical product of an input is the extra output that can be produced by using one more unit of the input , assuming that the quantities of no other inputs to production...
(sometimes also known as “marginal product”) - 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 saveMarginal propensity to saveThe marginal propensity to save refers to the increase in saving that results from an increase in income i.e. The marginal propensity to save might be defined as the proportion of each additional dollar of household income that is used for saving. It is also used as an alternative term for the...
and consumeMarginal propensity to consumeIn economics, the marginal propensity to consume is an empirical metric that quantifies induced consumption, the concept that the increase in personal consumer spending occurs with an increase in disposable income... - marginal tax rateMarginal tax rateIn a tax system and in economics, the tax rate describes the burden ratio at which a business or person is taxed. There are several methods used to present a tax rate: statutory, average, marginal, effective, effective average, and effective marginal...
Marginalism
Marginalism
Marginalism refers to the use of marginal concepts in economic theory. Marginalism is associated with arguments concerning changes 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...
is the use of marginal concepts to explain economic phenomena.
The related concept of elasticity
Elasticity (economics)
In economics, elasticity is the measurement of how changing one economic variable affects others. For example:* "If I lower the price of my product, how much more will I sell?"* "If I raise the price, how much less will I sell?"...
is the ratio of the incremental percentage change in one variable with respect to an incremental percentage change in another variable.