Question

1. Describe an example of a decision you've made when you had to weigh the marginal cost and marginal benefit of the choice.

Answer 1

Introduction of Marginal Costs and Benefits

Marginal costs and benefits are a vital part of economics because they help to provide the relevant measurement of costs and benefits at a certain level of production and consumption. If measured marginal costs and benefits are provided, it is much easier to calculate the ideal price and quantity.

Marginal cost and marginal benefit are important factors when making economic decisions. Marginal cost is the cost of getting more of something. Marginal benefit is the gain we receive by getting more of something. These concepts play an important role in our economic decision-making.

For example, I am a tall person. When I travel by airplane, I have to decide if the marginal cost of paying more for a seat with more legroom is worth the benefit of getting the additional legroom. I usually feel the marginal benefit of the legroom outweighs the marginal cost, especially on longer flights.

Another example would be to decide if I should buy a weekly subway pass or pay for each trip I take. I have to decide if the additional benefit outweighs the additional cost. With a weekly pass, I can ride an unlimited number of times during the week, and I don’t have to wait in line to buy the pass each time I travel. The cost is the additional amount I pay for the pass. If I don’t use the pass as much as I thought I would use it, I would lose money.

We use these concepts quite often when we make economic decisions.