In: Economics
Marginal analysis and decision-making:
Concept: The Fundamental Assumption of Economics
All social phenomena emerge from the actions and interactions of individuals who are gathering in response to expected marginal benefits and expected marginal costs to themselves.
Definition: Marginal is additional or incremental (amount of
increase) or decremental (amount of decrease).
Should I do (choose) activity x?
MC (x) = the additional costs of doing x
MB (x) = the additional benefits of doing x
Rule:
If Expected MB (x)> Expected MC (x), do x; otherwise
don't.
Application:
Would an employer ever hire anyone if the additional cost of his or her employment were greater than the marginal / additional benefit? Of course not, to do so would be irrational.
Assumptions:
- Are you married? When will you get married? You will make that decision using marginal analysis, right? Explain.
Yes, a rational person would make that decision based on marginal analysis. Ay any time where the marginal benefit of getting married gets higher than the amrginal cost of getting married, it will make sense to get married.
Now, what are the marginal benefits of getting married, from my perspective? These are-
At the same time, there are some costs associated with getting married. These are-
While getting married I will keep all these factors into mind and when I feel that the benefits are outweighing the costs, as described above, I will get mamrried.