Question

Discuss why marginal analysis tends to produce more optimal outcomes when making economic choices (of dealing with scarcity)?

Answer 1

The incremental cost and benefit analysis associated with a economic decision is generally termed as marginal analysis. When dealing with the problem of scarcity, it is the marginal costs and benefits that are important.economic action should be taken only when the marginal benefit of the attraction exceeds its marginal cost.

In computation of marginal cost for marginal analysis, it is important to use opportunity cost of every incremental resource in order to produce efficient outcomes. Note that economic result is efficient when marginal analysis is used because the comparison of benefit and cost of each additional resource helps in determining the most judicial use of that resource without any wastage.

We know that resources are constrained and therefore every economic agent faces a definite trade off. Only marginal analysis can consider the comparison of relative opportunity cost which are essential for making efficient use of resources. Due to these reasons, marginal analysis can generate optimal outcomes.