Question

During Covid, a lot of people are working at home, away from the office. As a result, many residents of Toronto have sold their homes and moved out of Toronto to other parts of Ontario (up north) and other parts of Canada such as New Brunswick, where housing prices are cheaper.

Question:

Use Marginal Analysis to explain this observed behavior. Please provide examples in your answer...

Answer 1

Marginal analysis in Economics means the examination of additional benefit of an activity compared to the additional cost incurred by the same activity. In order to calculate the marginal analysis one just need to add up all the benefits and substract all the costs from it. In simple terms marginal analysis means looking at the last unit of consumption for cost whitch overall gives a different picture of total cost.

Due to covid people are working from home and this made them to move out of Toronto to other parts up in the north where house rates are less. This made them sell their houses in Toronto.

So marginal analysis would be:

The amount of money they got from the houses in Toronto which will be greater than the other houses in up north. Subtract all the costs involved in the selling plus the cost of purchasing the new house.

If the overall cost is less than the overall profit from selling the house in short term, that is the last cost observation, is higher than a customer has given a marginal benefit.

Of course the overall benefit will be considered in the long-term but the marginal analysis looks up at the last unit consumption.

For example: house sold in Toronto for: $1898,650

Less: 1.selling costs:

Agent cost: $450

Other cost: $390

2. New house purchase cost: $460390

Total marginal benefit : $1437420