Marginal Thinking

Will this decision make me better or worse off?
Will this decision make me better or worse off?

In economics, marginal thinking requires decision-makers to evaluate whether the benefit of one more unit of something is greater than its cost. This can be quite challenging, but understanding how to analyze decisions at the margin is essential to becoming a good economist.

Real World Examples

  • Discounts on two-day passes to amusement parks

    The excitement on the first day is palpable. Running to rides, waiting in line and experiencing the thrill for the first time.

    Sure, you’d go back the next day but most of us are pretty exhausted so the price must be lower to entice us back.

  • Discounts on season tickets to sporting events and concert series

    Over the course of any season there are games and concerts that are highly anticipated, and others that are less talked about.

    In order to get someone to buy the entire season package the total price must be discounted.

  • All-you-can-eat buffets

    Buffets offer the promise of unlimited food, but the average diner has a limited capacity to exploit the situation. Eating more eventually leads to negative marginal utility.

    Before that happens the rational consumer will stop eating.

  • Unlimited night and weekend minutes on cell phone plans

    Cell phone companies rely on the diminishing marginal utility of conversation.

    Customers grow tired of talking and eventually decide to do something else that gives them more utility.

  • Newspaper vending machines

    A newspaper contains a lot of useful information, but picking up a second copy of the same paper is rarely worth it, so most people do not take an extra copy from a vending machine, even though they easily could.

    Ordinarily the value of the second paper is close to zero so a rational person will leave it in the machine. (Sunday papers with money-saving coupons are a possible exception.)

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