2.7 - The concept of the margin Flashcards
What is ‘margin’?
It means looking at the effect of one more or less of something. Economic agents base their decisions on the margin.
What is marginal tax?
Marginal tax is the extra tax firms, consumers and workers have to pay for each extra good or service produced, good or service bought or extra pound of income earned.
What is marginal product?
Marginal product is the amount of extra output produced by an extra unit of input.
What is the marginal product of labour?
The marginal product of labour is the amount of extra output produced by one more worker.
What is the marginal product of capital?
The marginal product of capital is the amount of extra output product by an extra unit of capital.
What is marginal utility?
Marginal utility is the extra benefit to an individual of consuming a good or service.
Why can marginal utility change?
It can change because the utility gained from the first chocolate is less than that of the tenth (example!).
What is marginal cost?
Marginal cost is the extra cost of production that a firm incurs when producing one more good or service. This includes the cost of the extra materials, labour and capital required to make the good or service as well as any other costs the firm faces from producing the extra unit.
What is marginal revenue?
Marginal revenue is the change in total revenue from selling an extra good or service. It can be positive or negative depending on PED.
What is the law of diminishing marginal returns?
It is the concept that the more of something you add, the lower the impact of each additional unit, assuming all else is fixed.
What is diminishing marginal utility?
As long as all else is equal, as consumption increases the marginal utility derived from each additional unit declines.
What is diminishing marginal product?
When firms choose to create goods or services they will select the most productive factors of production to use.As they produce more goods the firm will have to use less and less productive factors of production (because they have already used the best).
What are rational agents?
Rational agents are agents (people, governments or companies/producers) who use utility theory to guide their decision-making.
How do rational agents maximise utility?
They will try to maximise their total utility. `A rational consumer will want to consume something up until the point where marginal utility and price are equal.
Why would a firm want to maximise utility?
They want to maximise profits, which is how most of their utility is gained. They want to survive, reinvest profits and to offer managers and staff members better rewards. They may also want to maximise revenue, maximise market share and have ethical objectives.
