2.7 The Concept Of The Margin Flashcards
What is meant by thinking at the margin
Thinking about the effect of an additional action.
Give an example of thinking at the margin
How do you calculate marginal utility of (x)
Total utility of (Xn + 1) - Total utility of (Xn)
Why is thinking at the margin important
It allows consumers to keep thinking ahead.
Prevents consumers thinking about things they have already done
Allows them to think about how to maximise utility now or in the future
What is meant by marginal utility
The extra satisfaction derived from consuming one extra unit of the good
What is meant by the law of diminishing marginal utility
It suggests that consumer surplus generally declines with extra units consumed.
The extra unit generates less utility than one already consumed.
Therefore consumers are willing to pay less for extra units
