2.7 The Concept of the Margin

Question 1

What is “marginal”?

Answer 1

Marginal refers to the extra, additional unit of output

Question 2

What is marginal revenue (MR)?

Answer 2

The additional revenue received from the sale of an additional unit of output

Change in TR/Change in Q

Question 3

What is marginal cost (MC)?

Answer 3

The additional cost of producing an additional unit of output

Change in TC/Change in Q

Question 4

What is marginal private benefit?

Answer 4

The additional benefit from the consumption of an additional unit of a good/service for those consuming

Change in TB/Change in Q

Question 5

What is marginal private costs (MPC)?

Answer 5

The additional cost of producing an additional unit of output for those producing

Change in TC/Change in Q

Question 6

What is marginal social benefit (MSB)?

Answer 6

The additional benefit for society from the consumption of an additional unit of a good/service

Question 7

What is marginal social cost (MSC)?

Answer 7

The additional cost to society from the production of an additional unit of a good/service

Question 8

What is allocative efficiency?

Answer 8

Allocative efficiency occurs at the output where total social welfare is maximised - MSB = MSC

Question 9

What is true if there are no market failures in fully functioning competitive markets?

Answer 9

Marginal private benefit (MPB) = Marginal social benefit (MSB)

Marginal private cost (MPC) = Marginal social cost (MSB)

Question 10

What is social welfare?

Answer 10

A term given to total “surplus” from economic activity

Question 11

What is it assumed that marginal private benefit (MPB) and marginal private cost (MPC) are equal to?

Answer 11

Demand = marginal private benefit (MPB)
Supply = marginal private cost (MPC)