MARGINAL ANALYSIS

All of us make decisions every day that require looking at the costs and benefits that we gain from those decisions. The field of Economics relies heavily on marginal analysis to explain economic concepts.

What exactly is marginal analysis? Marginal analysis involves considering the effects of small changes (additions or subtractions) to a current situation. For example, students have scarce leisure time.  If an hour becomes available, the student needs to ask him/herself how that hour should best be spent. Should the student spend that hour reading a book on Economics, sleeping, or hanging out with friends? If a greater benefit is believed to come from reading an Economics book than by sleeping an extra hour, then the student should choose reading the book. This would be a marginal analysis decision. 

Efficiently using our resources to maximize our benefits is an essential economics concern.  For example, a business owner might debate if bringing in an additional worker would be beneficial to the company. An additional worker would cost RM15 per hour but that additional worker could increase profits by RM20 per hour.  The business owner would hire the new worker because of the increase in value of RM5 per hour.