Making Room for what Really Matters!

We've all heard the word “Margin”, It's is one of the most commonly used words in the English language. It means to provide with an edge or a border. For a layman the word margin has absolutely no technicality, but if we use the word from an economic point  of view it becomes an intricate and a complex subject altogether. In economics the concept of margin has a great importance. In economics the term margin always refers to something extra. Thus the term marginal utility of a commodity is the the extra utility obtained from the consumption of the extra unit of the commodity.

In economics, we refer to ‘marginal utility’, ‘marginal cost’, ‘marginal revenue’, ‘marginal profit’, ‘marginal product’, etc. It is to be noted that the marginal unit is not necessarily the last unit, although it may sometimes appear to be so. Thus, in any stock of identical goods, any unit, the concept of margin has reference to the addition or subtraction of any one unit without regard to a particular unit. Importance of margin: Here are a few illustrations:

1. Price of a commodity from the demand side depends on the marginal utility.

2.  Price of a good from the supply side depends on its marginal cost (of production).

3. The profit of a firm becomes maximum at that unit of output where marginal cost is equal to marginal revenue.

4.  Marginal buyers exert considerable influence total demand consider­ably when the price of a commodity changes.

5. Substitution of goods, or of factors, takes place at the margin.
   

Thinking at the margin:

Economists often talk about “thinking at the margin”, but what does thinking at the margin actually mean? It means to think about the next step forward.

However, to have a better understanding of the subject we must first know about marginal cost and marginal benefits.

Marginal cost-  in economics the term marginal cost implies the change in cost when the quantity produced is incremented by one unit, that is the additional cost of producing an extra unit.

Marginal benefits- it is the additional satisfaction or utility that a person receives from consuming an additional unit of a good or a service.

Illustration:

Let’s assume there is a person named Bob . He has a hamburger but he cannot decide if he should have an additional burger. Now, the benefits of having an extra hamburger would be additional flavour and taste. However the cost of having an extra hamburger would be the price, it’s unhealthy and it could potentially lead to a heart burn. After much contemplation, Bob only had one burger, because the marginal cost of having an additional burger would be higher than the marginal benefit.

The above illustration is just one of a many few examples of how we think at the margin in our daily lives, from buying a gadget to an expensive dress we always weigh the advantages and disadvantages. The concept of thinking at the margin is deeply ingrained in our minds, even if we do not realise it, almost all of the decisions we make are made with keeping margins in mind.

 - Adityaa Srivastava