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Marginal Analysis. Marginal Analysis. IS ALL about making your final choice!. Economic Choice is really just a cost­-benefit model of how people make decisions. How much utility each decision would bring Determine the opportunity cost of each option

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Presentation Transcript
marginal analysis1
Marginal Analysis

IS ALL

about making your

final choice!

slide3

Economic Choice is really just a cost­-benefit model of how people make decisions.

  • How much utility each decision would bring
  • Determine the opportunity cost of each option
  • choose the option for which the benefits outweigh the costs
slide4

Concept is called Marginal Utility

  • Choices are not so much about whether to do something but instead how much.
slide5

Example:

  • Remember: The amount of utility that a given thing brings usually depends on how much of that given thing a person has already had.
slide6

This is demonstrating the law of diminishing marginal utility. Each additional, or marginal, piece of pizza brings less utility than the previous piece so that the marginal utility brought by each additional slice diminishes.

slide7

Economists though presume that people faced with a limited budget is to adjust the quantities of each possible thing they can consume to maximize their total utility.

slide8

Each person has different preferences and the quantities of each good will maximize each person’s total utility are different.

marginal analysis3
Marginal Analysis

IS ALL about making your final choice!

slide11

Economic Choice is really just a cost­-benefit model of how people make decisions.

  • How much utility each decision would bring
  • Determine the opportunity cost of each option
  • choose the option for which the benefits outweigh the costs
slide12

Concept is called Marginal Utility

  • Choices are not so much about whether to do something but instead how much.
slide13

Remember: The amount of utility that a given thing brings usually depends on how much of that given thing a person has already had.

slide14

This is demonstrating the law of diminishing marginal utility. Each additional, or marginal, piece of pizza brings less utility than the previous piece so that the marginal utility brought by each additional slice diminishes.

slide15

Economists though presume that people faced with a limited budget is to adjust the quantities of each possible thing they can consume to maximize their total utility.

slide16

Each person has different preferences and the quantities of each good will maximize each person’s total utility are different.

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