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And finance Allah shmoop what is marginal analysis All right

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people You know that moment the one when you think

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just one more One more cookie One more cup of

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coffee One more bite and then just one more And

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you know one more until you realize that one more

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one more time maybe is not such a good idea

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when you're having that just one more moment Economists call

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this thinking on the margin The margin is just when

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you add one more For instance your marginal benefit of

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just one more cookie after you've already had one is

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probably still maybe net positive But after you've had ten

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cookies and your stomachs of rumbling saying What are you

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doing to me Why to which you say I'm a

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slave to my taste buds What's it to you Stomach

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When the cost of just one Mohr outweighs the benefits

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it's usually time to call it quits Well marginal analysis

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is when we look at things from this perspective by

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asking what would happen to the output if we added

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just one Mohr input Well our cookie examples an example

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of the law of diminishing marginal returns which is just

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one way we can use marginal analysis diminishing marginal returns

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It's when we get less and less benefit from the

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same input So we get less and less enjoyment from

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each cookie with each additional one that we eat until

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eventually It's enjoyable anymore Like your digestive system can only

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handle so much Marginal analysis has used everywhere when we

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look at consumers consuming when businesses air trying to minimise

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costs and when governments air tinkering around with the financial

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models on howto incentivize us Teo do things any time

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you see the word marginal Like in marginal cost of

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production and marginal propensity to consume it refers to thinking

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on the margin when the input changes a tiny bit

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Well how does that affect the output in it What

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rate for instance marginal propensity to consume asks when consumers

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have more disposable income in their pockets How much more

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money are they in fact spending well as opposed to

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investing it or hoarding it under your mattress Because you

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forgot inflation was a thing Oops What marginal analysis is

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important for firms as well as cookie eaters Firms want

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to make just one more just one more Just one

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more of whatever they're selling like say a waffle irons

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that make keyboard shaped waffles until they stopped making money

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selling them the keyboard shaped waffle iron Producers find that

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sweet spot where marginal costs equal marginal revenue which is

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where the cost of just one more waffle iron equals

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the revenue they make by selling that one more waffle

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iron right If they go below it like they can't

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sell it well then there actually losing money producing more

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waffle irons Well just like when you ate cookies you

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basically ate them until your marginal cost equalled your marginal

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benefit As long as the marginal benefit is higher than

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the marginal cost it's hard to say no to the

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cookies whispering your name from the sugar stores in the

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kitchen But when all of a sudden you realize eating

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one more cookie is going to do more harm than

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good when your marginal costs of just one more cookie

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is higher than your marginal benefit of just one more

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cookie well then you call it quits Unless you're a

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mascots they want then your marginal cost Might it also

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be benefits But we'll save that complication for Advanced Micro

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economics The government uses marginal analysis on a mega scale

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in the aggregate as economists say like when the Fed

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is in the Federal Reserve lowers interest rates Jost a

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smidge of a percentage making borrowing money cheaper to try

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to get people to borrow just a smidge more Right

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Okay well marginal analysis is all about tinkering at a

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little more Take away a little less to see what

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happens next time Your tinkering well maybe with deciding how

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many keyboard shaped waffles you should make with your new

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keyboard Waffle Iron Well just remember now you're thinking like 00:03:41.543 --> [endTime] an economist tasty

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