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Alfred Marshall's Marginal Thinking

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kasey j

on 9 September 2010

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Transcript of Alfred Marshall's Marginal Thinking

Alfred Marshall's Marginal Thinking What Is Marginal Thinking? A.K.A Marginal Analysis Who is Alfred Marshall? http://www.mtsn.org.uk/images/sce/Sir%20Alfred%20Marshall.jpg Born: London England 1842 Deceased: 1924 Founded Cambridge School of Economics Wrote: The economics of Industry Elements of Economics of Industry Industry and Trade Money, Credit, and Commerce Marginal Analysis is: "The comparison of marginal ("extra" or "additional")
benefits and marginal costs, usually for decision making" -Economics: Principles, Problems, and Policies
(McConnell, Brue, Flynn) "Ignore the past and consider only what will change in the future." -C.S. Hayden When performing Marginal Analysis... What Did He Do? Alfred Marshall introduced:
Marginal Thinking
Elasticity of Demand
Consumer Surplus Consider This... Marginal Benefit:

$200
$180
$160
$140
$120
$100
$80
$60
$40
$20 Marginal Cost:

$10
$20
$30
$40
$50
$60
$70
$80
$90
$100 A rational person will
choose to have a marginal
benefit of $80 and a marginal
cost of $70 Why? What are some ways we
perform marginal analysis? When you buy something
from the store When you choose
to pick up litter When you drink water
instead of soda Marginal Benefit:
"additional benefits received when one more unit is produced" Marginal Cost:
"additional Costs imposed when one more unit is produced" Analyzing Marginal Costs and Marginal benefits helps to determine economic efficiency Which means... Don't consider fixed or sunk costs Elasticity of Demand What Is Elasticity of Demand? Elasticity of Demand "quantifies
buyers sensitivity to price" If a good is more inelastic, a quantity demanded will only change a little if price is changed. If a good is more elastic, quantity demanded will change a lot if price is changed. Consumer Surplus -Library of Economics and Liberty What is Consumer Surplus? "The difference between the maximum price a consumer is (or consumers are) willing to pay for an additional unit of a product and its market price; the triangular area below the demand curve and above the market price." % Change in Quantity Demanded % Change in price Elasticity of Demand Equation Ed= Alfred Marshall
Marginal Thinking
Elasticity of Demand
Consumer Surplus The Main Points http://www.mhhe.com/economics/pugel12e/keygraph/keygraph1a.jpg http://sehlhorst.smugmug.com/Other/blog/inelastic/552108937_e5ZpV-O.png http://sehlhorst.smugmug.com/Other/blog/elastic/552108985_ZLiFU-O.png “Alfred Marshall.” Answers.com. 2010. 4 Sep 2010. <www.answers.com/referenceanswers>.
"Alfred Marshall." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. 8 September 2010. <http://www.econlib.org>.
“Alfred Marshall.” Economy Professor. 2010. 4 Sep 2010. <www.economyprofessor.com>.
Hayden, C.S. “Marginal Thinking.” C.S. Hayden Blog. 11 Dec 2006. 4 Sep 2010 <cshayden.blogspot.com>.
“Marginal Analysis.” Humboldt State University. 4 Sep 2010 <sorrel.humboldt.edu>.
“Marginal Analysis.” Washington State University. 2010. 4 Sep 2010 <www.ses.wsu.edu>.
McConnell, Campbell, Stanley Brue, and Sean Flynn. Economics Principles, Problems, and Policies. New York: The McGraw-Hill Companies, 2009.
Moffatt, Mike. “Marginal Analysis: Thinking at the Margin.” About.com. 2010. 4 Sep 2010 <www.economic.about.com>.
Bibliography -Economics: Principles, Problems, and Policies
(McConnell, Brue, Flynn)
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