Marginal Analysis

A Little More or a Little Less

The budget constraint framework helps to illustrate that most choices in the real world are not about getting all of one thing or all of another ­– we rarely decide "all burgers" or "all bus tickets". Options usually fall somewhere on a continuum, and the choice usually involves marginal decision-making and marginal analysis.

Marginal decision-making means considering a little more or a little less than what we already have. We decide by using marginal analysis, which means comparing the costs and benefits of a little more or a little less.

It's natural for people to compare costs and benefits, but often we look at total costs and total benefits, when the best choice requires comparing how costs and benefits change from one option to another. In short, you might think of marginal analysis as "change analysis". Marginal analysis is used throughout economics. This subtle concept is easier to grasp with examples.