When Mr. Stewart introduced marginalism in class, I had a hard time wrapping my head around it. If you were also confused, here's some more information!
Marginal value is the extra utility derived out of each additional unit of a service or good. For example, if you earn $1 per day, and suddenly your mom gives you an additional $1 per day, that is a very high marginal value: you've just doubled your daily money!
However, if you make $100 per day and then your mom gives you another $1 per day, the marginal value is pretty low: you've only increased your income by 1 percent instead of 100 percent.
In both scenarios, your mother is giving you the same monetary value ($1). The difference in the scenarios, however, is the value of one additional dollar relative to what you already have. In the first case, one extra dollar is very valuable because that will result in a 100 percent increase in your income. In the second case, one extra dollar is pretty useless because you're only increasing your money by 1 measly percent.
Both gifts from your mother are the same dollar value, but in the first case, it's a high marginal value and in the second case, it's a low marginal value.
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I really like how well the title summarizes the point of your blogpost: it seems contradictory, catching the view of the reader, while, at the same time, introduces nuance in which the statement is true. I think it is very important to clarify that as the amount of a certain good increases by the same amount, the utility will depend on the situation and, in some situations, is proportional to the amount you had originally. I also thought it was interesting that, as you explained, as the amount of a good increases, its utility and its value to you decreases but, as we learned in production possibilities tables and curves in our textbook and in class, its opportunity cost increases. I thought both of these concepts contributed to the fact that, when it comes to economics, more doesn’t necessarily mean better. The best amount of a good, the supply, can be determined by taking into consideration its cost for the supplier, determined by the opportunity cost, vs the price the consumer is willing to pay, determined by the utility it brings.
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ReplyDeleteThis post was extremely helpful to me! I was also having trouble understanding this concept of marginalism, but this post helped to clarify. I specifically liked how you described the concept as the value of one additional dollar (or one additional unit) relative to what you already have. I now understand that marginalism is similar to percent increase in that it does not refer to how many more dollars you get, but rather refers to your relative increase in dollars.
ReplyDeleteI also had a hard time understanding marginalism when it was first presented in class, but this post did a great job of explaining this concept in two scenarios that are easy to relate to. This blog post also helped me realized that marginal value is less about the dollar amount you increase by, in this case, but instead it emphasizes that it is better to consider the percent increase. Also, even though they increased their earnings by the same amount, there was a greater utility when there was a $1 increase from the $1 earnings than the $100 earnings.
ReplyDeleteI really like this example of marginalism because it lays it out very clearly that marginalism isn't based off the amount value but rather how much percent increase it gives you. It helped me realize that even if you changed the example to making all the values much bigger ( for example you make 100,000$ a day and your mom gives you 100$), since 100$ is a lot of money many people may get confused and think that it is a high marginal value when in actuality it is not.
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