Concepts
- Marginal Measurements (One-More)
- Marginal Benefit
- Marginal Cost
- Efficiency (MB = MC)
- Don’t Stop Before Efficiency (MB > MC)
- Don’t Produce Beyond Efficiency (MC > MB)
Overview
In economics we make decisions on-the-margin. In other words, we make decisions one unit at a time. Marginal analysis allow us to observe the marginal benefit (MB) of consuming one more unit of output, along with the marginal cost (MC) of producing one more unit of output. We compare the MB to the MC and find that if the MB exceeds the MC, then that’s a good unit of output and it should be produced. On the other hand, if the MC exceeds the MB, then that’s a bad unit of output and it should not be produced. The concept of efficiency tells us that if we want to produce the amount of output that society values most highly, we need to produce up to and at the point where MB = MC. If we stopped anywhere before that point, we’d be leaving benefit on the table. If we produced anywhere after that point we’d be wasting resources on output whose MC exceeds their MB.
Materials
- Lecture Notes – Nothing to Print, we’ll take notes by hand
Lecture
Marginal Analysis Video
Marginal Analysis Lecture Video
Quiz
No quiz on this lesson because there will not be any direct questions about this material on the AP Exam. However, these concepts are needed to understand other material that will be tested on the AP Exam so don’t overlook this lesson!!