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AP Microeconomics – Marginal Analysis

This lesson from Advanced Placement Microeconomics (4th Edition) demonstrates how marginal analysis is used by economists to make allocation decisions. Students evaluate real-life situations and determine whether the marginal benefit is greater than the marginal cost.

Introduction

This lesson from Advanced Placement Microeconomics (4th Edition) introduces students to the concept of marginal analysis. When you get right down to it, economics is really about how much of something we should do. Because of scarcity, we cannot have everything we want. Therefore, we have to make decisions about how to allocate our time, money, and resources among the many different uses of these limited items. Marginal analysis is the tool economists use to make these allocation decisions.
 
The idea of marginal analysis is quite simple: If the marginal benefit from another unit of some activity exceeds the marginal cost of that unit, you should undertake that extra unit of the activity. If the marginal benefit of the extra unit is less than the extra cost of that unit, do not take on the extra unit. (As a rule of thumb, if the marginal benefit and marginal cost of an extra unit are equal, economists say go ahead with that unit.)
 
This lesson gives students some experience working with marginal analysis. Stress to students that they need to be clear in their answers about the difference between a “marginal” value (such as marginal benefit or marginal cost) and a “total” value (such as total benefit or total cost). This distinction makes a big difference in how well a student performs on the AP Microeconomics Exam.
 
Bell Ringer: Will you do all you can to get an A on your next economics exam?

Learning Objectives

  • Understand why we all have to make decisions.
  • Define the terms marginal benefit, marginal cost, total benefit, and total cost.
  • Explain that economic decision making often focused on a comparison of marginal benefit and marginal cost to determine how many units of any activity should be provided.
  • Emphasize the difference between marginal concepts and total concepts.

Resource List

Process

Please refer to the Marginal Analysis Teacher Lesson.

Conclusion

Ask the students if marginal analysis means that they should do all they can to complete an assignment or an activity to the best of their abilities, regardless of the cost? [They should compare the MB and the MC of each extra unit of the activity. If the MB is greater than (or equal to) the MC, they should undertake the next unit of the activity. If the MB is less than the MC, they should not undertake that unit.]

Extension Activity

Not available for this lesson.

Assessment

Please refer to the Marginal Analysis Student Lesson.