All of us make many decisions each day that require looking at the costs and benefits that we incur because of those decisions. The field of economics relies heavily on marginal analysis to explain economic concepts.
Marginal analysis involves considering the effects of small changes (additions or subtractions) to a current situation.
When my husband and I were buying for a house, we always would consider the marginal benefits and marginal costs of what type of house we could afford versus what type of house we wanted to purchase. "Marginal analysis refers to the comparison of marginal benefits and marginal costs"
(McConnell & Brue, 2004, pg. 4)
When individuals act to satisfy their wants, they behave rationally. Rational behavior is
consistent behavior that maximizes an individual's satisfaction. The notion of rational
behavior rests on three assumptions:
???First the individual has a preference and can identify, within limits, what he or
she wants.
???Second, the individual is capable of ordering his or her wants consistently,
from most preferred to least preferred.
???Third, the individual will choose consistently from these ordered preferences
to maximize his or her satisfaction.
Even though the individual cannot fully satisfy all her wants, she will always choose
more of what she wants rather than less. Furthermore, she will always choose less rather
than more of what she does not want. In short, the rational individual always stands
ready to further her own interests.
When I first started college, I wanted to major and in Biology to become a Pediatrician but when I did my research on what classes I needed to take and how long it would ...