Goal: Understand Marginal
Analysis 9/20/11
Economists believe we make decisions by doing
a marginal analysis.
Marginal- means extra or additional
Marginal Analysis -is an approach that weighs
the marginal benefits of an action against the
marginal costs.
Marginal Benefit- is the additional satisfaction
(Utility) for using one more unit of a product
Marginal Costs-is the additional cost of using
one more unit of a product
Examples:
Should you go to school for one more year?
Should you study for an extra hour?
Should you supersize your meal?
Marginal and Sci Method Period 8 Page 1
Should you supersize your meal?
Should you expand your business?
Should the government spend more money to
create jobs?
Law of Diminishing Marginal Utility
-says the more you consume, the less utility
you get out of the good or service.
Example:
Favorite Food
Goal: Learn How Economics Develops its
Theories and Laws
-Like the other sciences you have studied
Economics uses the Scientific Method.
Marginal and Sci Method Period 8 Page 2
The Scientific Method in Economics
-Observe real-world behavior and outcomes
-Based on observations determine a possible
cause and effect (A Hypothesis)
-Test your hypothesis by comparing outcomes
of specific events to outcomes predicted by the
hypothesis
-Accept, reject, or change your hypothesis
-If your hypothesis continues to be accepted
after numerous tests it will become an
Economic Theory, Economic Law or Economic
Principle
Economic Principle-a statement about
economic behavior that predicts the effects of
certain actions.
Exit Question: What method is used to create a
economic law or theory?
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