11 Examples of Marginal Change

John Spacey, August 08, 2018

Marginal change is the addition or subtraction of one unit at a point in time. This is an important concept in economics as it is used to model the behavior of market participants. The following are common types of marginal change.

Marginal Use

The use you get out of one more item. For example, a carpenter with three hammers who doesn't need a forth such that it would be useless.

Marginal Utility

Marginal utility is the value you get by purchasing one more good. For example, a household that has two televisions that is considering buying a third.

Marginal Benefit

Marginal benefit is another common term for marginal utility that describes the value a market participant gets by purchasing one more of a good. For example, a consumer who has just purchased four winter tires may get very little benefit from buying a 5th.

Marginal Rate of Substitution

The rate at which a consumer is willing to substitute one good for another and stay at the same satisfaction level. This can be mapped on an indifference curve that depicts the combinations of two or more goods that give a consumer equal satisfaction. For example:

Combination	Apples	Oranges
A	10	0
B	7	1
C	5	2
D	2	4

As you can see in the example above, the consumer finds that local oranges are more expensive than apples such that they have to sacrifice more than one apple for an orange. The chart above shows that this consumer is just as satisfied with combinations A,B,C and D.

Marginal Cost

Marginal cost is the cost to produce one more item. If a factory is at its capacity, producing one more item per month may require a new factory. However, usually marginal cost goes down as you produce more due to economies of scale. For example, a factory producing 10 bicycles may be able to produce one more for $200. A factory producing 300,000 bicycles may be able to produce one more for $42.

Marginal Revenue

The revenue generated by producing one more product. A luxury fashion brand that produces 1,000 units of a particular style of boot may be able to charge $600 for one more. If they produce 10,000 units of the boot they may be able to charge $200 for one more as they begin to saturate their market.

Marginal Product of Labor

The output of one more hour of work. For example, an entrepreneur may find that their hours start to add more value as they work longer such that working one hour a week produces no value but working one more hour when they are already working 60 hours produces significant output.

Marginal Tax Rate

The amount of tax you need to pay for $1 more of income. If you are making $40,000 you may pay $0.05 for an extra dollar of income. If you are making $200,000 you may pay $0.40 for an extra dollar of income. If the marginal tax rate gets too high individuals have little incentive to make more money.

Marginal Rate of Transformation

The rate at which one output must be sacrificed for another. For example, a bakery that must sacrifice 6 muffins for every loaf of bread at a particular production level.

Marginal Propensity to Save

The amount you save out of an extra dollar of income. At a low income level people find it hard to save. At an high income level, an individual could potentially save all of their income beyond a certain cost of living.

Marginal Propensity to Consume

The amount you spend out of an extra dollar of income. As income rises some individuals will make upgrades to their lifestyle while others will save. Generally speaking, as income rises, marginal propensity to consume goes down as an individual is able to save more of their income to build wealth.