Marginal concepts - Definition and Overview

In economics, marginal concepts refer to the effect of producing or consuming one more of a good, i.e. at the edge, or margin, of the total produced/consumed.

For example marginal cost refers to the cost of producing one more unit of some good. In general this will be lower than the average cost because the average cost includes fixed costs. (See economies of scale).

Similarly marginal utility is the additional utility (satisfaction or benefit) that a consumer derives from an additional unit of a commodity or service. It is assumed that marginal utility generally falls as consumption increases, so that one's 10th doughnut in a day is less satisfying than the first or second.

Other marginal concepts include:

• marginal tax rate
• marginal propensity to save and consume
• marginal rate of substitution

The related concept of elasticity is the ratio of the incremental percentage change in one variable with respect to an incremental percentage change in another variable.