marginal benefit

Examples of marginal benefit in the following topics:

• Individuals Make Decisions at the Margins

  • The cost or benefit of the single decision is called the marginal cost or the marginal benefit.
  • This is different from the total or average: net marginal benefit (marginal benefit minus marginal cost) is the amount that total benefit will change due to the single decision.
  • In theory, individuals will only choose an option if marginal benefit exceeds marginal cost.
  • As environmental protection increases, the largest marginal benefits are achieved first, followed by decreasing marginal benefits.
  • At point $Q_c$, the marginal costs will exceed the marginal benefits.

• Optimal Quantity of a Public Good

  • The government is providing an efficient quantity of a public good when its marginal benefit equals its marginal cost.
  • It is equal to the marginal benefit curve.
  • The public good provider uses cost-benefit analysis to decide whether to provide a particular good by comparing marginal costs and marginal benefits.
  • Output activity should be increased as long as the marginal benefit exceeds the marginal cost.
  • An activity should not be pursued when the marginal benefit is less than the marginal cost.

• Demand for Public Goods

  • The marginal benefit for an individual is the increase in the total benefit that results from a one-unit increase in the quantity provided.
  • The marginal benefit of a public good diminishes as the level of the good provided increases.
  • The aggregate demand for a public good is the sum of marginal benefits to each person at each quantity of the good provided .
  • The economy's marginal benefit curve (demand curve) for a public good is thus the vertical sum all individual's marginal benefit curves.
  • The efficient quantity of a public good is the quantity that maximizes net benefit (total benefit minus total cost), which is the same as the quantity at which marginal benefit equals marginal cost.

• Allocative Efficiency

  • Free markets iterate towards higher levels of allocative efficiency, aligning the marginal cost of production with the marginal benefit for consumers.
  • Allocative efficiency is the degree to which the marginal benefits consumers receive from goods are as close as possible to the marginal costs of producing them.
  • At the optimal level of allocative efficiency in a given market, the last unit's marginal cost would be perfectly equal to the marginal benefit it provides consumers, resulting in no deadweight loss.
  • For example, an economist might say that a change in policy increases allocative efficiency as long as those who benefit from the change (winners) gain more than the losers lose.

• Principle of Diminishing Marginal Utility

  • The principle of diminishing marginal utility states that as more of a good or service is consumed, the marginal benefit of the next unit decreases.
  • The principle of diminishing marginal utility states that as an individual consumes more of a good, the marginal benefit of each additional unit of that good decreases.
  • This is a simple illustration of diminishing marginal utility .
  • While there are some circumstances where there will always be some marginal utility to producing or consuming more of a good, there are also circumstances where marginal utility can become negative.
  • Getting a third ticket for your date will have low marginal utility than the second.

• Introduction to Property Rights and Markets

  • The optimal solution to the allocation problem requires the participants to have accurate information about the marginal costs and marginal benefits associated with specific alternatives.
  • Most of Neoclassical microeconomics is a story about the way market exchange reveals, communicates and uses individual evaluations about marginal benefits (MB) and marginal costs (MC).

• Marginal Analysis

  • It is crucial to remember that the marginal value (cost, benefit, etc) is the value associated with a specific choice.
  • Marginal benefit (MB) is the change in total benefits associated with a choice.
  • Generally, the marginal benefits of berries will tend to decrease primarily because of diminishing marginal utility.
  • The marginal benefit (MB) of each unit of berries is shown in Figure VI.2.
  • The first units of berries are picked because the marginal benefit of each unit (MB) is greater than the marginal cost (MC).

• Marginal Revenue Productivity and Wages

  • In a perfectly competitive market, the wage rate is equal to the marginal revenue product of labor.
  • To determine demand in the labor market we must find the marginal revenue product of labor (MRPL), which is based on the marginal productivity of labor (MPL) and the price of output.
  • From the perspective of the firm, the MRPL is the marginal benefit to the firm of hiring an additional unit of labor.
  • We know that a profit-maximizing firm will increase its factors of production until their marginal benefit is equal to the marginal cost.
  • Thus, workers earn a wage equal to the marginal revenue product of their labor.

• Externalities and Impacts on Resource Allocation

  • An externality is a cost or benefit that affects a party who did not choose to incur the cost or benefit.
  • In the case of negative externalities, the marginal private cost of consuming a good is less than the marginal social or public cost.
  • The marginal social benefit should equal the marginal social cost (i.e. production should only be increased when the marginal social benefit exceeds the marginal social cost).
  • Positive externalities, also referred to as external benefits, impose a positive effect on a third party.
  • In order to achieve the socially optimal equilibrium, the marginal social benefit should equal the marginal social cost (i.e. production should be increased as long as the marginal social benefit exceeds the marginal social cost).

• Deriving the Labor Demand Curve

  • This can be thought of as the firm's marginal cost.
  • This can be thought of as the marginal benefit.
  • The amount a factor adds to a firm's total cost per period is the marginal cost of that factor, so in this case the marginal cost of labor is $10.
  • Firms maximize profit when marginal costs equal marginal revenues, and in the labor market this means that firms will hire more employees until the wage rate (marginal cost of labor) equals the MRPL.
  • Changes to the marginal productivity of labor: Technology, for instance, may increase the marginal productivity of labor, shifting the demand curve to the right.