Marginalism

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Marginalism refers to the use of marginal concepts in economic theory. Marginalism is associated with arguments concerning changes in the quantity used of a good or import services or service, as opposed to some notion of the over-all significance of that class of good or service, or of some total quantity thereof, but marginalists following the lead of Alfred Marshall were further heavily dependent upon the concept of marginal physical productivity in their explanation of cost; and the neoclassical tradition that emerged from British marginalism generally abandoned the concept of utility and gave marginal rates of substitution a more fundamental role in analysis.


Marginalism is now an integral part of mainstream economic theoryConstraints are conceptualized as a border or margin. The location of the margin for any individual corresponds to his or her endowment, broadly conceived to include opportunities. This endowment is determined by many things including physical laws (which constrain how forms of energy and matter may be transformed), accidents of nature (which determine the presence of natural resources), and the outcomes of past decisions made both by others and by the individual.A value that holds true given particular constraints is a marginal value. A change that would be affected as or by a specific loosening or tightening of those constraints is a marginal change.Neoclassical economics usually assumes that marginal changes are infinitesimals or limits. (Though this assumption makes the analysis less robust, it increases tractability.) One is therefore often told that “marginal” is synonymous with “very small”, though in more general analysis this may not be operationally true (and would not in any case be literally true). Frequently, economic analysis concerns the marginal values associated with a change of one unit of a resource, because decisions are often made in terms of units; marginalism seeks to explain unit prices in terms of such marginal values



References

1. http://en.wikipedia.org/wiki/Marginalism




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