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Thinking at the margin


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Marginal Analysis grahics

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Thinking at the margin

  1. 1. This circle represents a whole market for a good or service. There are varying degrees of Demand and Supply ELASTICITIES. ALL PRODUCERS AND CONSUMERS OF A GOOD/SERVICE
  2. 2. The “inner core” of this market represents Consumers and Producers whose Demand and/or Supply are relatively “Inelastic”. They are going to buy and sell regardless of movements in price (Ceterus Paribus). Inelastic Demand/Supply
  3. 3. As we move from the “core” of market participants who are going to buy and sell regardless, Demand/Supply becomes relatively MORE ELASTIC. Participants become more sensitive to changes in PRICE (Inputs as well as Outputs). Inelastic Demand/Supply Relatively MORE ELASTIC as we move to the “Margin(s)”
  4. 4. As we get closer (YELLOW area) to participants at the Margin, price becomes more of an issue. This is the “danger zone” space in the market is where economists focus attention on---it is where real harm can occur when price INCREASE.! These are the “Marginal” participants in the Market-- very sensitive to price changes. Inelastic Demand/Supply Area of Increasing ELASTICITY Relatively ELASTIC
  5. 5. The YELLOW area is representative of what Economist call “Thinking at the Margin(s)”. This is where “the action” takes place when market participants and/or government change prices or policy. Inelastic Demand/Supply