In economics, rational people make decisions at the margin by comparing the additional benefits and costs of a particular action. For example, when deciding whether to buy a new car, a rational person will compare the added enjoyment of owning a new car to its added cost. If the added enjoyment is greater than the added cost, the person will buy the car.
Marginal analysis is an important economic tool because it helps us to understand how people make decisions. It can be used to analyze a wide range of decisions, from personal finance to public policy. For example, marginal analysis can be used to determine the optimal level of taxation or the optimal amount of pollution to allow.
