2.7: The Concept of the Margin

• Law of diminishing returns

  Where the marginal gains from adding more inputs decrease
• Marginal utility

  The additional utility gained from consuming an extra unit of a good
• Marginal Principle


  Idea that economic agents may take decisions by considering the effect of small changes from the existing situation
• Rational decision making


  A decision that allows an economic agent to maximise their objective, by setting the marginal benefit of an action equal its marginal cost
• Law of diminishing marginal utility

  The decrease in the marginal utility derived with each additional unit of a good or service that is consumed