LESSON 3 MARGINALISM How do you know when one more is too much? 3-1 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM MARSHMALLOW ACTIVITY • Why did you stop buying marshmallows? • How many more marshmallows will you eat at a price of zero? 3-2 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM Marginal utility is the extra value or additional satisfaction a consumer obtains from consuming one additional unit of output. • What happened to each student’s total satisfaction with each marshmallow purchased and eaten? • What happened to the additional satisfaction or marginal utility as more marshmallows were purchased and eaten? 3-3 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM Diminishing marginal utility is when the additional satisfaction or marginal utility associated with consuming additional units of the same product in a given amount of time eventually declines. 3-4 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM THINK OF THE FOLLOWING EXAMPLES IN RELATION TO THE QUANTITY PURCHASED CONSIDERING DIMINISHING MARGINAL UTILITY 3-5 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM Marginal analysis is a decision-making tool for comparing the additional or marginal benefits of a course of action to the additional or marginal costs. 3-6 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM WATCH THE FOLLOWING VIDEO • https://www.youtube.com/watch?v=0BAMv 6lV2t4 3-7 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM HOW DOES MARGINAL ANALYSIS AFFECT YOUR DECISION MAKING: 3-8 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM REVIEW • What is Marginal Utility • Explain Diminishing Marginal Utility • What is Marginal analysis 3-9 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM GLOVE FACTORY EXAMPLE • • • • • Tape off 36x48” area Two pairs of scissors two pens and paper One desk in the middle with supplies One worker to start Track number of workers & gloves produced • Go for one minute and stop 3-10 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM Glove Production Table Number of Workers (1) Number of Gloves Produced (2) (3) (4) (5) 3-11 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM Add another worker 3-12 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM New Category Glove Production Table Number of Workers (1) Number of Gloves Produced (2) Marginal Product (3) (4) (5) 3-13 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM Marginal product is the additional output produced by each successive unit of an input. 3-14 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM ADD A THIRD WORKER • What is the marginal product of the 2nd and 3rd workers • Then a 3rd, 4th, 5th, 6th, 7th, 8th 9th while tracking the results 3-15 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM Glove Production Table Number of Workers (1) Number of Gloves Produced (2) Marginal Product (3) Value of Additional Gloves Produced (4) Marginal Cost of Labor (1 min worked) (5) ? .12 ? .12 ? .12 ? .12 ? .12 3-16 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM The law of diminishing returns states that as more units of a variable input are added to one or more fixed inputs, eventually the number of additional units of output produced will begin to fall. 3-17 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY LESSON 3 MARGINALISM Marginal cost is the increase in a producer’s total cost when it increases its output by one unit. 3-18 HIGH SCHOOL ECONOMICS 3RD EDITION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY