Why is Marginal Analysis Important in Economics?
In any business, the individuals or customers are very keen on experiencing maximum satisfaction from a product bought. The industries will tend to attain maximum profits. Here, one is a dependent variable (benefit to the customer) and the other is an independent variable (product cost). Marginal analysis will try to evaluate whether the increase or reduction of an independent variable will cause the dependent variable to fall or rise maximally. This analysis is very important to balance the customer satisfaction with that of the investor’s product. Marginal analysis will report the necessity of enhancing the resources for manufacturing the best product only if it triggers the maximum benefit to the customer. So there is no wastage of the amount spent on the product buying or the product making.
For example, if a person is very thirsty and he buys a Coca Cola drink, it gives him lot of satisfaction than the cost of the bottle. So it is reliable to buy a bottle in terms of the customer benefit and satisfaction. If the person is moderately thirsty, then the necessity of buying the same bottle with the same price will bear less importance in the customer’s view. If he buys the bottle, even then he might not get that much satisfaction which can balance the cost of the bottle. If the person is not at all thirsty then he cannot enjoy drinking Coca Cola. The cost of the bottle cannot equal the amount of satisfaction he gets by drinking it. The study to know that the benefit of using a product is beyond its price and reports the usage of the product reliably can be named as marginal analysis.
Marginal analysis will help the government funds to be utilized in a right manner. If any project was not done properly after spending lot of funds on it, it is not always right to underestimate the results of the project. By carrying out marginal analysis, the sunk costs can be ignored keeping in mind the large benefits the project could give. Marginal analysis will encourage the government to spend little more on the project to get better results. So, marginal analysis is important in economics.