Robert is cruising down Interstate 80 toward Des Moines, Iowa. Robert wants to get to his destination quickly and safely and he doesn’t want to get a speeding ticket. The speed limit is 70 mph but he figures the risk of a ticket is low if he travels just a little bit faster, so Robert sets the cruise control to 72 mph. The road is straight and flat, and after 20 minutes he hasn’t seen another car, so he thumbs it up a few clicks to 75. As he approaches Des Moines, Robert spots a police cruiser and thumbs it down to 70. After Des Moines it’s nothing but quiet cornfields once again, so he thumbs it up to 72. Crossing the state line into Nebraska, Robert notices that the speed limit is 75, so he thumbs it up to 77 before thumbing it down again as he approaches Omaha.

5

Robert and his thumb illustrate what economists mean by thinking on the margin. As Robert drives, he constantly weighs benefits and costs and makes a decision: a little bit faster or a little bit slower?

Thinking on the margin is just making choices by thinking in terms of marginal benefits and marginal costs, the benefits and costs of a little bit more (or a little bit less). Most of our decisions in life involve a little bit more of something or a little bit less, and it turns out that thinking on the margin is also useful for understanding how consumers and producers make decisions. Should the consumer buy a few more apples or a few less? Should the oil well produce a few more barrels of oil or a few less?

In this book, you will find lots of talk about marginal choices, which includes marginal cost (the additional cost from producing a little bit more), marginal revenue (the additional revenue from producing a little bit more), and marginal tax rates (the tax rate on an additional dollar of income). This point about margins is really just a way of restating the importance of trade-offs. If you wish to understand human behavior, look at the trade-offs that people face. Those trade-offs usually involve choices about a little bit more or a little bit less.

The importance of thinking on the margin did not become commonplace in economics until 1871, when marginal thinking was simultaneously described by three economists: William Stanley Jevons, Carl Menger, and Leon Walras. Economists refer to the “marginal revolution” to explain this transformation in economic thought.