Updated date:

Marginal Analysis and Subjectivity at Its Finest

I have been hooked about discussing every nook and cranny relating to business and economy for a while now.

marginal-analysis-and-subjectivity-at-its-finest

People have different tastes and preferences regarding everything. Some would instead buy a diamond ring, and some people would save their money to purchase a new guitar. This rule also applies to passion and hobby every person has. John will need a new brush because he is a painter, and Matthew might need a new tractor because he is a farmer. The same as the saying, different strokes for different folks.

These differences make every individual that we know are different. Even though there are two people named Lucas Goldsmith, these two persons weren't, aren't, and won't be the same. Some people have striking resemblances to each other, but these individuals aren't the exact copycat. So, the market has a demand for every person.

Every item has its demand in the market. For example, things people deemed useless like cats' excrement, would be worth money for the right people. People could use the substance to create fertilizer, or they can do whatever they want with it. The adage is then a truth for the present market: one man's trash is another man's treasure.

“People almost invariably arrive at their beliefs not on the basis of proof but on the basis of what they find attractive.”

— Blaise Pascal, De l'art de persuader

The Cool Way of Examining Trades

marginal-analysis-and-subjectivity-at-its-finest

Economics is the study of scarcity and choice. So, people studying economics must act wiser than people who don't. In this subject, there is a concept known as marginal analysis. Marginal analysis deduces the amount of utility or satisfaction earned with each quantity added. So, the first burger may satisfy you more than the second one. This understanding is an optimal measurement to understand the options and choices an individual has.

Economics is the study of scarcity and choice. So, people studying economics must act wiser than people who don't. In this subject, there is a concept known as marginal analysis. Marginal analysis deduces the amount of utility or satisfaction earned with each quantity added. So, the first burger may satisfy Joseph more than the second one. This understanding is an optimal measurement to understand the options and choices an individual has.

By using marginal analysis, experts can calculate how many machines a company needs to receive maximum effectiveness. For example, a small room consisting of 2 people is too ineffective, and the same place containing 50 workers is unfit. So, the correct number is between 2 and 50. Next, people could apply this theory to everyday lives, such as buying cars. Buying a 1987 car is too old, and purchasing the newest Lamborghini costs too much. An ordinary person should pick between both.

The Useless Rock and the Obligated Water

marginal-analysis-and-subjectivity-at-its-finest

The diamond-water paradox is an absurd and entertaining abstraction in economics. Diamond is a rock used for satisfaction purposes, and clean water is a substance normal human beings can't live without it. But, people yearn more to earn diamonds rather than a gallon of water. Only human irrationality can explain this madness.

Human irrationality drives social sciences from exact sciences like mathematics. Every theory about the economy always has an obligated variable: people doing the best course of action. Therefore, a stimulus will work if every person uses the money given to an upstart business or applying for work. Yet, some people use it to buy jewellery to make them feel unique and prestigious. Is that a bad thing? No, if they have real money to purchase it.

When there's a demand, there's a supply. Diamond is an expensive thing not because of its usefulness, but diamond gives the wearer the feeling of being useful. So, companies can use this knowledge to monopoly the market. Likewise, people receive the most blames because they want it in the first place.

One Product to Rule Them All

marginal-analysis-and-subjectivity-at-its-finest

Knowing this, companies often purchase small businesses to make them a giant. After that, there is little to no chance of fighting them. Furthermore, most of these giants are usually their biggest rival. As an illustration, BlackBerry was the biggest giant in the phone industry, not too long ago. But a chain of fatal misstep brought them down into the ground. And now, people never care about this company.

Giants have almost absolute control over a market. Most people will pick either Android and iOS as their phone operating system rather than anything else. Not to mention, they have the best experts in the industry to find the best calculation of marginal analysis to produce the most optimal amount they can. As a result, people are willing to buy the newest iPhone, no matter the cost. Stuff like these needs regulations to control.

Governments have ideologies to guide them in making the right regulations. Nowadays, economic ideologies have two polar-opposite concepts: Capitalism and Communism. But these two ideologies never have the best idea. The wisest approach would be to combine them and not use one of them in some instances. For example, the monopoly of insulin in the USA continues to grow, and many people will die because of it. For this purpose, governments should be strict regarding the market for essential items.

To Deduce Is to Save

With a short time of thinking, people will be able to become wiser in spending their money. There is no need for complex marginal analysis to reason why buying a golden necklace priced at 20.000$ is a good idea to impress acquaintances. All that people need is to ask themselves, "What is the value of this thing if a buy it twice." If there is no value in buying it twice, there is little value in having one.

“Your daily product determines your value.”

— Sunday Adelaja

Related Articles