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The Basic Concepts in Microeconomics

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The term marginal cost refers to the opportunity cost associated with producing one more additional unit of a good (Marginal Benefit and Marginal Cost, 2009). Suppose a client ordered for making 100 toys and the total cost agreed would be $ 1000. Here the average price per toy is $ 10. After the production is completed if the client ordered for one toy more; then it is difficult for the manufacturer to deliver 101 toys for $ 1010. Instead, the manufacturer may charge $ 1050. Here the marginal cost the additional toy manufactured would be $ 50.

‘ Marginal utility, on the other hand, is the measure of additional satisfaction (utility) gained by a consumer who receives one additional unit of a product or service. The concept is used to explain why consumers buy more of a product when the price falls’ (Marginal utility, 2009). Gold ornaments always attract ladies. But the current value of gold per gram forces them from purchasing more gold or wearing more gold ornaments. On the other hand suppose the gold value falls by 25 to 50%, and then the buyer would be able to get some additional units for the amount of money he decided to spend on gold ornaments.

Thus marginal utility is the increase in utility as a result of higher consumption. “ The greater the supply of the item available, the smaller the marginal utility. In total utility, supply is the main price determinant” (Marginal utility, 2009) Types of goods As per economic classification, goods can be classified into three; Inferior, Normal and Luxury. An inferior good always moves well the income decreases whereas when the income of the people increases, the inferior goods selling would be adversely affected.

On the other hand, the above case is exactly opposite for luxury goods. When the income decreases, luxury goods consumption would be less whereas when the income increases, luxury goods consumption would be more. For example, the current economic recession has made the public with less income and subsequently less spending on luxury goods.

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