Margin (economics)

This article concerns a concept of economic theory. For discussion of the term “margin” as used in the jargon of bourses, see “Margin (finance)”.

In economics, a margin is a set of constraints conceptualised as a border.^[1] A marginal change is the change associated with a relaxation or tightening of constraints — either change of the constraints, or a change in response to this change of the constraints.^[1]

Extensive and intensive margins

Margins are sometimes conceptualised as extensive or intensive.

An extensive margin corresponds to the number of usable inputs that are in some sense employed. For example, hiring an additional worker would increase an extensive margin.

An intensive margin corresponds to the amount of use extracted within a given extensive margin. For example, reducing required production from a given set of workers would decrease the intensive margin.

In the context of the workforce, the intensive margin can refer to people already in the workforce. The extensive margin refers to all members of the labour force, employed and unemployed. When discussing the change in the savings rate S(r) in the long-run equilibrium model, we assume S'(r) > 0 i.e. savings is increasing in the real rate of return. For an individual, there is little response of savings to interest rate changes i.e. s'(r)≈ 0. When we consider the extensive margin, the overall response in reality is usually positive. Individuals don't increase their saving rate, but more people become savers.

See also

• Marginalism
• Marginal utility

References

1. ^ ^{a b} Wicksteed, Philip Henry; The Common Sense of Political Economy (1910), Bk I Ch 2 and elsewhere.