Economics, 3rd Edition

Principle 3: Rational People Think at the Margin

Decisions in life are rarely straightforward and usually involve problems. At dinner time, the decision you 

face is not between fasting or eating as much as you can, but whether to take that extra serving of pizza. 

When examinations roll around, your decision is not between completely failing them or studying 24 hours 

a day, but whether to spend an extra hour revising your notes instead of watching TV. Economists use the 

term 

marginal changes

 to describe small incremental adjustments to an existing plan of action. Keep 

in mind that ‘margin’ means ‘edge’, so marginal changes are adjustments around the edges of what you 

are doing.

SELF TEST 

Assume the following costs are incurred by a student over a three-year course at a university:  

 

●

 Tuition fees at 

€9,000 per year = €27,000 

●

 Accommodation, based on an average cost of 

€4,500 a year = 

€13,500 

●

 Opportunity cost based on average earnings foregone of 

€15,000 per year = €45,000 

●

 Total cost 

= 

€85,500 

●

 Given this relatively large cost why does anyone want to go to university?