What does the term "marginal" refer to in economics?

In economics, the term "marginal" specifically refers to the concept of an additional unit or increment of a good or service. It is crucial for understanding how decisions are made at the margin, which focuses on the impact of consuming, producing, or investing in one more unit. When analyzing behavior, such as consumer choice or production decisions, economists look at marginal costs and marginal benefits to determine the best course of action.

For example, when considering whether to produce one more unit of a product, a firm will weigh the marginal cost (the cost incurred by producing that additional unit) against the marginal revenue (the additional income earned from selling that unit). If the marginal revenue exceeds marginal costs, it is usually beneficial for the firm to increase production.

This definition of "marginal" as an additional unit is distinct from considering a general total or a small quantity of things. Understanding marginal analysis is fundamental to various economic theories and helps explain behaviors in markets and other economic scenarios.