Economics often dances to the tune of counterintuitiveness, while simultaneously serving as a mirror to human behavior. This paradox suggests that the foundational concepts of economics should, in theory, be quite accessibleâprovided you possess the requisite humanity.
A pivotal concept in economics is the idea of the marginâhow decisions are made at the margin and the implications of marginal versus average costs. Yet, many find it challenging to grasp the nuances of decision-making at the margin. Some educators resort to mathematical illustrations, such as presenting an equation for total cost and explaining that marginal cost is its first derivative. For those mathematically inclined, this approach can yield neat, precise answers suitable for standardized testing. However, one can easily excel in these quantitative assessments without truly internalizing the critical notion of marginal decision-making.
But if humans genuinely make decisions at the margin, shouldn’t we be able to clarify this concept by pointing to relatable examples? Indeed, we can. Take, for example, a popular meme. If you find humor in its message, you likely already grasp the distinction between average and marginal costs, along with the essence of margin-based decision-making:
Assuming youâre not still in your toddler years, this image will resonate with you. However, for the sake of clarity, letâs dissect the humor.
Shaving cartridges are notoriously priceyâletâs say a pack costs $20, making the average cost per cartridge $5. As you use a razor, it dulls, diminishing its effectiveness and comfort. After five shaves, you might find yourself swapping out the first cartridge for a fresh one. Since youâve already paid for the pack upfront, the marginal cost of replacing the first cartridge now approaches zero, while the marginal benefit is high. This pattern continues with each successive cartridge until you reach the fourth. At this point, switching to a new cartridge incurs the full cost of a new pack. Consequently, many users extend the life of the fourth cartridge much longer than the preceding ones. Despite all four cartridges sharing the same average cost, their marginal costs diverge significantly when it comes to usage and disposal. This discrepancy highlights the very behavior illustrated in the meme.
Regrettably, some students glide through economics programs, achieving top grades through sheer mathematical prowess, yet fail to absorb the fundamental economic insights exemplified by this simple meme. While mathematics holds value in economics, solving equations does not equate to genuine economic analysis.
Thereâs an adage that suggests if you canât convey a concept in terms a child could grasp, you donât fully comprehend it yourself. Perhaps a parallel exists here: if you can craft a straightforward meme that elucidates the workings of indifference curves, it signifies a deeper understanding than merely calculating partial derivatives or referencing budget constraints. Anyone with a decent grasp of math can tackle the latter, particularly in an exam setting, but only someone who has truly internalized the concepts can create the former.
