DEFINITION of 'Marginalism'

The study of marginal theories and relationships within economics. The key focus of marginalism is how much extra use is gained from incremental increases in the quantity of goods created, sold, etc. and how those measures relate to consumer choice and demand.

Marginalism covers such topics as marginal utility, marginal gain, marginal rates of substitution, and opportunity costs, within the context of consumers making rational choices in a market with known prices.

BREAKING DOWN 'Marginalism'

The idea of marginalism, and its value in establishing market prices as well as supply and demand patterns, was popularized by British economist Alfred Marshall in a publication dating back to 1890.

Marginalism is sometimes criticized as one of the "fuzzier" areas of economics, as much of what is proposed is hard to accurately measure, such as an individual consumers' marginal utility. Also, marginalism relies on the assumption of (near) perfect markets, which do not exist in the practical world. Still, the core ideas of marginalism are generally accepted by most economic schools of thought, and are still used by businesses and consumers to make choices and substitute goods.

RELATED TERMS
  1. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  2. Margin Debt

    1. The dollar value of securities purchased on margin within ...
  3. Cross Margining

    An offsetting position where market participants are able to ...
  4. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  5. Initial Margin

    The percentage of the purchase price of securities (that can ...
  6. Marginal Profit

    Marginal profit is the profit earned by a firm or individual ...
Related Articles
  1. Insights

    Explaining Marginal Utility

    Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service.
  2. Investing

    Understanding Marginal Analysis

    Marginal analysis is the process of comparing a one-unit incremental cost increase of an activity with a corresponding increase in benefits.
  3. Managing Wealth

    What’s a Good Profit Margin for a New Business?

    Surprisingly, the younger your company is, the better its numbers may look.
  4. Investing

    Buying on Margin

    When an investor buys on margin, he or she pays a portion of the stock price – called the margin -- and borrows the rest from a stockbroker. The purchased stocks then serve as collateral for ...
  5. Financial Advisor

    Margin

    Find out exactly what margin is and why it's important.
  6. Investing

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  7. Managing Wealth

    What's a Good Profit Margin for a Mature Business?

    How to determine if the amount you clear dovetails with the competition.
  8. Financial Advisor

    Margin Call

    Find out why a margin call is so important to investors.
  9. Investing

    Explaining Initial Margin

    Initial margin is the percentage of a stock’s price an investor must have in his account to buy that stock on margin.
  10. Investing

    Finding Your Margin Investment Sweet Spot

    Borrowing to increase profits isn't for the faint of heart, but margin trading can mean big returns.
RELATED FAQS
  1. What does marginal utility tell us about consumer choice?

    Learn how marginal utility influences consumer choice under the law of diminishing marginal utility and consumer decisions ... Read Answer >>
  2. How do fixed assets become impaired?

    Find out how an investor can use the procedure of marginal analysis to make investment decisions by comparing marginal costs ... Read Answer >>
  3. What's the difference between profit margin and operating margin?

    Find out the differences between a company's gross profit margin, net profit margin and operating margin, and what each metric ... Read Answer >>
  4. What types of financial margins should investors pay the most attention to before ...

    Learn what types of financial margins, such as profit and cash margins, an investor should pay the most attention to before ... Read Answer >>
  5. What is the interest rate offered on a typical margin account?

    Learn about the basics of trading on margin accounts, specifically the rate of interest that is typically charged for margin ... Read Answer >>
  6. How much can I borrow with a margin account?

    Understand the basics of margin accounts and buying on margin, including what amount investors can typically borrow for purchases ... Read Answer >>
Hot Definitions
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  3. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  4. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  5. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  6. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
Trading Center