Margin (economics)
Encyclopedia
In economics
, a margin is a set of constraint
s conceptualised as a border. 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.
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.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, a margin is a set of constraint
Constraint (mathematics)
In mathematics, a constraint is a condition that a solution to an optimization problem must satisfy. There are two types of constraints: equality constraints and inequality constraints...
s conceptualised as a border. 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.
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.