Thinking at the Margin

Why are diamonds more expensive than water? Prof. Mario Villarreal-Diaz answers this question using what economists call marginal analysis. Essentially, the marginal utility of water decreases faster than the marginal utility of diamonds. Put another way, people face decisions in a particular context and time. In modern economies, people have ready access to water on the margin, but do not have the same level of access to diamonds.

4 Comments

  1. Brian Phillips

    If only politicians thought in this manner when making policy decisions instead of pandering for votes…

  2. txgsu43

    (1) If you accept public choice theory and the free-rider problem; and
    (2) There is no necessary limit to the money accessible by the government in a given moment in time;
    (⌂) Members of that government necessarily will not consider the long term impact of their spending choices.

    Proof: if you look at unit of time (A) without considering unit of time (A+x) as necessary for current analysis, than it is impossible to consider utility, especially if their is not possible way individuals at time (A+x) can do anything to you for your stupid decisions. Consequently, if you are at time (A) and want to effect the decisions of individuals at time (A+x), there is no methods available under the law (save amending the Constitution) that will allow you to place such constrictions. So persons at time (A) must possess a movement of people large enough and organized enough to amend the Constitution at time (A). As other videos mentioned applying free market economic principles, the ability for such a large organization to be formed and directed to this end is extremely hard and complicated (Free-Rider issues, etc.). So, it is an extremely unlikely chance that such a movement could be created and sustained for a long enough time period to effect lasting change. Therefore, because persons at (A+x) necessarily can ignore actions of persons at (A) to use these principle, it becomes more politically expedient to not use these methods in making decisions.

    The exception to this is the event where a limit is placed on the accessible nature of money. When the government cannot access money, it will be required to utilize some principle to determine proper usage of that money. But, as mentioned in other videos based upon free-market economic principles, it is more likely that rent-seeking will be tool utilized (Public Choice theory).

Leave a Reply