Marginalism

Marginalism is the whole economics idea of “thinking on the margin,” which is...kind of important. Like, really important.

Marginalism is the economic concept and theory of value that people think about goods and services based on how much more utility one more unit of a good or service will get them. When you get a glass of water, you’re not thinking about how magical water is...how life is possible because frozen water (ice) floats...how all the water you’ll ever drink is keeping you alive. No. You’re thinking about how that one glass of water will give you the right-now satisfaction you need, because you’re thirsty. That’s the stuff of marginalism.

Marginalism can help (kind of) explain the classic example of why diamonds are so much more expensive than water. We need water to live, and need it most days, and yet it’s super cheap (for now) compared to diamonds. So what gives?

Well, each glass of water (marginal unit of the thing) has a low marginal utility. Meanwhile, we’re willing to pay a high price for shiny things, because it’s one thing we have for a while that we really, really like...the gift that keeps on giving. Water is whatever, but a diamond is forever…as long as there’s water to keep us alive, anyway.