Marginal analysis is a cornerstone of economic reasoning. So just what is it? The simple notion that the incremental value of a variable is what matters, not its total or average value. Huh, you say? Here’s an example from the COVID-19 crisis.
On June 15, the Indiana Department of Health reported 40,430 of 348,391 people had tested positive for COVID-19, a positive test rate of 11.5%. This reflects the results from all tests reported to the state since early March. What might be of more interest, however, is that, on June 15, another 405 positives cases were reported from 7,935 additional tests, implying an incremental, or marginal, positive rate of 7.1%. It is this marginal, or most recent, rate of infection that should be our main concern.
Another example involves the ongoing debate about the efficacy of state-government mandates. Clear thinking requires identifying the appropriate margin. Epidemiologists tell us that one key to reducing COVID-19 infections is reducing the number of social interactions between those who carry the virus and those not yet infected. The University of Washington’s Institute for Health Metrics and Evaluation has developed a measure of daily social interactions in each state during the crisis called the state’s mobility factor.
In early March, no virus-related restrictions were in place, but by the end of March, there were many. Indiana’s mobility factor declined an impressive 52% from March 10 to March 30. However, it is misleading to attribute the decline in mobility exclusively to government mandates. Hoosiers’ mobility was declining before the mandates were imposed. The issue is how much additional, or marginal, reduction in mobility occurred because of the mandates.
On March 19, when all Indiana educational institutions were closed, mobility had already declined 31%. By March 25, when a stay-at-home order was put in place, mobility had declined 48%. By this simple reckoning, most of the reduction occurred before the mandates were in place, so their marginal impact was presumably small. Other more sophisticated studies suggest that the mandates had a greater impact on mobility but agree that their marginal impact is what matters.
Economists usually teach marginal analysis as the way to approach business or policy problems, but thinking at the margin is useful and powerful in many areas outside the traditional domain of economics.•
Bohanon and Curott are professors of economics at Ball State University. Send comments to firstname.lastname@example.org.