Marginal Analysis grahics

1. This circle represents a whole market for a good or service. There are
varying degrees of Demand and Supply ELASTICITIES.
ALL PRODUCERS
AND CONSUMERS OF
A GOOD/SERVICE

2. The “inner core” of this market represents Consumers and Producers
whose Demand and/or Supply are relatively “Inelastic”. They are going
to buy and sell regardless of movements in price (Ceterus Paribus).
Inelastic
Demand/Supply

3. As we move from the “core” of market participants who are going to buy and sell regardless,
Demand/Supply becomes relatively MORE ELASTIC. Participants become more sensitive to changes in
PRICE (Inputs as well as Outputs).
Inelastic
Demand/Supply
Relatively MORE ELASTIC
as we move to the
“Margin(s)”

4. As we get closer (YELLOW area) to participants at the Margin, price becomes more of an issue. This is
the “danger zone” space in the market is where economists focus attention on---it is where real harm
can occur when price INCREASE.!
These are the “Marginal”
participants in the Market--
very sensitive to price
changes.
Inelastic
Demand/Supply
Area of Increasing
ELASTICITY
Relatively
ELASTIC

5. The YELLOW area is representative of what Economist call “Thinking at the Margin(s)”. This is
where “the action” takes place when market participants and/or government change prices or policy.
Inelastic
Demand/Supply