Tag Archives: margin

02.01.2012 | Marginal Children

By Mira Korber, guest blogger.

American births are on the decline; the number per year has fallen from 4.3 million (2007) to 4 million (2010), perhaps due to a shaky economic situation.

However…

Why is raising more kids less expensive (in some ways, anyway) than having the infamous “only?”

Diminishing marginal costs are the answer.

To begin, here’s the cost of raising one child before adding in the marginal family members.

Now, after this marginal child is born (and then another!), the cost of raising each consecutive sibling decreases substantially. For example, the figures cited in this TIME Moneyland article run thus: an “only” 11 year old might cost $15,830 per year, but add in a 16 year old sibling and you only spend $10,660 more, and finally, add a third kid and you are spending merely an additional $4,580.

A lot of necessary child raising equipment and expenses — from high chairs to cribs to clothes — can be passed from one child to the next as the time comes. And, with many family and parent-child health insurance plans, the monthly cost remains the same regardless of how many kids you have. Simple math shows the price per person then goes down. Who isn’t looking to run the house as an economy of scale?

A final point:

Although college tuitions are more expensive than ever, (and it’s not exactly possible to get an “enroll one, enroll another one free” financial aid package) many schools offer increased economic support for families with more than one child. And this fascinating article shows freshman year for ten kids at universities abroad could cost less than freshman year for one kid in the US.

The Economic Lesson

Everything revolves around the margin. If a family has one child, its second is the marginal child. If a family already has two, the third is the marginal child.

The bottom line: Having more kids demonstrates a diminishing marginal cost of production.

Check out these graphs, which show how marginal cost at first decreases, but will eventually increase again due to the law of diminishing returns. For a different take on studying the margin, look at this recent Econlife post.

An Economic Question: What decisions do you make at the margin in your everyday life?

Posted by: adminEcon
Tags: births, college, families, kids, margin, marginal cost, marginal production, marginal returns, parents, tuition
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01.30.2012 | Everest Economics

Having no inclination to climb Mount Everest, I have always been fascinated by its economic connection. Now, hearing that Prince Harry was considering the ascent as a part of his “Walking for the Wounded,” it reminded me that Everest is all about cost, benefit and decisions at the margin.

The money: Sherpas are your biggest expense. Costing as much as $100,000, they guide, carry and cook. With $500 a typical tip, one Time journalist added 2 yaks. In addition, gear could run close to $10,000 ($1,000 for a down suit and $300 for gloves are just the beginning). Add the permits ($10,000 minimum and more, depending on how many people), cell phone expense, airfare to Nepal ($1500 coach).

The Time: A daily workout regime is long and demanding. From squats to stairs to extreme procedures, getting in shape for Everest will cost many hours. For the climb itself, the acclimation process is gradual. Instead of a steady upward trek to the peak at 29,029 feet, climbers go up and down and up through a series of base camps that gradually accustom their lungs to the sparser air. I have read that it takes 6 weeks for the acclimation process and then 5 days to the summit.

Our bottom line? Defined as sacrifice, cost refers to more than money.

Into Thin Air by Jon Krakauer is a fascinating account of a disastrous expedition.

The Economic Lesson

Whenever climbers make health and weather decisions, they are weighing cost and benefit at the margin. Beset by lightheadedness, raging headaches, nausea, frostbite, and other maladies, they have to decide whether to proceed with the next stage. With questionable weather, to abort or not becomes the key issue.

Each decision either expands or contracts climbers’ margin of safety. Too large a margin and they don’t reach the peak. Too small and the danger is life-threatening.

An Economic Question: Defining cost as sacrifice, describe the “expense” of a recent decision.

Posted by: adminEcon
Tags: benefit, cost, margin, Mount Everest
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09.29.2011 | Who Are We?

Environmental concerns? You might want to look at what the The American Community Survey for 2010 says about who drives alone to work (105 million) and how many of us take public transportation (7 million). If education is your focus, one table in the Survey says that 17.7% of everyone 25 and over has a bachelor’s degree. Maybe childcare? For 54% of all married couple families, the husband and wife are in the labor force .

And this is just a tiny bit of the wealth of data in the The American Community Survey for 2010. I suggest looking at it.

News articles that discuss some of the tables are here (commuting time), here (smarter cities), and here (assorted conclusions).

The Economic Lesson

The margin is an imaginary line that separates the current amount you are doing from the extras you might be contemplating. Whether looking at education or driving or any other section of the American Community Survey, you are currently at the margin. Let’s assume that you want something extra at the margin like more college graduates. Then, as economists, you should consider the cost and the benefit before making a decision.

An Economic Question: If any of the 2010 American Community Survey’s statistics concern you, how might our regulators and the US Congress create incentives that change our behavior?

Posted by: adminEcon
Tags: American Community Survey for 2010, cost/benefit, incentive, margin, US statistics
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01.24.2011 | In A Good State

We know it’s not New York or California. The bottom of the list also includes New Jersey, Arizona, Florida, Nevada and others. These are the states that, having mismanaged spending and taxing, are now facing tough fiscal decisions. Their finances don’t add up and in a tough economy and the chance that growth will provide the solution is small.

Who then did the right thing?

Utah

Given an “A” by the Pew Governance Performance Project for “good data and strong processes,” Utah implemented performance based budgeting. This just means that they actually looked at the numbers, saw what worked and didn’t, and then eliminated non-performing programs. For example, the number of employees recruited by a $300,000 program to help businesses was minimal so it was canceled.

Other states lauded by Pew for their approach were Virginia, Maryland, and Indiana.

The Economic Lesson

Three words explain performance based budgeting: margin, benefit, cost. Looking at the margin means looking at something extra. For budgeting, it just refers to the extra item being funded. That takes us to cost and benefit. Here we just compare. If the cost for the extra exceeds the benefit, then the good or service would be cut.

Posted by: adminEcon
Tags: benefit, cost, margin, performance based budgeting, state budgets, state deficits, Utah
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07.06.2010 | More About Money and Happiness

If you want to know whether money relates to happiness, you might first decide what makes you happy. A Gallup World Poll of 136,000 people in 132 countries from 2005-2006 focused on 2 variables: “life satisfaction” and “enjoyment of life.” Those people who use how much money they have earned as a “scoreboard,” profess to greater life satisfaction because of higher earnings. By contrast, happiness on the “enjoyment of life” scale, which included laughter, friends, and meaningful family connections did not relate to money.

This Gallup Poll is one of many happiness studies we have posted during the past several years. In one previous post, high income people experienced more happiness than low income individuals. We can, though, qualify the high income earners’ happiness with a study that concluded income increases had no impact on happiness. Qualifying it further, we also found a study that contradicts the first one. Then, yet another study asserts that lower quintile earners are happy when upward mobility is feasible. Also, however, a different study demonstrated that happiness comes from earning more than your “neighbor”. Consequently, people preferred lower earnings over higher earnings when the lower number exceeded an associate’s income. Finally, researchers concluded that overworked women, more recently, have become less happy than men.

The Economic Lesson

Thinking economically typically requires looking at the margin. The margin is that imaginary line where we find something extra. For example, marginal revenue is extra money that a business receives for each additional sale. When a business sells a computer, the price of the computer becomes its marginal revenue. For happiness studies, we are at the margin, asking if extra money (at the margin) means extra happiness (at the margin).

Posted by: adminEcon
Tags: Gallop, happiness, income, margin, Pew
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