Thinking on the margin

Are you willing to watch that 60 second commercial on Pandora in order to get an hour of “free” music?

 

“Margin” is an important word in the economics.  In short, I often tell my students to think of it as meaning “extra” or “additional.”  When one thinks “on the margin,” they are basically thinking in terms of “how much addition gain/cost do I receive/incur from each additional unit?”  But before we talk about margin, let’s talk about the word “free.”

Nothing is “free” in life.  Somewhere, somebody is paying the price for the “free” lunch, the “free” can of soup that is on BOGO, or the “free” drink refills included in the buffet.  Everything has a cost, but it is not always clear who incurs it.  Which brings me to my  “free” hour of listening on Pandora that I am able to enjoy from time to time during my morning workouts.

If I am lucky, on occasion my favorite streaming service (which often plays advertisements during my listening time since I do not pay the monthly subscription fee) will offer an hour of “uninterrupted” listening in return for watching an advertisement from a sponsor.  Obviously, they want to lure me into subscribing and paying the monthly fee to enjoy “ad-free” music all the time.  However, I am a tightwad and gladly listen to 60 seconds of ads from time to time in order to forego the $10 per month subscription.

That is where “thinking on the margin” comes in to play.  Is the extra cost I incur worth the benefit?

In my case, the answer is simple.  The small amount of time I am required to listen to the advertisement (the marginal cost) allows me to have an hour of “ad-free” music (the marginal benefit).  In my analysis of the situation, this far out-weights the monthly fee of $10.  Plus, I only use Pandora when I lift weights, and that is usually only about an hour or so each weekday.  Thus, it meets my limited needs.

So, if you have ever contemplated listening to that advertisement for 60 seconds in order to gain a “free” hour of Pandora music, then you have thought on the margin and used a little economic reasoning.  Of course, if you subscribe and pay the fee, you have done the same as well, and hopefully the “extra” benefit outweighs the “extra” cost.