What is meant by the term 'marginal analysis' in economics?

Marginal analysis refers to the examination of the additional benefits and additional costs that arise from a decision or action. In economics, this concept is crucial because it helps individuals and businesses make rational choices by comparing the incremental changes in an economic variable.

When undertaking marginal analysis, one assesses whether the benefit gained from a particular decision justifies the cost incurred. For instance, a business might determine if producing one more unit of a product (the marginal unit) will generate enough revenue to cover the additional costs of production. If the marginal revenue exceeds the marginal cost, the activity can be deemed beneficial, leading the firm to increase production. This decision-making process applies to various scenarios, from consumer choices about spending to broader business strategies.

The other options, while related to economics, do not capture the essence of marginal analysis as accurately. Evaluating how changes in prices affect supply and demand focuses more on market dynamics rather than the incremental benefits and costs associated with specific decisions. Analyzing total production over time addresses overall output without considering individual changes. Lastly, measuring total utility gained pertains more to overall satisfaction rather than the incremental evaluation of benefits versus costs that marginal analysis entails.