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Thinking on the Margin & Birthday Cake

Marginal thinking is a key concept in economics, but it is often one that is misunderstood. Most of our thinking is in fact on the margin, so it is a concept already baked into our understanding. (Sorry for the cheesy pun).

I’ll use icing a birthday cake for as the example for today. Imagine that you are making your friend a typical birthday cake: yellow cake with chocolate icing. You’ve made the cake and are going to add the icing. Your decision isn’t WHETHER to ice the cake, it is HOW MUCH to ice the cake.

First you make your two layers of cake. When it is cool, you put a thin layer of icing on top (called a crumb coat). After the crumb coat, you stick it in the fridge for 20 to 30 minutes. This allows the base layer to harden a bit and the final layer of icing to go on smoothly. After a bit of time, you take your cake out of the fridge. While you could serve the cake as is, with just a thin level of icing you don’t feel that it will be enough.

How much icing should you add? Well it’s obvious: you add just enough icing so that the icing amount balances with the cake. In other words, you add just enough so that the additional benefit from the tastiness of the icing doesn’t take away from the cake. Too much icing and you are left only tasting icing. Too little icing, and you taste buds are left wanting a little more sweetness.