The Law of Diminishing (Marginal) Returns
I'm sure you have heard of it, and even know what it is but never associated it with an economic law...
It is a concept which describes the decrease in total production when varying the quantity of one productive factor while holding the remaining factors constant.
It states that for every additional unit of one of the factors of production (usually land, labor, or capital) employed to produce goods or services, the output generated by each additional unit will eventually fall.
To illustrate with an example, I am an apple producer that has seen that as one man I can pick 100 apples a day. By hiring an additional worker, I find that the two of us can pick 200 apples a day. However, after hiring a second worker, I notice that the three of us can only pick 250 a day. Eventually each additional increment pays off less than previous ones.
Another similar law is trhat of Diminishing (Marginal) Utility:
In layman terms, as an extra unit of a commodity is consumed by an individual, the satisfaction gained from each additional unit will fall. For example, if I like apples, every time I eat an apple I will derive some pleasure form eating one. However, after 20 apples, the amount of pleasure I will enjoy in eating my 21st apple will be less then when I ate the first one.
It is a concept which describes the decrease in total production when varying the quantity of one productive factor while holding the remaining factors constant.
It states that for every additional unit of one of the factors of production (usually land, labor, or capital) employed to produce goods or services, the output generated by each additional unit will eventually fall.
To illustrate with an example, I am an apple producer that has seen that as one man I can pick 100 apples a day. By hiring an additional worker, I find that the two of us can pick 200 apples a day. However, after hiring a second worker, I notice that the three of us can only pick 250 a day. Eventually each additional increment pays off less than previous ones.
Another similar law is trhat of Diminishing (Marginal) Utility:
In layman terms, as an extra unit of a commodity is consumed by an individual, the satisfaction gained from each additional unit will fall. For example, if I like apples, every time I eat an apple I will derive some pleasure form eating one. However, after 20 apples, the amount of pleasure I will enjoy in eating my 21st apple will be less then when I ate the first one.
posted by the author at 6:26 AM
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