Definition: Law of diminishing marginal returns At a certain point, employing an additional factor of production causes a relatively smaller increase in output. Diminishing returns occur in the short run when one factor is fixed (e.g. capital) If the variable factor of production is increased (e.g. labour), there comes a point where it will become …
Definition: Decreasing Returns to Scale This occurs when an increase in all inputs (labour/capital) leads to a less than proportional increase in output. For example, if a car firm increases its variable inputs (capital, raw materials and labour) by 50%, but the output of cars, increases by only 35%, then we say there are decreasing …
Diminishing marginal utility of income and wealth suggests that as income increases, individuals gain a correspondingly smaller increase in satisfaction and happiness. In layman’s terms – “more money may not make you happy” Alfred Marshall popularised concepts of diminishing marginal utility in his Principles of Economics (1890) “The additional benefit a person derives from a …
Readers Question: if the production of food crops is increasing at a diminishing rate what factors of demand can reverse this trend. Increasing at a diminishing rate implies that agricultural output is struggling to grow – despite more fertilisers and capital investment. Diminishing returns means that as we employ more factors of production – the …
America is the richest country in the world, but America is also a story of two economies. Since 1980, real GDP has increased 300%, someone is definitely getting rich. But, it isn’t the average worker, because in the same period median wages have barely increased. In recent years, the US economy has outperformed the rest …
In the past few years, the UK has seen a rise in the tax burden, but at the same, the UK has seen a reduction in the average rate of economic growth. Is low growth leading to a higher tax burden or is it the high tax burden which is itself contributing to sluggish growth? …
In the space of 18 months, Bank of England base rates have risen from historical lows to 5%, with more expected. It’s a remarkable turnaround for an economy accustomed to ultra-low borrowing costs – the rapid increase in rates have seen soaring mortgage costs and threatens to push an already struggling economy into recession. Yet …
Since the great financial crash of 2007, the UK economy has struggled. Although the past 15 years have been challenging from a global perspective, compared to many international competitors, the UK has slipped behind. Economic growth before global financial crisis of 2007-09 was 2.7%, the new normal is now closer to just 1.5% and with …