Tuesday, July 31, 2012

Class XI, Principles of Economics, "Law of Diminishing Returns"

Law of Diminishing Returns

In some cases the return due to each successive additional unit, the production goes on diminishing. It is known as Diminishing Returns and is further explained by the Law of Diminishing Returns.
This law is one of the most fundamental law of Economics. Usually it is related with agriculture and was also first enumerated by a Scottish Farmer.
Usually an increase in any of the factor of production results in an increase in production but this change is a proportionate change. It means that if the quantity of land and labour is doubled, although there will be an increase in the production but it will not be doubled. And that is what Law of Diminishing Returns states. In the words of Marshall:
“An increase in the capital and labour applies in the cultivation of land causes in general a less than propotionate change or increase in the amount of production raised. Unless it happens to coincide with an improvement in the art of agriculture.”

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