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LAW OF CONSTANT RETURNS The law of constant returns is also empirically valid and operates in the transitional stage between the Law of Diminishing Returns as well as The Law of Increasing Returns. According to the Law, when in order to increase output, units of labour and capital are increased; output and cost also increase…
LAW OF DIMINISHING RETURNS Diminishing returns, also called law of diminishing returns or principle of diminishing marginal productivity, is an economic law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or…
LAW OF INCREASING RETURNS The law of Increasing Returns is also known as the Law of Diminishing Costs. According to this law when more and more units of variable factors are employed while other factors are kept constant, there will be an increase of production at a higher rate. This law is applicable to all different industries…
RELATIONSHIP BETWEEN TP AP AND MP Product or output refers to the volume of goods produced by a firm or an industry during a specified period of time. The concept of product can be considered from three different angles – Total Product, Marginal Product, Average Product. TOTAL PRODUCT (TP) Total Product (TP) refers to the…
CONSUMER EQUILIBRIUM USING INDIFFERENCE CURVE ANALYSIS Consumer equilibrium using indifference curve analysis is an Ordinal Approach to Consumer Equilibrium. An indifference curve is a locus of all combinations of two goods which yield the same level of satisfaction (utility) to the consumers. Since any combination of the two goods on an indifference curve gives equal…
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INDIFFERENCE CURVE ANALYSIS The concept of Indifference Curve Analysis was first propounded by British economist Francis Ysidro Edgeworth and was put into use by Italian economist Vilfredo Pareto during the early 20th century. However, it was brought into extensive use by economists J.R. Hicks and R.G.D Allen. Hicks and Allen criticized Marshallian cardinal approach of utility…
In this post you will learn about the concept of consumer equilibrium concept and equilibrium in case of one commodity and two commodities. CONSUMER EQUILIBRIUM A consumer is said to be in equilibrium when he is buying such a combination of goods as leaves him with no tendency to rearrange his purchases of goods. Consumer…
LAW OF EQUI MARGINAL UTILITY The Law of Equi Marginal Utility was presented in 19th century by an economists H. H. Gossen. This is known as Gossen’s Second law of consumption. This law is based on the principle of obtaining maximum satisfaction from a limited income. It explains the behavior of a consumer when he consumes more…
LAW OF DIMINISHING MARGINAL UTILITY The Law of Diminishing Marginal Utility states that the amount of satisfaction provided by the consumption of every additional unit of a good decrease as we increase the consumption of that good. Marginal Utility is the change in the utility derived from the consumption of an additional unit of a…
UTILITY ANALYSIS The simple meaning of ‘utility’ is ‘usefulness’. In economics utility is the capacity of a commodity to satisfy human wants. Utility is the quality in goods to satisfy human wants. Thus, it is said that “Wants satisfying capacity of goods or services is called Utility.” ACCORDING TO PROF. WAUGH “Utility is the power of…
