Economics: Terms and Concepts

The Columbia Encyclopedia, 6th ed. World Encyclopedia Further reading

law of diminishing returns

The Columbia Encyclopedia, 6th ed. | 2011 | Copyright

law of diminishing returns in economics, law stating that if one factor of production is increased while the others remain constant, the overall returns will relatively decrease after a certain point. Thus, for example, if more and more laborers are added to harvest a wheat field, at some point each additional laborer will add relatively less output than his predecessor did, simply because he has less and less of the fixed amount of land to work with. The principle, first thought to apply only to agriculture, was later accepted as an economic law underlying all productive enterprise. The point at which the law begins to operate is difficult to ascertain, as it varies with improved production technique and other factors. Anticipated by Anne Robert Jacques Turgot and implied by Thomas Malthus in his Essay on the Principle of Population (1798), the law first came under examination during the discussions in England on free trade and the corn laws. It is also called the law of decreasing returns and the law of variable proportions.

Bibliography: See W. J. Spillman and E. Lang, The Law of Diminishing Returns (1924).

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diminishing returns, law of

World Encyclopedia | 2005 | Copyright

diminishing returns, law of (law of increasing costs) In economics, if more of a variable input, such as labour, is added to the production process, while all other factors are held constant, the addition to total output per unit input begins to decline at some point.

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