Laws Of .. (economics)

Laws of ... September-30-08 8:51 AM

Law of increasing relative costs - The increase in the relative cost of producing more of item A, measured by the numbers of another item, B, that could be produced wit the same resources.

Relative Cost - cost of producing one item, A, expressed in terms of the numbers of another item, B, which must be given up in order to produce A Law of Diminishing Returns - The eventual decline in the rate of extra outputs produced that occurs when one input used in production of the output is held constant and the others are increased. Input - a productive resource such as labour

2 Variables - fixed, variable Law of increasing returns to scale - the increase in the rate of extra outputs produced when all inputs used in production are increased and no inputs are held constant

2 Variables / inputs

1.3 Practise Questions 1. Product Coconu Fish ion ts Scenari o

a) b) c) d) e) f)

Opport unity Cost

a

24

0

b

20

1

4

c

12

2

8

d

0

3

12

4, 8,12 Yes because the cost is increasing for each quantity of fish It would bow outwards since the opportunity cost is increasing That he has no misallocated resources, and producing at maximum efficiency. Full capacity. We would be outside the PPF given if he is at maximum efficiency. The amount of fish captured would increase, meaning the curve will extend further.

2. a) 1/600 b) 1/300

Unit 1 Page 1