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To satisfy our wants to the utmost with least effort – to procure the greatest amount of what is desirable at
the expense of the least that is undesirable – in other words, to maximize pleasure, is the problem of
economics. (UTILITY)
W. Stanley Jevons
…The state of the art being given, doubling the labor does not double the produce. (DIMINISHING
RETURNS)
John Stuart Mill
Introduction
Understanding economics is greatly facilitated by the existence of economic laws. They explain the
regularity of the behavior of economic agents as well as predict the outcome of economic choices or
decisions.
2. Production: LAW OF DIMINISHING RETURNS – This law describes the behavior of production as inputs
are added. It is basic to an understanding of the theory of supply.
- For instance, one could think of a two-hectare palay farm. The output of palay would increase as
the number of man-years of labor are added (man-month, man-day, man-years are sometimes
used as standard measures of labor).
Course Outline in Applied Economics(source: Economics by GERARDO P. SICAT new edition) prepared by C.Ocfemia-Instructor @ SanJoseNHS-SeniorHigh
- What can be expected is that as more units of labor are added, the output will increase. There may
be a stage in the productive effort in which the rise in output will be very high. Eventually, the rise
of outputs as more labor is added begins to taper off.
- Statement about this technical relationship may be set in terms of the production function. This
may be formally written as a relationship of output with the factors of production.
3. THE LAW OF COMPARATIVE ADVANTAGE – This law concerns efficiency in production. It is the
foundation of the law of gains from commerce, both international and domestic.
Course Outline in Applied Economics(source: Economics by GERARDO P. SICAT new edition) prepared by C.Ocfemia-Instructor @ SanJoseNHS-SeniorHigh