Tuesday, July 17, 2018

The Law of Diminishing Returns

by Bessie Jewel (writer), Texas Hill Country, November 08, 2011

This basic principle in production economics takes on a whole new meaning when applied to conservative consumption.

Somehow, I was able to keep my eyes open in Economics 101 while this principle was being explained. I recall it as the tendency for whatever skills and efforts you throw at a project to eventually grow proportionally less effective. For example, if you plant a thousand seeds on an acre, you might harvest a thousand bushels of goodies. Plant two thousand seeds and get two thousand bushels. Plant three, harvest three and so on. But, somewhere along the line, you're going to plant five thousand seeds and only get four thousand, five hundred bushels for your trouble. You've fallen off into a "diminishing yield rate". YIKES!! Farmers, manufacturers, and barons of all kind ride this "yield rate" like a wave so I assume there's an adreneline rush in there somewhere.

It occured to me several years ago however, that this was a principle worth examining from a consumers' angle. I had this thought as I drove my mother-in-law's new Lexus about a week after purchasing my own new Oldsmobile. They were remarkably similar. Her's had four doors; mine had four doors. Both air conditioners were fully operational and I think the Olds actually had the nicer sound system. The Lexus had a slightly better ride and less road noise -but not much. Fifteen years later, I'm sure the Lexus is still on the road. But, so is the Olds - I still drive it. It seemed to me that my mother-in-law paid a WHOLE lot more, for only slightly more goody. She'd experienced the dreaded "diminishing yield rate".

We all ride that wave...every time we decide upon the ten-dollar-per-bottle wine instead of the twenty five dollar one. But very often, we base our consumption decisions upon how much we can afford. Why live in two thousand square feet when we can afford five? Right? Get the good wine even though it's only marginally better than the other.

But consider that as a nation, we could be collectively slipping into a "diminishing yield rate" with limited raw materials, labor and capital to expend. We're throwing an awful lot of money and energy at goods and services that aren't measurably improved over the last thirty or forty years. As consumers, we have the ability and the responsibility to demand "more bang for our buck". As Capitalists, we might want to embrace and invest in the truely innovative. As share holders we might want to give businesses the time to adjust. As humans, we might give some real thought to when enough is enough. And there is sort-of an adreneline rush to it.

About the Writer

Bessie Jewel is a writer for BrooWaha. For more information, visit the writer's website.
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3 comments on The Law of Diminishing Returns

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By macman on November 16, 2011 at 09:44 am

Our consumption pattern has been changed over the years. Use and throw culture and passion for new gadgets have created toxic waste difficult to dispose safely.

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By Uttam Gill on November 30, 2011 at 05:45 am

I am glad that you picked up the subject which needs to be debated...Law of diminishing return/ Law of Increasing cost is the conventional economic theory pertaining to production which states that increase in production with a period of time would result in diminishing return / increasing cost...It states that this law is applicable if other things remain the same...And this law of diminishing return is taking into account three factors of productions that is land, labour and capital...Entrepreneurs as fourth factor of production can also be considered but that is subject to conjecture...The diminishing returns would result into increasing cost and that’s how your mom in law paid more...Economics is an interesting subject and if we look into indifference Curve analysis you would unravel many more aspects of the context Let me explain interesting aspect of economics and that is called “GIFFON PARADOX”...It defines totally different way...It states that on increase in price people tend to buy more...It is absolutely in contrary to conventional economic theory which states that increase in price will reduce the demand...Well economics is an interesting subject and you have picked up the subject which certainly stimulates my mind...Thoughtful article.

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