Substitution Effect A substitute is a good that satisfies the same need as another good, e.g.,  broccoli and cauliflower. The substitution effect states that a good becomes more of a bargain relative to other goods as its price declines; therefore,…

Normal Goods Normal goods are goods whose demand increases with an increase in consumers’ income. Note that the rate at which demand increases is lower than the rate at which income increases. The rate eventually slows down with further increments…

The law of diminishing marginal returns states that the marginal return from an increased input, say labor, will decrease when this input is added continually to a fixed capital base. Example A good example is that of a factory that…

Break-even Point of Production The break-even point can be defined as the production and sales levels of a given product at which the revenue generated from the sales is perfectly equal to the production cost. At this point, the company…