Question

In a situation where the economy has unused resources, which law does NOT apply?

Options

• The law of demand

• The law of diminishing returns

• The law of variable proportions

• The law of supply

Answer 1

When the economy has idle machineries, buildings, and labour, the law of diminishing returns does not apply. This is precisely why additional output can be produced without increasing marginal cost, and hence the price level does not vary.