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June 16, 2019 

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LAW OF DIMINISHING MARGINAL RETURNS: A principle stating that as more and more of a variable input is combined with a fixed input in short-run production, the marginal product of the variable input eventually declines. This is THE economic principle underlying the analysis of short-run production for a firm. Among a host of other things, it offers an explanation for the upward-sloping market supply curve. How does the law of diminishing marginal returns help us understand supply? The law of supply and the upward-sloping supply curve indicate that a firm needs to receive higher prices to produce and sell larger quantities. Why do they need higher prices?

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ECONOMIC GOOD:

A tangible item produced with society's limited resources for the purpose of satisfying wants and needs. As a general notion, the phrase economic good also commonly includes intangible services produced with society's limited resources for the purpose of satisfying wants and needs. A synonymous term for economic good is scarce good.
Adding the word "economic" before the word "good" signifies that a good has limited availability relative to desired use and is thus subject to economic analysis. An economic good is typically exchanged through a market. Buyers pay a price to obtain the good and sellers give up the good in exchange for payment.

Scarcity

Like many economic concepts, an economic good can be traced to the fundamental problem of scarcity. Scarcity is the widespread condition of limited resources and unlimited wants and needs. An economic good is more specifically a good with limited availability relative to desired use. The two concepts are closely related. Scarcity is the general problem underlying the study of economics and an economic good is a specific good that reflects this general scarcity condition.

The contrasting notion to an economic, or scarce, good is a free good. A free good is one that is plentiful enough to satisfy all desired uses, often with some left over.

Market Exchanges

Because limited availability means that an economic good has more uses that it can meet, it is generally exchanged through a market. The market price serves to allocate the good to its most satisfying and valuable use. Users gaining the greatest benefit from the economic good are willing to pay the highest price and can thus out bid other potential users to gain control. Moreover, payment received by those who produce or otherwise have control of the economic good compensates for the opportunity cost of foregone alternatives.

Economic Resource

The word "economic" is also added to the word "resource" to reflect a similar concept. The difference is that an economic resource is used to produce an economic good. The resource is transformed or used for production and the good is then used to provide satisfaction. However, in both cases the item is limited relative to the desired use.

More than Markets

While most economic goods are traded through markets, some are directly produced or provided by government. In addition to limited availability relative to desired use, the market exchange of an economic good also requires rival consumption and nonpayer excludability. Economic goods that do not have rival consumption and/or nonpayer excludability are termed public goods, near-public goods, or common-property goods. But they are economic goods nonetheless.

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Recommended Citation:

ECONOMIC GOOD, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: June 16, 2019].


Check Out These Related Terms...

     | economic resource | scarce good | scarce resource | free good | free resource |


Or For A Little Background...

     | scarcity | economic analysis | good | service | opportunity cost | production |


And For Further Study...

     | allocation | three questions of allocation | seven economic rules | consumer sovereignty | distribution standards | government functions | production possibilities | market | production | short-run production analysis | utility analysis |


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