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NET-EXPORT EFFECT: A change in aggregate expenditures on real production, especially net exports through the foreign sector, that results because a change in the price level alters the relative prices of exports and imports. The net-export effect, also termed the international-substitution effect, is one of three effects underlying the negative slope of the aggregate demand curve associated with a movement along the aggregate demand curve and a change in aggregate expenditures. The other two are real-balance effect and interest-rate effect.
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                           INCREASING RETURNS TO SCALE: A given proportional change in all resources in the long run results in a proportional greater change in production. Increasing returns to scale exists if a firm increases ALL resources--labor, capital, and other inputs--by a given proportion (say 10 percent) and output increases by more than this proportion (that is more than 10 percent). This is one of three returns to scale. The other two are decreasing returns to scale and constant returns to scale. Increasing returns to scale results if long run production changes are greater than the proportional changes in all inputs used by a firm.Suppose, for example, that The Wacky Willy Company employs 1,000 workers in a 5,000 square foot factory to produce 1 million Stuffed Amigos (those cute and cuddly armadillos, tarantulas, and scorpions) each month. Increasing returns to scale exists if the scale of operation expands to 2,000 workers in a 10,000 square foot factory (a doubling of the inputs) and production increases by more than 2 million Stuffed Amigos. The anticipated pattern for most production activities is that increasing returns to scale emerge for relatively small levels of production, which is then followed by constant returns to scale and decreasing returns to scale. Increasing returns to scale are the flip slide of economies of scale. Whereas economies of scale focus on changes in average cost, increasing returns to scale focus on production. Economies of scale indicate that long-run average cost decreases, which corresponds to increasing returns to scale in terms of output. Do not confuse increasing returns to scale with increasing marginal returns. While these phrases sound similar, they are quite different. Increasing returns to scale relate to the long run in which all inputs are variable. Increasing marginal returns related to the short run in which one or more input is variable and one or more input is fixed. The existence of fixed inputs in the short run gives rise to increasing marginal returns. In particular, decreasing marginal returns result because the capacity of the fixed input or inputs is being reached. However, in the long run, there are no fixed inputs.
Recommended Citation:INCREASING RETURNS TO SCALE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: September 18, 2024].
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Today, you are likely to spend a great deal of time at a garage sale seeking to buy either decorative garden figurines or a wall poster commemorating last Friday (you know why). Be on the lookout for strangers with large satchels of used undergarments.
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Post WWI induced hyperinflation in German in the early 1900s raised prices by 726 million times from 1918 to 1923.
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