What is the law of large numbers in economics?
1 Answer
A large enitity that is growing rapidly cannot keep up their pace forever
Explanation:
In economics and business, the law of numbers relates to growth rates, which are represented as percentages. The law states that if you have a high growth rate, you cannot maintain it indefinitely. For example, take Business A and Business B.
In the past 6 months Business A has brought in $400 million in revenue, while Business B has only made $50 million in revenue. If Business A wants to increase revenue by 50%, they will have to achieve an extra $200 million in revenue, while Business B only has to achieve an extra $50 million dollars. Of the two, garnering $50 million is less difficult then garnering $200 million, which is essentially the Law of Large Numbers in economics.
http://www.investopedia.com/terms/l/lawoflargenumbers.asp
I hope I helped!
