What is the law of large numbers in economics?

1 Answer
Sep 15, 2017

A large enitity that is growing rapidly cannot keep up their pace forever


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.


I hope I helped!