Final answer:
The term 'diminishing returns' refers to the economic concept where additional resources yield progressively smaller increases in benefits.
It is essential for understanding optimal resource allocation and is a central notion in marginal analysis, contrasting with prescriptive normative statements.
Step-by-step explanation:
For a process to have diminishing returns means that as we add additional increments of resources to producing a good or service, the marginal benefit from those additional increments will decline. This concept is known as the law of diminishing returns, which is crucial in the field of economics.
It tells us that there is a point where the level of benefits gained is less than the amount of money or energy invested. For example, in reducing crime, initial investments may yield substantial decreases in crime rates, yet after a certain point, further investments will have less impact on crime reduction.
This situation illustrates that continuously adding resources does not lead to proportionate increases in benefits, and thus, it optimizes resource allocation through marginal analysis, which explores small (marginal) changes from the current situation.
It is differentiated from a normative statement, which prescribes how the world ought to be rather than observing real-world outcomes.