Increasing opportunity cost | Microeconomics | Khan Academy

Khan Academy2011-12-29

522K views|12 years ago

💫 Short Summary

The video explores how opportunity cost changes as the pursuit of rabbits increases for a hunter-gatherer. It demonstrates the concept of increasing opportunity cost and its graphical representation using the production possibilities frontier. The example shows that as more rabbits are pursued, the cost in terms of forgone berries increases, leading to a bow-shaped curve in the opportunity cost.

✨ Highlights

📊 Transcript

✦

The opportunity cost changes as we move from scenario to scenario.

00:00

In scenario F, the opportunity cost of going after an extra rabbit is 20 berries.

In scenario E, the opportunity cost of going after a second rabbit is 40 berries.

In scenario D, the opportunity cost of going after a third rabbit is 60 berries.

The more rabbits are pursued, the higher the opportunity cost in berries.

This demonstrates increasing opportunity cost as more rabbits are pursued.

✦

The concept of increasing opportunity cost is common in economic models.

02:07

In the example of hunting rabbits and gathering berries, the opportunity cost changes as more rabbits are pursued.

This idea of increasing opportunity cost is a simplified economic model that reflects real-world choices and trade-offs.

The example demonstrates how the pursuit of additional rabbits leads to a higher opportunity cost in terms of forgone berries.

The phenomenon of increasing opportunity cost is a fundamental concept in economics and applies to a wide range of decision-making scenarios.

✦

The phenomenon of increasing opportunity cost is demonstrated in the pursuit of rabbits and berries.

04:22

Obtaining two rabbits a day will require more time and will result in giving up easier-to-get berries.

Trying to get five rabbits a day means pursuing the quickest and smartest rabbits, while ignoring the nearby berries.

The production possibilities frontier graph shows the bow-shaped curve of increasing opportunity cost as more rabbits are pursued.

The slope of the curve indicates the increasing cost of rabbits in terms of forgone berries.

✦

The concept of increasing opportunity cost is demonstrated through a bow-shaped curve in the production possibilities frontier.

06:17

A bow-shaped curve in the production possibilities frontier indicates increasing opportunity costs as more of one good is produced.

The curve shows that to produce more of one good, increasingly larger amounts of the other good must be sacrificed.

This concept reflects the real-world trade-offs and choices that occur in economics.

00:00 what i want to do in this video is think

00:02 about how the opportunity cost can

00:04 change as we move from scenario to

00:07 scenario this is going to be particular

00:09 this example but it's a phenomenon that

00:10 you will see in many economic scenarios

00:14 so let's say we're starting off in

00:15 scenario f we are vegetarians we are

00:18 only getting berries we are not spending

00:21 any time going after rabbits but now

00:23 we're starting to i guess crave protein

00:26 and we say well what is going to be the

00:28 opportunity cost if i go for that extra

00:31 rabbit if i go for that extra rabbit

00:34 then what's going to happen well i'm

00:35 going to have to stay on my production

00:37 possibilities frontier and so i'm going

00:40 to move to scenario e so if i go after

00:42 that one extra rabbit i am going to give

00:44 up i'm going to give up 20 berries

00:48 so my opportunity cost and scenario f

00:50 sitting in scenario f of going after

00:52 that one rabbit is 20 berries now let's

00:55 keep going what happens if i'm in

00:58 scenario e i'm already on average eating

01:00 one rabbit or finding one rabbit a day

01:02 and i want to go to two rabbits a day

01:04 what am i going to give up let me do

01:06 that in that same color

01:07 what will i give up well now i am going

01:10 to give up 40 berries

01:13 40 berries this is interesting

01:16 now let's say we're in scenario d and we

01:18 want and we want even more rabbits we're

01:21 really starting to

01:22 become carnivores now

01:24 what am i going to give up well i'm

01:26 going to give up 60 berries if i find if

01:29 i'm able to get three rabbits every day

01:31 on average then i'm only going to get

01:33 180 berries now instead of 240 and let's

01:35 just keep going

01:37 so if i want yet another rabbit every

01:39 day then i'm gonna have to give up then

01:41 i'm gonna have to give up 80 berries

01:43 80 berries and then finally just to feel

01:46 some sense of completion if i become a

01:48 complete carnivore and if i want to get

01:50 on average five rabbits a day i'm gonna

01:51 have to give up another 100 berries and

01:54 go to not having any berries at all and

01:57 so you might see something interesting

01:59 the more squirrels sorry not squirrels

02:01 although i guess they're similar the

02:02 more rabbits that i'm going after

02:05 every time i i try to go after another

02:07 incremental rabbit i'm giving up more

02:10 and more berries my opportunity cost is

02:13 increasing and so this phenomenon that's

02:15 it's not always the case but it's the

02:17 case in this example increasing

02:20 opportunity cost opportunity

02:24 increasing opportunity cost every as we

02:27 increase the number of rabbits we're

02:28 going after and you could do it the

02:29 other way you could say okay what as we

02:31 increase as especially if you did on a

02:33 unit basis if you said every incremental

02:36 barrier every incremental hundred

02:38 berries are going after but the numbers

02:39 aren't as easy right over here you'll

02:41 actually see something going the other

02:43 way but the the question an interesting

02:45 question is okay sal you set up the

02:47 numbers like this earlier two videos ago

02:49 but but why would this make sense why is

02:51 this idea of increasing opportunity

02:53 costs showing up in a lot of different

02:55 economic and you could call this an

02:57 economic model we have we've simplified

03:00 our economic reality the choices that we

03:02 have to make down to two variables the

03:04 number of rabbits we have to go after or

03:06 the number of berries but why does this

03:08 show up in economic models and

03:10 and just to be clear it does not show up

03:11 in all of them but to think about our

03:13 example as a hunter-gatherer we started

03:15 here in scenario f in scenario f we

03:19 aren't we we've we've decided to not

03:21 pursue any rabbits even even the slower

03:25 not so quick-witted rabbit who maybe you

03:28 know likes to hang out with you next to

03:30 you and it likes to play with your

03:33 spears or your bow and arrow you are not

03:36 even going after that rabbit instead you

03:38 are choosing to spend all of your time

03:39 on on the berries and not only are you

03:41 getting the low literally the low

03:43 hanging fruit the easy berries you're

03:45 getting the barrier the berries that are

03:46 further up the bush the berries that you

03:48 have to get cut by thorns to get the

03:50 berries that you have to climb trees to

03:51 get so you're getting even hard to get

03:53 berries and you're not going after even

03:56 easy to get rabbits but now all of a

03:58 sudden if you say well you know that

03:59 rabbit who's been hanging out with me

04:01 he's been kind of asking for it and so

04:03 that was very easy to get it didn't take

04:05 much time on a given day to get those

04:08 really easy rabbits who like to hang out

04:10 with you you're not giving up a lot in

04:12 terms of berries you're not giving up a

04:14 lot in terms of berries one it didn't

04:16 take you much time to get those

04:17 literally those those slow and maybe

04:20 less quick-witted rabbits and you're

04:22 giving up in that same amount of time

04:24 the the very hard to get berries so

04:26 you're only going to give up about 20 of

04:27 them

04:28 now if you want two rabbits two rabbits

04:31 a day not only are you going to get the

04:33 the slowest of the rabbits the ones that

04:34 aren't afraid of humans now you're gonna

04:36 have to go get the slightly faster

04:38 rabbit the the the slightly faster

04:40 rabbit who who wants to die a little bit

04:42 less and is maybe a little bit sharper

04:44 and you're now not giving up the berries

04:47 that are way up in the tree and that are

04:48 protected by thorns you're giving up

04:50 berries that are closer down the tree so

04:52 this is going to take you a little bit

04:53 more time to do than this right over

04:55 here and in that little bit more time

04:57 you're also giving up

04:58 berries that were easier to get and so

05:00 this phenomenon is going to happen all

05:02 the way until you know in this scenario

05:03 we're trying to get five rabbits a day

05:05 you are literally going after the

05:06 quickest and the smartest rabbits but

05:08 you insist on going them and in your

05:10 pursuit of these quick fast rabbits

05:13 you're even ignoring berries you're

05:15 literally like stepping on berries

05:16 you're not eating the berries that are

05:17 right next to you because you're so

05:19 obsessed with with eating rabbits so

05:22 hopefully that gives you a sense of why

05:24 increasing opportunity cost does show up

05:26 and

05:27 when you graphically show it in terms of

05:28 a production possibilities frontier it

05:30 shows up in this bow-shaped curve and

05:33 you can see it because as we go from

05:35 this point to this point you see that

05:37 the the as we increase one

05:40 the slope the negative slope is

05:42 increasing so or another way to think

05:44 about in scenario f the slope is roughly

05:47 like this and i encourage you to review

05:49 the algebra playlist if the idea of

05:51 slope is is confusing to you

05:54 but at f the slope is like that i'm i'm

05:57 drawing the slope of the tangent line

05:58 right over here at e it gets even

06:00 steeper you're giving up even more

06:02 you're giving up even more of the

06:04 berries per unit rabbit and now indeed

06:07 you're giving up even more and then

06:08 you're giving up even more and so this

06:10 this whenever you see a bow-shaped curve

06:12 like this so a curve that literally

06:14 looks like this this shows that you have

06:17 increasing opportunity costs as you

06:18 increase more and more units you're

06:20 going to have to give up more and more

06:22 of the alternative

💫 FAQs about This YouTube Video

1. What is the example used to illustrate changing opportunity cost?

The example provided in the video is about the opportunity cost of hunting rabbits versus gathering berries, where the opportunity cost changes as more rabbits are pursued.

2. Why does the opportunity cost change in the example?

The opportunity cost changes in the example because as more rabbits are pursued, the hunter-gatherer has to give up more berries, which were the alternative choice for food.

3. How does the concept of increasing opportunity cost relate to the example?

The concept of increasing opportunity cost is demonstrated in the example as the hunter-gatherer faces a higher cost in berries for every additional rabbit pursued.

4. What does the bow-shaped curve in the production possibilities frontier indicate?

The bow-shaped curve in the production possibilities frontier indicates increasing opportunity costs as more of one good is produced, reflecting the real-world trade-offs and choices in economics.

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