Video transcript
- [Instructor] So we have three different possible production possibility curves for rabbits and berrieshere, which we've already talked about in othervideos, but the reason why I'm showing you three different curves is because these three different curves clearly have different shapes,and we wanna think about why you would have andunder what scenarios would you have these different shapes? Here, our productionpossibility curve, or our PPC, it looks like a straight line. Here, it looks like it'sbowed out from the origin, it looks like it's poppingout in that direction. And here, it looks likeit's bowed in to the origin, it's popping in in this direction. So the first thing I'm goingto do is ask you a question. Which one describes the scenario where for every extra rabbit I catch,every incremental rabbit, I'm giving up more andmore in terms of berries? Or another way of thinking about it is, as I catch more and morerabbits, the opportunity cost in terms of berries is increasing. Which one of these curves describes that? Well some of you might have already seen the video on KhanAcademy, onincreasing opportunity cost, and you might recognizethat this curve here. But let's just review it,so there's a world where I'm eating all berries,and I can get, I can pick 300 berries a day, butmaybe I decide to go after that first rabbit thatjust likes to hang out and play with my knives,and so when I catch that, it's very easy to catch,so I don't give up a lot in terms of berries, especiallybecause I'm probably not, the berries I'm giving up are probably the ones that are hardest to pick. And so let's say that firstrabbit, the opportunity cost, I pick 20 less berries,so notice, when I increase the rabbits by one, myberries go down by 20, so my opportunity cost is 20berries for that first rabbit. But let's say that second rabbit is a little bit harder tocatch, and I'm not giving up the quite so hard to pick berries, and so when I pick that next,or when I hunt that next rabbit, I should say, thenI've given up 40 berries. So notice, my opportunitycost has increased. For that first rabbit, myopportunity cost was 20 berries. For that second rabbit, myopportunity cost is 40 berries. And it keeps going, then third rabbit, I'm going to give up 60 berries. That fourth rabbit, I'mgonna give up 80 berries, 80 berries, and then last but not least, that fifth rabbit, whichis the most that I can hunt in a day, I'm gonna give up 100 berries 'cuz here, I'm going afterthe really nimble rabbit, the really sly rabbit, andI'm giving up literally the low-hanging fruit in terms of berries, the one, they might be on the ground, just ready for me to pick up, and so, the important realization from this video is this bowed out shape right over here, this is describing anincreasing opportunity cost. Let me write that down, increasing, increasing, O.C. for opportunity cost. So with that out ofthe way, which of these would describe a decreasingopportunity cost? Maybe you could imagine a scenario where every incremental rabbit I catch, I get better and betterat catching rabbits. Well you might guess that, well look, if this one is increasingand I'm bowed out, then being bowed in would bea decreasing opportunity cost. Decreasing opportunitycost, and let's make sure that it makes sense, so wecould go back to the scenario where we're doing nothingbut picking berries, and let's say that firstrabbit, so we're gonna talk about a different scenarionow, that first rabbit, I had to train myself tobe able to get rabbits, I have to buy the tools,I have to stretch, it takes me a lot of effortto get that first rabbit. And so, there, I giveup 100 berries, so my opportunity cost for thatfirst rabbit was 100 berries. But then for that second rabbit, my opportunity cost is 80 berries. Maybe now, I've kind ofgotten the hang of it. I've already bought myrabbit catching shoes. I've already invested in that. I'm all stretched andlimber, maybe those rabbits like to hang out together,and so that keeps on going. So that third rabbit, myopportunity cost is 60 berries. I'm getting really goodat catching rabbits, so clearly, you see here, thatfor each incremental rabbit I get, my opportunity cost is decreasing, all the way to that fifth rabbit, maybe my opportunity cost is 20 berries. To catch that next extra rabbit, I'm giving up those 20 berries. So very clearly, you see adecreasing opportunity cost. And so, by deductive reasoning,you might be able to say, "Well, okay, this straightline must represent "a constant opportunity cost." And that is, indeed, what it shows. For every rabbit, every rabbit you catch, you're giving up exactly,you're giving up exactly 60 berries, every time I catch a rabbit, I give up 60 berries,so my opportunity cost for rabbits, in terms ofberries, is just a constant 60. And so this is a scenario,if you were imagining in this fictional world we created, where every rabbit is about as easyto catch as any other one, and every berry is aboutas easy to pick or find as any other one, and so, the trade off, the amount of time I spentfor each incremental rabbit, I'm giving up a fixed amount of berries. No matter how many rabbits I go for, and no matter how manyberries I am currently at, so that's a constant opportunity cost, when you have a straight line.
