[{"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "Let's continue with our orange juice producing example. And in this situation I want to think about what a rational quantity of orange juice might be, or what would be a rational quantity of orange juice to produce, given a market price. So let's say that the market price right now, the market price of orange juice is 50 cents a gallon. And I'm going to assume that there are many producers here, so we're going to have to be price takers. Obviously we want to charge as much as we can per gallon, but if we charge even a penny over 50 cents a gallon, then people are going to buy all of their orange juice from other people. So this is the price that we can charge, 50 cents per gallon. So if we think about it in terms of marginal revenue, revenue per incremental gallon, well that first incremental gallon we're going to get 50 cents."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "And I'm going to assume that there are many producers here, so we're going to have to be price takers. Obviously we want to charge as much as we can per gallon, but if we charge even a penny over 50 cents a gallon, then people are going to buy all of their orange juice from other people. So this is the price that we can charge, 50 cents per gallon. So if we think about it in terms of marginal revenue, revenue per incremental gallon, well that first incremental gallon we're going to get 50 cents. That next incremental gallon we're going to get 50 cents for that one. And the next one we're going to get 50 cents as well. For the first 1,000 gallons we're going to get 50 cents for each of those gallons."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "So if we think about it in terms of marginal revenue, revenue per incremental gallon, well that first incremental gallon we're going to get 50 cents. That next incremental gallon we're going to get 50 cents for that one. And the next one we're going to get 50 cents as well. For the first 1,000 gallons we're going to get 50 cents for each of those gallons. For the first 10,000 gallons we'll get 50 cents per gallon. So our marginal revenue curve looks something like this. Our marginal revenue is a flat curve right at 50 cents a gallon."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "For the first 1,000 gallons we're going to get 50 cents for each of those gallons. For the first 10,000 gallons we'll get 50 cents per gallon. So our marginal revenue curve looks something like this. Our marginal revenue is a flat curve right at 50 cents a gallon. So that is our marginal revenue at 50 cents, at a market price of 50 cents per gallon. Now in this situation, what's a reasonable quantity that we would want to produce? And there's two dynamics here."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "Our marginal revenue is a flat curve right at 50 cents a gallon. So that is our marginal revenue at 50 cents, at a market price of 50 cents per gallon. Now in this situation, what's a reasonable quantity that we would want to produce? And there's two dynamics here. We want to produce as much as possible, as much as possible, so that we can spread our fixed costs over those gallons. Spread our fixed costs is one way of thinking about it. Fixed costs."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "And there's two dynamics here. We want to produce as much as possible, as much as possible, so that we can spread our fixed costs over those gallons. Spread our fixed costs is one way of thinking about it. Fixed costs. Or another way of thinking about it is we have a certain amount of fixed costs. We are spending $1,000 no matter what. So why don't we try to get as much revenue as possible to try to make up for those fixed costs."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "Fixed costs. Or another way of thinking about it is we have a certain amount of fixed costs. We are spending $1,000 no matter what. So why don't we try to get as much revenue as possible to try to make up for those fixed costs. Or if we think about it in terms of average fixed costs, the more quantity that we produce, the component of the cost for that from the fixed costs go down and down and down. So we want to have as much as possible to spread our fixed costs. Now, the one thing that we do need to think about is, especially once we kind of get beyond this little dip in the marginal cost curve, and as we're producing more and more units, the marginal cost is going up higher and higher and higher."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "So why don't we try to get as much revenue as possible to try to make up for those fixed costs. Or if we think about it in terms of average fixed costs, the more quantity that we produce, the component of the cost for that from the fixed costs go down and down and down. So we want to have as much as possible to spread our fixed costs. Now, the one thing that we do need to think about is, especially once we kind of get beyond this little dip in the marginal cost curve, and as we're producing more and more units, the marginal cost is going up higher and higher and higher. We don't want to produce so much that the cost of producing that incremental unit, the marginal cost of that incremental unit, is more than the marginal cost of that actual, or the marginal cost of that incremental unit is not higher than the marginal revenue that we're getting on that incremental unit. So until marginal revenue is equal to marginal cost. Or another way of thinking about it, you don't want marginal cost, and this is after we go through this little dip here, we're trying to do as much as possible, marginal cost is going higher and higher and higher, we don't want to produce this much right over here because here, the cost for that extra gallon is higher than what we're going to get for that extra gallon."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "Now, the one thing that we do need to think about is, especially once we kind of get beyond this little dip in the marginal cost curve, and as we're producing more and more units, the marginal cost is going up higher and higher and higher. We don't want to produce so much that the cost of producing that incremental unit, the marginal cost of that incremental unit, is more than the marginal cost of that actual, or the marginal cost of that incremental unit is not higher than the marginal revenue that we're getting on that incremental unit. So until marginal revenue is equal to marginal cost. Or another way of thinking about it, you don't want marginal cost, and this is after we go through this little dip here, we're trying to do as much as possible, marginal cost is going higher and higher and higher, we don't want to produce this much right over here because here, the cost for that extra gallon is higher than what we're going to get for that extra gallon. Looks like that cost for that extra gallon might be 53 cents, while we're only gonna get 50 cents for that extra gallon. So every extra gallon we produce over here, we're going to be losing money. So you don't want marginal cost to be greater than marginal revenue."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "Or another way of thinking about it, you don't want marginal cost, and this is after we go through this little dip here, we're trying to do as much as possible, marginal cost is going higher and higher and higher, we don't want to produce this much right over here because here, the cost for that extra gallon is higher than what we're going to get for that extra gallon. Looks like that cost for that extra gallon might be 53 cents, while we're only gonna get 50 cents for that extra gallon. So every extra gallon we produce over here, we're going to be losing money. So you don't want marginal cost to be greater than marginal revenue. Marginal revenue. So when you look at the curves like this, it makes sense to just say, well, when does marginal revenue equal marginal cost? And that's this point right over here, and that is the rational amount to produce."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "So you don't want marginal cost to be greater than marginal revenue. Marginal revenue. So when you look at the curves like this, it makes sense to just say, well, when does marginal revenue equal marginal cost? And that's this point right over here, and that is the rational amount to produce. So that is 9,000 units. So we're going to be at this line right over here, we're gonna produce 9,000 gallons of juice. Our revenue that we're going to get is going to be the area, is going to be the rectangle of the area that's as high as the price we're getting per unit times the number of units."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "And that's this point right over here, and that is the rational amount to produce. So that is 9,000 units. So we're going to be at this line right over here, we're gonna produce 9,000 gallons of juice. Our revenue that we're going to get is going to be the area, is going to be the rectangle of the area that's as high as the price we're getting per unit times the number of units. So this is going to be the total revenue we get if we were to shade this in, and I'm not going to shade it in because it's going to make my whole diagram messy. And what is our total cost? Well, we have our average total cost right here."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "Our revenue that we're going to get is going to be the area, is going to be the rectangle of the area that's as high as the price we're getting per unit times the number of units. So this is going to be the total revenue we get if we were to shade this in, and I'm not going to shade it in because it's going to make my whole diagram messy. And what is our total cost? Well, we have our average total cost right here. This is, our average total cost are 48 cents. That's this little green triangle right over here. So it's 48 cents per unit times the total number of units."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "Well, we have our average total cost right here. This is, our average total cost are 48 cents. That's this little green triangle right over here. So it's 48 cents per unit times the total number of units. Our costs are the area under the area in this rectangle. So if I were to shade this in, this little slightly smaller rectangle, and so our profits are the difference between the two. Our total revenue is the area under the rectangle that has this, the marginal revenue line as its upper bound, and our cost is a rectangle that has our average total cost, this line right over here, as its upper bound."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "So it's 48 cents per unit times the total number of units. Our costs are the area under the area in this rectangle. So if I were to shade this in, this little slightly smaller rectangle, and so our profits are the difference between the two. Our total revenue is the area under the rectangle that has this, the marginal revenue line as its upper bound, and our cost is a rectangle that has our average total cost, this line right over here, as its upper bound. So our profits, our profits in this circumstance are going to be the area right over here. The height is the difference between our marginal cost, which is the same as our marginal revenue and our total cost. So it's going to be, the height is going to be these two cents right over here."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "Our total revenue is the area under the rectangle that has this, the marginal revenue line as its upper bound, and our cost is a rectangle that has our average total cost, this line right over here, as its upper bound. So our profits, our profits in this circumstance are going to be the area right over here. The height is the difference between our marginal cost, which is the same as our marginal revenue and our total cost. So it's going to be, the height is going to be these two cents right over here. We're taking the difference between 50 and 48. So it's going to be two cents. And then the quantity produced is going to be 9,000 units."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "So it's going to be, the height is going to be these two cents right over here. We're taking the difference between 50 and 48. So it's going to be two cents. And then the quantity produced is going to be 9,000 units. So 9,000, we're making two cents per unit. Remember, our average cost, our average total cost is 48 cents per unit. We're selling them at 50 cents per unit, so we're making two cents per unit."}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "And then the quantity produced is going to be 9,000 units. So 9,000, we're making two cents per unit. Remember, our average cost, our average total cost is 48 cents per unit. We're selling them at 50 cents per unit, so we're making two cents per unit. I wrote 20. We're making two cents per unit. Two cents times 9,000 units, times 9,000 units, gives us, what is that?"}, {"video_title": "Marginal revenue and marginal cost Microeconomics Khan Academy.mp3", "Sentence": "We're selling them at 50 cents per unit, so we're making two cents per unit. I wrote 20. We're making two cents per unit. Two cents times 9,000 units, times 9,000 units, gives us, what is that? That's 18,000 cents, or $180 of profit. Now, what I want you to think about, and we'll answer this in the next video, is does it make sense, does it make sense to sell units at all, and if so, how many units should we sell, if, and here's the question, if the market price, if the market price is lower than your average total cost? So does it make sense, and how many units does it make sense to produce?"}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "And just going with the logic that we introduced in the last video, you want to produce as much as possible to spread out the fixed costs. But you don't want to produce so much that the marginal cost is higher than your marginal revenue. And your marginal revenue is your market price. Every unit, every incremental unit, you're going to get $0.45. So you want to look at the quantity where your marginal revenue, the $0.45, is equal to your marginal cost. And we can look at it over here. So if we look at our marginal revenue, so let's say $0.45 is right over there."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "Every unit, every incremental unit, you're going to get $0.45. So you want to look at the quantity where your marginal revenue, the $0.45, is equal to your marginal cost. And we can look at it over here. So if we look at our marginal revenue, so let's say $0.45 is right over there. You want to look where the $0.45 is equal to your marginal cost. And it looks like it is right over there. Now we can even see it on our table."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "So if we look at our marginal revenue, so let's say $0.45 is right over there. You want to look where the $0.45 is equal to your marginal cost. And it looks like it is right over there. Now we can even see it on our table. When does our marginal cost equal $0.45? It equals that when we produce 8,000 gallons of our juice. Now the reason why this is somewhat interesting is that that point, the amount of revenue that we're getting per unit, our marginal revenue, is less than our total cost per unit."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "Now we can even see it on our table. When does our marginal cost equal $0.45? It equals that when we produce 8,000 gallons of our juice. Now the reason why this is somewhat interesting is that that point, the amount of revenue that we're getting per unit, our marginal revenue, is less than our total cost per unit. We're selling each unit at $0.45, but our total cost for each of those units is $0.48 on average. So this right over here is our total cost. So you might say, look, I'm making a loss on every unit."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "Now the reason why this is somewhat interesting is that that point, the amount of revenue that we're getting per unit, our marginal revenue, is less than our total cost per unit. We're selling each unit at $0.45, but our total cost for each of those units is $0.48 on average. So this right over here is our total cost. So you might say, look, I'm making a loss on every unit. The total amount of revenue I'm getting is a smaller rectangle over here. It's the quantity times the marginal revenue per unit. So this is the amount of revenue that I'm getting."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "So you might say, look, I'm making a loss on every unit. The total amount of revenue I'm getting is a smaller rectangle over here. It's the quantity times the marginal revenue per unit. So this is the amount of revenue that I'm getting. Let me color it in carefully. That is the amount of revenue that I'm getting. While my costs are this larger rectangle, my quantity times my average total cost per unit."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "So this is the amount of revenue that I'm getting. Let me color it in carefully. That is the amount of revenue that I'm getting. While my costs are this larger rectangle, my quantity times my average total cost per unit. And so what I end up with is if you take that revenue and you subtract out that quantity, you end up with a loss of exactly this much. You are operating in this situation at a loss. When you are producing 8,000 units and you're getting $0.45 per unit."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "While my costs are this larger rectangle, my quantity times my average total cost per unit. And so what I end up with is if you take that revenue and you subtract out that quantity, you end up with a loss of exactly this much. You are operating in this situation at a loss. When you are producing 8,000 units and you're getting $0.45 per unit. So does it make sense for you to do this? And we can even figure out the loss. You are producing 8,000 units and you're selling them for $0.45 a unit."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "When you are producing 8,000 units and you're getting $0.45 per unit. So does it make sense for you to do this? And we can even figure out the loss. You are producing 8,000 units and you're selling them for $0.45 a unit. And it costs you $0.48 per unit to produce them on average when you put all the costs in, $0.48 per unit. So you are losing $0.03 per unit. I guess gallon."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "You are producing 8,000 units and you're selling them for $0.45 a unit. And it costs you $0.48 per unit to produce them on average when you put all the costs in, $0.48 per unit. So you are losing $0.03 per unit. I guess gallon. We're talking about orange juice here. And it's times 8,000 gallons means that we are losing $240. 8,000 times $0.03 is $24,000, which is the same thing as $240."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "I guess gallon. We're talking about orange juice here. And it's times 8,000 gallons means that we are losing $240. 8,000 times $0.03 is $24,000, which is the same thing as $240. So does it make sense for us to do this? Well, one way to think about it, let's say we didn't do it. Let's say we're just like, hey, I'm not going to produce any gallons."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "8,000 times $0.03 is $24,000, which is the same thing as $240. So does it make sense for us to do this? Well, one way to think about it, let's say we didn't do it. Let's say we're just like, hey, I'm not going to produce any gallons. Well, then what's going to be our loss? Well, we're assuming that this is our fixed cost. We've already committed ourselves to this expenditure right over here."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "Let's say we're just like, hey, I'm not going to produce any gallons. Well, then what's going to be our loss? Well, we're assuming that this is our fixed cost. We've already committed ourselves to this expenditure right over here. Whether we produce no drops of orange juice, we are still going to be spending $1,000. So if we produce nothing, we are guaranteeing ourselves a weekly loss of $1,000. And so this is at least better than that."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "We've already committed ourselves to this expenditure right over here. Whether we produce no drops of orange juice, we are still going to be spending $1,000. So if we produce nothing, we are guaranteeing ourselves a weekly loss of $1,000. And so this is at least better than that. So by starting to produce some units, we are at least able to offset some of that loss. And we're spreading out that fixed cost over more and more and more gallons. And you might say, hey, well, why don't I just keep producing more and more units?"}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "And so this is at least better than that. So by starting to produce some units, we are at least able to offset some of that loss. And we're spreading out that fixed cost over more and more and more gallons. And you might say, hey, well, why don't I just keep producing more and more units? Why don't I go here? Maybe I produce 9,000 units where the marginal cost, all of a sudden, is higher than our marginal revenue. And the reason why that won't make any sense to do is because if you produce that many units, then all of a sudden, each of those incremental units that you're producing beyond the 8,000, you're losing money on those."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "And you might say, hey, well, why don't I just keep producing more and more units? Why don't I go here? Maybe I produce 9,000 units where the marginal cost, all of a sudden, is higher than our marginal revenue. And the reason why that won't make any sense to do is because if you produce that many units, then all of a sudden, each of those incremental units that you're producing beyond the 8,000, you're losing money on those. That 8,001st unit, the marginal cost is going to be higher than the marginal revenue that you're bringing in on that unit. So you're going to be losing money. You're going to start having a lower profit than even the negative $240 loss."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "And the reason why that won't make any sense to do is because if you produce that many units, then all of a sudden, each of those incremental units that you're producing beyond the 8,000, you're losing money on those. That 8,001st unit, the marginal cost is going to be higher than the marginal revenue that you're bringing in on that unit. So you're going to be losing money. You're going to start having a lower profit than even the negative $240 loss. It'll start going to negative 240-something, negative 250, and so forth and so on. So you still don't want to produce beyond that point. And we'll touch more deeply on it in future videos."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "You're going to start having a lower profit than even the negative $240 loss. It'll start going to negative 240-something, negative 250, and so forth and so on. So you still don't want to produce beyond that point. And we'll touch more deeply on it in future videos. But this is essentially what differentiates the short-term supply curve from the long-run supply curve. In the short term, we're going to assume that we have these fixed costs. And so it's just going to make sense to produce equivalent to our marginal cost."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "And we'll touch more deeply on it in future videos. But this is essentially what differentiates the short-term supply curve from the long-run supply curve. In the short term, we're going to assume that we have these fixed costs. And so it's just going to make sense to produce equivalent to our marginal cost. But over the long run, maybe our fixed items, our capital, our machinery wears off, or maybe the contract for my employees wear off. And then we have a different cost structure over the long term. But we'll think about that in another video."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "And so it's just going to make sense to produce equivalent to our marginal cost. But over the long run, maybe our fixed items, our capital, our machinery wears off, or maybe the contract for my employees wear off. And then we have a different cost structure over the long term. But we'll think about that in another video. But the simple answer is, assuming these really are your fixed costs, you still want to produce as many units as possible so that your marginal cost is equal to your marginal revenue, which in this case is the market price. We are price takers. So it actually is a rational thing to produce 8,000 units and take a loss on that, and take a $240 per week loss, as opposed to just producing nothing and taking $1,000 per week loss."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "But we'll think about that in another video. But the simple answer is, assuming these really are your fixed costs, you still want to produce as many units as possible so that your marginal cost is equal to your marginal revenue, which in this case is the market price. We are price takers. So it actually is a rational thing to produce 8,000 units and take a loss on that, and take a $240 per week loss, as opposed to just producing nothing and taking $1,000 per week loss. Now, it might not be rational once these things have been worn out, your robots and the employees' contracts. It might not be rational to continue them past their term. And we'll think about that more in another, because obviously we are running at a loss."}, {"video_title": "Marginal revenue below average total cost Microeconomics Khan Academy.mp3", "Sentence": "So it actually is a rational thing to produce 8,000 units and take a loss on that, and take a $240 per week loss, as opposed to just producing nothing and taking $1,000 per week loss. Now, it might not be rational once these things have been worn out, your robots and the employees' contracts. It might not be rational to continue them past their term. And we'll think about that more in another, because obviously we are running at a loss. This is not necessarily a good business to be in. But now that we've gotten into the business, we might as well stay in it in order to recoup some of our costs here, or at least spread them out, or at least not have a $1,000 per week loss. Anyway, see you in the next video."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "And you can see the equilibrium price right over here, marked with this dotted line. And as we've talked about in multiple videos, the firms in that perfectly competitive market, the perfectly competitive firms, they just have to be price takers. So the market price is going to be their marginal revenue curve, and it's going to be this horizontal curve. And it would be rational for them to produce the quantity. So they're not going to set the price, but they can choose what quantity to produce. But it would be rational for them to keep producing while the marginal revenue is higher than the marginal cost, up to and including when the marginal revenue is equal to the marginal cost. So for this firm at this current state of affairs, it would be rational for them to produce this quantity right over there."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "And it would be rational for them to produce the quantity. So they're not going to set the price, but they can choose what quantity to produce. But it would be rational for them to keep producing while the marginal revenue is higher than the marginal cost, up to and including when the marginal revenue is equal to the marginal cost. So for this firm at this current state of affairs, it would be rational for them to produce this quantity right over there. And as we've talked about in other videos, at that quantity, they're going to make an economic profit. And the way that we can see that is, at this quantity, this is the average total cost, that is your marginal revenue. And so you are going to get this much per unit, and then you multiply, so the height is how much you get per unit, and then you multiply that times the number of units."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "So for this firm at this current state of affairs, it would be rational for them to produce this quantity right over there. And as we've talked about in other videos, at that quantity, they're going to make an economic profit. And the way that we can see that is, at this quantity, this is the average total cost, that is your marginal revenue. And so you are going to get this much per unit, and then you multiply, so the height is how much you get per unit, and then you multiply that times the number of units. So the area of this rectangle is that positive economic profit that this firm will have. Now that's in the short run. But now let's think about what will likely happen in the long run."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "And so you are going to get this much per unit, and then you multiply, so the height is how much you get per unit, and then you multiply that times the number of units. So the area of this rectangle is that positive economic profit that this firm will have. Now that's in the short run. But now let's think about what will likely happen in the long run. If folks see other folks making a positive economic profit, remember, economic profit doesn't just account for regular costs, it also includes opportunity costs. So a lot of people say, hey, I would want to put my resources into this market so that I can make that positive economic profit as well. But what's going to happen as you have entrance into this market?"}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "But now let's think about what will likely happen in the long run. If folks see other folks making a positive economic profit, remember, economic profit doesn't just account for regular costs, it also includes opportunity costs. So a lot of people say, hey, I would want to put my resources into this market so that I can make that positive economic profit as well. But what's going to happen as you have entrance into this market? Well, that's going to shift the supply curve to the right. At any given price, you're going to have more supply is one way to think about it. So if that's supply curve, let's just call that one."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "But what's going to happen as you have entrance into this market? Well, that's going to shift the supply curve to the right. At any given price, you're going to have more supply is one way to think about it. So if that's supply curve, let's just call that one. Now you're going to have more entrance, more entrance. And what's going to happen? Well, you might get to something like, you might get to a situation like this."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "So if that's supply curve, let's just call that one. Now you're going to have more entrance, more entrance. And what's going to happen? Well, you might get to something like, you might get to a situation like this. Actually, let me see if I can draw it well. You might get to a situation like this, where you have more entrance, and you go to supply curve two. Now what's going to be the quantity that firm A produces in that world?"}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "Well, you might get to something like, you might get to a situation like this. Actually, let me see if I can draw it well. You might get to a situation like this, where you have more entrance, and you go to supply curve two. Now what's going to be the quantity that firm A produces in that world? Remember, firm A is just one of many firms. Well, in this situation, we have a new equilibrium price. So if this was P sub one, now we have this new equilibrium price, P sub two, which is going to define a new marginal revenue curve for all of the players in this perfectly competitive market."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "Now what's going to be the quantity that firm A produces in that world? Remember, firm A is just one of many firms. Well, in this situation, we have a new equilibrium price. So if this was P sub one, now we have this new equilibrium price, P sub two, which is going to define a new marginal revenue curve for all of the players in this perfectly competitive market. And so the new marginal revenue curve is going to be right over there. Now in this situation, what is the rational quantity for firm A to produce? Well, once again, as long as marginal revenue is higher than marginal cost, it makes sense for them to produce more and more and more, up until the point that they are equal."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "So if this was P sub one, now we have this new equilibrium price, P sub two, which is going to define a new marginal revenue curve for all of the players in this perfectly competitive market. And so the new marginal revenue curve is going to be right over there. Now in this situation, what is the rational quantity for firm A to produce? Well, once again, as long as marginal revenue is higher than marginal cost, it makes sense for them to produce more and more and more, up until the point that they are equal. So now firm A would want to produce less, because the market price that it just has to take is less. But notice what happens as more and more entrance got into the market. The market price, which also defines this horizontal marginal revenue curve, went lower and lower to the point where firm A now in this situation is making no economic profit."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "Well, once again, as long as marginal revenue is higher than marginal cost, it makes sense for them to produce more and more and more, up until the point that they are equal. So now firm A would want to produce less, because the market price that it just has to take is less. But notice what happens as more and more entrance got into the market. The market price, which also defines this horizontal marginal revenue curve, went lower and lower to the point where firm A now in this situation is making no economic profit. At this point, not only is marginal revenue intersecting marginal cost, but that's exactly at the point at which marginal cost is equaling average total cost. So one way to think about it is, in a perfectly competitive firm, they are productively efficient. They are producing the quantity that minimizes their average total cost."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "The market price, which also defines this horizontal marginal revenue curve, went lower and lower to the point where firm A now in this situation is making no economic profit. At this point, not only is marginal revenue intersecting marginal cost, but that's exactly at the point at which marginal cost is equaling average total cost. So one way to think about it is, in a perfectly competitive firm, they are productively efficient. They are producing the quantity that minimizes their average total cost. We've already talked about that point where marginal cost and average total cost intersect. That's going to be the minimum point for average total cost. And why is that?"}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "They are producing the quantity that minimizes their average total cost. We've already talked about that point where marginal cost and average total cost intersect. That's going to be the minimum point for average total cost. And why is that? Well, while marginal cost is below average total cost, average total cost is gonna get lower and lower and lower, and then once marginal cost gets higher than average total cost, well then the average total cost curve will start curving up. So we just saw a situation that even where we see economic profit in the short run, in the long run, entrance are going to go into that market and it's going to reduce the economic profit down to zero. And at that point, the firm that has that zero economic profit, they are productively efficient."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "And why is that? Well, while marginal cost is below average total cost, average total cost is gonna get lower and lower and lower, and then once marginal cost gets higher than average total cost, well then the average total cost curve will start curving up. So we just saw a situation that even where we see economic profit in the short run, in the long run, entrance are going to go into that market and it's going to reduce the economic profit down to zero. And at that point, the firm that has that zero economic profit, they are productively efficient. They are producing at the minimum point of their average total cost curve. And we've already talked before that this equilibrium point right over here in our market, because our demand and supply curves, the intersection point defines the price, our equilibrium price and quantities, we are also allocatively efficient. We've talked about things like deadweight loss in the past."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "And at that point, the firm that has that zero economic profit, they are productively efficient. They are producing at the minimum point of their average total cost curve. And we've already talked before that this equilibrium point right over here in our market, because our demand and supply curves, the intersection point defines the price, our equilibrium price and quantities, we are also allocatively efficient. We've talked about things like deadweight loss in the past. That is not happening right over here. Our marginal benefit is equal to our marginal cost right at that equilibrium price and quantity. Now some of you might be saying, well, what about the other situation?"}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "We've talked about things like deadweight loss in the past. That is not happening right over here. Our marginal benefit is equal to our marginal cost right at that equilibrium price and quantity. Now some of you might be saying, well, what about the other situation? What about if for some reason we were in a, let's call it a supply curve three, let's say people overshot, too many people joined into this market. So let's say we went to supply curve three, well what's going to happen? And let me label this."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "Now some of you might be saying, well, what about the other situation? What about if for some reason we were in a, let's call it a supply curve three, let's say people overshot, too many people joined into this market. So let's say we went to supply curve three, well what's going to happen? And let me label this. This is right over here, this is marginal revenue curve one, which is equal to price one. This is marginal revenue curve two, which is equal to price two. And then this would define, so this right over here would be price three, price three, which would define marginal revenue curve three."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "And let me label this. This is right over here, this is marginal revenue curve one, which is equal to price one. This is marginal revenue curve two, which is equal to price two. And then this would define, so this right over here would be price three, price three, which would define marginal revenue curve three. So marginal revenue curve three, which is equal to price three. Well, if too many entrants joined into that market, now firm A has a more difficult scenario. They would produce at this quantity, we've talked about many times already, but at that quantity, each unit, their average total cost is higher than that revenue they're getting."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy.mp3", "Sentence": "And then this would define, so this right over here would be price three, price three, which would define marginal revenue curve three. So marginal revenue curve three, which is equal to price three. Well, if too many entrants joined into that market, now firm A has a more difficult scenario. They would produce at this quantity, we've talked about many times already, but at that quantity, each unit, their average total cost is higher than that revenue they're getting. So they're going to be running at an economic loss in the short run. But what would happen in the long run? Well, firm A in the long run would probably exit the market and other firms who are running an economic loss would exit the market."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "In other videos, we have already looked at production possibility curves and output tables in order to calculate opportunity costs of producing a certain product in a certain country. And then we use that to think about comparative advantage. We're going to do something very similar in this video, but instead of thinking about, or instead of starting with output, we're gonna start with input. So right over here, we have a table that shows us the worker hours per item per country. So instead of this being an output table where we say in a given country, how much of, say, toy cars can a worker in country A produce per day, here we're saying how many hours does a worker in country A take to produce a toy car? In country A, it is two hours. That labor, that two hours of labor, this is the input."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "So right over here, we have a table that shows us the worker hours per item per country. So instead of this being an output table where we say in a given country, how much of, say, toy cars can a worker in country A produce per day, here we're saying how many hours does a worker in country A take to produce a toy car? In country A, it is two hours. That labor, that two hours of labor, this is the input. So we're not counting the number of cars per day here. We're saying how many hours per car we need to put in to produce it. Similarly, we have the input required in country A to produce a belt, one hour of worker time."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "That labor, that two hours of labor, this is the input. So we're not counting the number of cars per day here. We're saying how many hours per car we need to put in to produce it. Similarly, we have the input required in country A to produce a belt, one hour of worker time. In country B, four hours of worker time produces a toy car, and in country B, three hours of worker time produce a belt. So what we're gonna do next is convert this into the world that you might be more familiar with, of thinking in an output world. And to do that, we'll just assume that there are eight working hours, eight working hours per day in either country."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "Similarly, we have the input required in country A to produce a belt, one hour of worker time. In country B, four hours of worker time produces a toy car, and in country B, three hours of worker time produce a belt. So what we're gonna do next is convert this into the world that you might be more familiar with, of thinking in an output world. And to do that, we'll just assume that there are eight working hours, eight working hours per day in either country. And so from this, can we construct an output table? Let me put this right over here. Output, output table, where once again, we're gonna think about the output in country A, we're gonna think about the output in country B, and this is going to be in how many units of that product can a worker produce per day in each of those countries."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "And to do that, we'll just assume that there are eight working hours, eight working hours per day in either country. And so from this, can we construct an output table? Let me put this right over here. Output, output table, where once again, we're gonna think about the output in country A, we're gonna think about the output in country B, and this is going to be in how many units of that product can a worker produce per day in each of those countries. So once again, we're gonna have toy cars in this row, and we're going to have belts, belts in this row. And let me just draw some lines so it's clear that we're dealing with a table here. So there we go."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "Output, output table, where once again, we're gonna think about the output in country A, we're gonna think about the output in country B, and this is going to be in how many units of that product can a worker produce per day in each of those countries. So once again, we're gonna have toy cars in this row, and we're going to have belts, belts in this row. And let me just draw some lines so it's clear that we're dealing with a table here. So there we go. Then one more column. And so see if you can fill these in. So how many toy cars per worker per day can we produce in country A?"}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "So there we go. Then one more column. And so see if you can fill these in. So how many toy cars per worker per day can we produce in country A? Then think about it for belts, then think about both of them for country B. Pause the video and try to figure that out. All right, now let's think about how many toy cars per worker per day."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "So how many toy cars per worker per day can we produce in country A? Then think about it for belts, then think about both of them for country B. Pause the video and try to figure that out. All right, now let's think about how many toy cars per worker per day. Let me make it very clear. We're thinking per worker per day here. Because if we can fill out this output table from this, I guess you could call this an input table, then we can think about opportunity costs in the traditional way, and then we could think about in which country do we have a comparative advantage."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "All right, now let's think about how many toy cars per worker per day. Let me make it very clear. We're thinking per worker per day here. Because if we can fill out this output table from this, I guess you could call this an input table, then we can think about opportunity costs in the traditional way, and then we could think about in which country do we have a comparative advantage. So let's see, toy cars in country A. If it takes two hours to produce one toy car in country A, and if you're working, if the average, or if the worker is working eight hours per day, well then a worker can produce four cars. Four cars times two hours is eight hours."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "Because if we can fill out this output table from this, I guess you could call this an input table, then we can think about opportunity costs in the traditional way, and then we could think about in which country do we have a comparative advantage. So let's see, toy cars in country A. If it takes two hours to produce one toy car in country A, and if you're working, if the average, or if the worker is working eight hours per day, well then a worker can produce four cars. Four cars times two hours is eight hours. So an average worker per day in country A can produce four toy cars. Let me write that in that red color. Four toy cars."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "Four cars times two hours is eight hours. So an average worker per day in country A can produce four toy cars. Let me write that in that red color. Four toy cars. I just took eight hours and I divided by the number of hours it takes to produce a toy car. Similarly for belts, if I have eight hours and it takes an hour for a worker to make one belt, then per worker per day, eight divided by one, I could produce eight belts. And we could do the same thing for country B, and I encourage you to pause the video if you haven't done so already and try to fill this column out."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "Four toy cars. I just took eight hours and I divided by the number of hours it takes to produce a toy car. Similarly for belts, if I have eight hours and it takes an hour for a worker to make one belt, then per worker per day, eight divided by one, I could produce eight belts. And we could do the same thing for country B, and I encourage you to pause the video if you haven't done so already and try to fill this column out. Well in country B, if it takes four hours to produce a toy car per worker, that means you take eight hours divided by four hours that you could produce two toy cars in a day per worker. If it takes three hours to produce a belt, well then you take your eight hours, divide it by three hours per belt, and you're gonna be able to make 8 3rd belts per worker per day. This is the same thing as two and 2 3rd belts per worker per day."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "And we could do the same thing for country B, and I encourage you to pause the video if you haven't done so already and try to fill this column out. Well in country B, if it takes four hours to produce a toy car per worker, that means you take eight hours divided by four hours that you could produce two toy cars in a day per worker. If it takes three hours to produce a belt, well then you take your eight hours, divide it by three hours per belt, and you're gonna be able to make 8 3rd belts per worker per day. This is the same thing as two and 2 3rd belts per worker per day. So as you can see, we can easily translate between the input world and the output world, and then we could use this to calculate opportunity cost. So let's do that. Let me write opportunity, opportunity, opportunity cost, and I'll make another table here."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "This is the same thing as two and 2 3rd belts per worker per day. So as you can see, we can easily translate between the input world and the output world, and then we could use this to calculate opportunity cost. So let's do that. Let me write opportunity, opportunity, opportunity cost, and I'll make another table here. So country A, country B, and then I have the toy cars, toy cars, and then I have the belts. The belt's in that orange color. I have the belts, and then let me set up my table."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "Let me write opportunity, opportunity, opportunity cost, and I'll make another table here. So country A, country B, and then I have the toy cars, toy cars, and then I have the belts. The belt's in that orange color. I have the belts, and then let me set up my table. We're almost there. At any point in time, pause this video and see if you can figure out the opportunity cost given the information that we already have. We took this table to figure out this table, and now we could take, and now we could take, and now we could take this table to figure out this one."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "I have the belts, and then let me set up my table. We're almost there. At any point in time, pause this video and see if you can figure out the opportunity cost given the information that we already have. We took this table to figure out this table, and now we could take, and now we could take, and now we could take this table to figure out this one. Well let's do this together now. So toy cars. What's the opportunity cost in country A?"}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "We took this table to figure out this table, and now we could take, and now we could take, and now we could take this table to figure out this one. Well let's do this together now. So toy cars. What's the opportunity cost in country A? Well one way to think about it is, in country A, the same energy to produce four, four toy cars, I'll call it four C, C for cars, we could also use that to produce eight belts. So if I were to divide both sides by four, the energy to create one car is equal to the energy to create two belts. So my opportunity cost of a car is two belts, and if I start with this original equation and just divide both sides by eight, I would solve for the energy for a belt, and so that would be four over eight is 1 1\u20442 of the energy to make a car is equal to the energy to make a belt, and so the opportunity cost of a belt is 1 1\u20442 a car."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "What's the opportunity cost in country A? Well one way to think about it is, in country A, the same energy to produce four, four toy cars, I'll call it four C, C for cars, we could also use that to produce eight belts. So if I were to divide both sides by four, the energy to create one car is equal to the energy to create two belts. So my opportunity cost of a car is two belts, and if I start with this original equation and just divide both sides by eight, I would solve for the energy for a belt, and so that would be four over eight is 1 1\u20442 of the energy to make a car is equal to the energy to make a belt, and so the opportunity cost of a belt is 1 1\u20442 a car. 1 1\u20442 a car. And like always, this and this are reciprocals of each other. Now we could do the same exercise for country B, and once again, I keep emphasizing, try to pause the video."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "So my opportunity cost of a car is two belts, and if I start with this original equation and just divide both sides by eight, I would solve for the energy for a belt, and so that would be four over eight is 1 1\u20442 of the energy to make a car is equal to the energy to make a belt, and so the opportunity cost of a belt is 1 1\u20442 a car. 1 1\u20442 a car. And like always, this and this are reciprocals of each other. Now we could do the same exercise for country B, and once again, I keep emphasizing, try to pause the video. If you do this on your own as opposed to just watching me do it, it'll stick a lot better in your brain. All right, in country B, the same energy to make two cars, toy cars, with that same energy, I could make 8 3rds, 8 3rds belts, 8 3rds belts right over here. So the energy to make a car, divide both sides by two, is equal to, instead of one car, I can make 4 3rds of a belt."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "Now we could do the same exercise for country B, and once again, I keep emphasizing, try to pause the video. If you do this on your own as opposed to just watching me do it, it'll stick a lot better in your brain. All right, in country B, the same energy to make two cars, toy cars, with that same energy, I could make 8 3rds, 8 3rds belts, 8 3rds belts right over here. So the energy to make a car, divide both sides by two, is equal to, instead of one car, I can make 4 3rds of a belt. And so I'll just write this as 1 1\u20443 of a belt. And then if I start right over here and I multiply both sides by 3\u2078, actually, let me do that over here. So I have 3\u2078 times 2c is equal to 8 3rds B times 3\u2078."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "So the energy to make a car, divide both sides by two, is equal to, instead of one car, I can make 4 3rds of a belt. And so I'll just write this as 1 1\u20443 of a belt. And then if I start right over here and I multiply both sides by 3\u2078, actually, let me do that over here. So I have 3\u2078 times 2c is equal to 8 3rds B times 3\u2078. These cancel out. And over here, I'm gonna have 6\u2078c. 6\u2078c is the same thing as 3\u2074c is equal to B."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "So I have 3\u2078 times 2c is equal to 8 3rds B times 3\u2078. These cancel out. And over here, I'm gonna have 6\u2078c. 6\u2078c is the same thing as 3\u2074c is equal to B. So instead of making one belt, I could take that same energy and make 3\u2074 of a toy car. 3\u2074 of a toy car. So given everything that we've just done, which country has the comparative advantage in toy cars?"}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "6\u2078c is the same thing as 3\u2074c is equal to B. So instead of making one belt, I could take that same energy and make 3\u2074 of a toy car. 3\u2074 of a toy car. So given everything that we've just done, which country has the comparative advantage in toy cars? Well, to figure that out, we just look at the opportunity costs for toy cars and we compare them. In country A, the opportunity cost is two belts. One country B, it's only 1 1\u20443 belts."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "So given everything that we've just done, which country has the comparative advantage in toy cars? Well, to figure that out, we just look at the opportunity costs for toy cars and we compare them. In country A, the opportunity cost is two belts. One country B, it's only 1 1\u20443 belts. So country B has the comparative advantage right over here. Comparative advantage in toy cars. And then in belts, 1\u20442 of a car is less than 3\u2074 of a car."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "One country B, it's only 1 1\u20443 belts. So country B has the comparative advantage right over here. Comparative advantage in toy cars. And then in belts, 1\u20442 of a car is less than 3\u2074 of a car. In belts, in belts, we see that country A has the comparative advantage. And now what's always interesting about thinking about this is, notice, country B has the comparative advantage in toy cars. It has less of an opportunity cost in toy cars, even though country A has the absolute advantage."}, {"video_title": "Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3", "Sentence": "And then in belts, 1\u20442 of a car is less than 3\u2074 of a car. In belts, in belts, we see that country A has the comparative advantage. And now what's always interesting about thinking about this is, notice, country B has the comparative advantage in toy cars. It has less of an opportunity cost in toy cars, even though country A has the absolute advantage. Its workers are more efficient at producing toy cars. A worker can produce four cars in country A versus two in country B. But despite that, because of the opportunity cost, it would actually make sense for country B to focus on cars and for country A to focus on the belts."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And as you can imagine, the answer is, of course we can. And it's interesting to think about how does the quantity, the percent change in quantity supplied, relate to percent change in prices? So for example, let's say we have a lemonade stand of some sort, so this is price on that axis, that is quantity on that axis. And let's say that our supply curve looks something like that. Obviously, the higher the price, the more quantity we're willing to supply. And let's say at a price of $1, the quantity supplied is going to be 10, and this is going to be in gallons per week. So the quantity supplied is going to be 10 gallons per week."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And let's say that our supply curve looks something like that. Obviously, the higher the price, the more quantity we're willing to supply. And let's say at a price of $1, the quantity supplied is going to be 10, and this is going to be in gallons per week. So the quantity supplied is going to be 10 gallons per week. And let's say that if the price goes to $2, the quantity supplied goes to 16 gallons per week. So what is the elasticity of supply roughly over this period right over here? So the elasticity of supply, and you could imagine how we're going to calculate it."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So the quantity supplied is going to be 10 gallons per week. And let's say that if the price goes to $2, the quantity supplied goes to 16 gallons per week. So what is the elasticity of supply roughly over this period right over here? So the elasticity of supply, and you could imagine how we're going to calculate it. It's going to be the percent change in quantity supplied over our percent change in price. So what is our percent change in price? Well, we went from $1 to $2."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So the elasticity of supply, and you could imagine how we're going to calculate it. It's going to be the percent change in quantity supplied over our percent change in price. So what is our percent change in price? Well, we went from $1 to $2. So this part right over here is going to be, we went up by $1. So we went up by $1 per gallon. So it's going to be up by $1."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Well, we went from $1 to $2. So this part right over here is going to be, we went up by $1. So we went up by $1 per gallon. So it's going to be up by $1. And we don't use 1, we don't use our starting point as our base like we would do when we're traditionally finding a percent change, because we want to have the same percent change whether we go from 1 to 2 as from 2 to 1. So instead, the convention when we think about elasticities is use the midpoint of these two, or use the average of these two. So 1 plus 2 is 3."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So it's going to be up by $1. And we don't use 1, we don't use our starting point as our base like we would do when we're traditionally finding a percent change, because we want to have the same percent change whether we go from 1 to 2 as from 2 to 1. So instead, the convention when we think about elasticities is use the midpoint of these two, or use the average of these two. So 1 plus 2 is 3. 3 divided by 2 is 1.5. So it's 1 over $1.50. Or you could say $1.50 is right in between these two things."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So 1 plus 2 is 3. 3 divided by 2 is 1.5. So it's 1 over $1.50. Or you could say $1.50 is right in between these two things. And 1 over $1.50, this is 67%, roughly. So this is approximately 67. We have approximately a 67% change in price based on how we just calculated."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Or you could say $1.50 is right in between these two things. And 1 over $1.50, this is 67%, roughly. So this is approximately 67. We have approximately a 67% change in price based on how we just calculated. Remember, we're using the midpoint as our base. And then our percent change in quantity supplied, that's this, so this right over here. We went from 10 to 16."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "We have approximately a 67% change in price based on how we just calculated. Remember, we're using the midpoint as our base. And then our percent change in quantity supplied, that's this, so this right over here. We went from 10 to 16. So we have plus 6 over a base of midpoint between 10 and 16 is 13. 10 plus 6 is 26 divided by 2 is 13. 6 over 13, which is going to be 40-something percent."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "We went from 10 to 16. So we have plus 6 over a base of midpoint between 10 and 16 is 13. 10 plus 6 is 26 divided by 2 is 13. 6 over 13, which is going to be 40-something percent. Get a calculator out. So we have 6 divided by 13 gives us 46%. So this right over here is 46%."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "6 over 13, which is going to be 40-something percent. Get a calculator out. So we have 6 divided by 13 gives us 46%. So this right over here is 46%. So we have when we had, based on the way we calculated, a 67% increase in price, we had a 46% increase in quantity supplied. So this is a 46% increase in quantity supplied. And so we can see our elasticity of supply is going to be 46% over 67%."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is 46%. So we have when we had, based on the way we calculated, a 67% increase in price, we had a 46% increase in quantity supplied. So this is a 46% increase in quantity supplied. And so we can see our elasticity of supply is going to be 46% over 67%. So it's going to be something less than 1. So that's going to be that divided by 0.6666. It keeps going on forever."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And so we can see our elasticity of supply is going to be 46% over 67%. So it's going to be something less than 1. So that's going to be that divided by 0.6666. It keeps going on forever. Gives us to 0.69. So this gives us an elasticity of supply of 0.69. Maybe I can say it approximately, 0.69, which tells us that we get a smaller percent, at least at this price point right over here, we get a smaller percent change in quantity supplied than our percent change in price."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "It keeps going on forever. Gives us to 0.69. So this gives us an elasticity of supply of 0.69. Maybe I can say it approximately, 0.69, which tells us that we get a smaller percent, at least at this price point right over here, we get a smaller percent change in quantity supplied than our percent change in price. Now let's think about, like we did when we thought about the elasticities of demand, let's think about different scenarios. So let's think about a scenario that is inelastic, that is maybe perfectly inelastic. So let's say that price and quantity."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Maybe I can say it approximately, 0.69, which tells us that we get a smaller percent, at least at this price point right over here, we get a smaller percent change in quantity supplied than our percent change in price. Now let's think about, like we did when we thought about the elasticities of demand, let's think about different scenarios. So let's think about a scenario that is inelastic, that is maybe perfectly inelastic. So let's say that price and quantity. So let's take me, for example. I make videos. I love making videos."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So let's say that price and quantity. So let's take me, for example. I make videos. I love making videos. This is what I want to spend my days doing. And I don't care how much you pay me or how little you pay me. I guess if you paid me enough, that would maybe, I'd spend a little bit more time making videos."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "I love making videos. This is what I want to spend my days doing. And I don't care how much you pay me or how little you pay me. I guess if you paid me enough, that would maybe, I'd spend a little bit more time making videos. But let's just assume that I don't. I'm completely, whether you pay me a penny a video or 0 per video, or whether you pay me $1,000 per video, I'm going to just make the same number of videos every day. So this right over here is videos per day on average."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "I guess if you paid me enough, that would maybe, I'd spend a little bit more time making videos. But let's just assume that I don't. I'm completely, whether you pay me a penny a video or 0 per video, or whether you pay me $1,000 per video, I'm going to just make the same number of videos every day. So this right over here is videos per day on average. And this is the price per video. And let's say, no matter how much you pay me, whether you pay me nothing or you pay me $1,000, I am just going to produce, on average, let's just say, three videos a day. So then you have this right over here."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is videos per day on average. And this is the price per video. And let's say, no matter how much you pay me, whether you pay me nothing or you pay me $1,000, I am just going to produce, on average, let's just say, three videos a day. So then you have this right over here. You have a perfectly inelastic supply curve. So this is perfectly inelastic supply curve. Now, you could have the other scenario."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So then you have this right over here. You have a perfectly inelastic supply curve. So this is perfectly inelastic supply curve. Now, you could have the other scenario. You could have the other scenario where you are a farmer. So let me do price and quantity. Now, you have the other scenario where you're a farmer."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now, you could have the other scenario. You could have the other scenario where you are a farmer. So let me do price and quantity. Now, you have the other scenario where you're a farmer. And you can either do crop A or crop B. Maybe it's corn and wheat. And you can easily swap between the two."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now, you have the other scenario where you're a farmer. And you can either do crop A or crop B. Maybe it's corn and wheat. And you can easily swap between the two. And let's just assume for simplicity, it costs you the exact same to produce one or the other. So in that situation, so let's say that the price of wheat per, and let's say we're using comparable units. So the price of wheat is, adjusting for units and all of that, let's say it's $10 per bushel or something like that."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And you can easily swap between the two. And let's just assume for simplicity, it costs you the exact same to produce one or the other. So in that situation, so let's say that the price of wheat per, and let's say we're using comparable units. So the price of wheat is, adjusting for units and all of that, let's say it's $10 per bushel or something like that. We just want to simplify it for the sake of our model right over here. But this right over here, we're thinking about corn. And so if corn is right at $10, and they're both at $10, I will produce, so let me make this clear."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So the price of wheat is, adjusting for units and all of that, let's say it's $10 per bushel or something like that. We just want to simplify it for the sake of our model right over here. But this right over here, we're thinking about corn. And so if corn is right at $10, and they're both at $10, I will produce, so let me make this clear. So price of corn is $10. And the quantity of corn, maybe I produce 2,000 bushels. And I know these prices are way off for what the real price per bushel of corn or wheat is."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And so if corn is right at $10, and they're both at $10, I will produce, so let me make this clear. So price of corn is $10. And the quantity of corn, maybe I produce 2,000 bushels. And I know these prices are way off for what the real price per bushel of corn or wheat is. And same thing, my quantity for wheat right here is 2,000. Now, if the price of corn were to go marginally up, if the price of corn, so let me put this. This is our graph for corn."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And I know these prices are way off for what the real price per bushel of corn or wheat is. And same thing, my quantity for wheat right here is 2,000. Now, if the price of corn were to go marginally up, if the price of corn, so let me put this. This is our graph for corn. So this is $10, and this is 2,000 bushels per year or something. So let's say that's where we are right over there. Now, if the price for corn goes marginally up, if the price for corn goes up to even $10.05 per bushel, all of a sudden, I'm going to shift all my wheat production to corn production."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "This is our graph for corn. So this is $10, and this is 2,000 bushels per year or something. So let's say that's where we are right over there. Now, if the price for corn goes marginally up, if the price for corn goes up to even $10.05 per bushel, all of a sudden, I'm going to shift all my wheat production to corn production. So this is going to go to 0, and then this is going to go to 4,000. So then we're going to go, so just $10.05, we're going to go all the way to 4,000. And likewise, if this price were to go down, if this were to go to like $9.95, I would shift all my production to wheat, and I wouldn't produce any corn."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now, if the price for corn goes marginally up, if the price for corn goes up to even $10.05 per bushel, all of a sudden, I'm going to shift all my wheat production to corn production. So this is going to go to 0, and then this is going to go to 4,000. So then we're going to go, so just $10.05, we're going to go all the way to 4,000. And likewise, if this price were to go down, if this were to go to like $9.95, I would shift all my production to wheat, and I wouldn't produce any corn. And so there you see that we have a very, the demand curve is getting very flat. And you can see, based on very, very small percent changes in prices, I have very large percent changes in quantity supplied. So this right over here is approaching perfect elasticity, huge changes in quantity supplied elasticity for small percent changes in price."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And likewise, if this price were to go down, if this were to go to like $9.95, I would shift all my production to wheat, and I wouldn't produce any corn. And so there you see that we have a very, the demand curve is getting very flat. And you can see, based on very, very small percent changes in prices, I have very large percent changes in quantity supplied. So this right over here is approaching perfect elasticity, huge changes in quantity supplied elasticity for small percent changes in price. Now, the cool thing about elasticity of a supply is it's actually much easier to make a curve that has unit elasticity, or even if you want to think about it, constant elasticity. But if you want to have unit elasticity, the easiest curve I can draw for unit elasticity is going to look like this. Well, actually, this is the curve for unit elasticity."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is approaching perfect elasticity, huge changes in quantity supplied elasticity for small percent changes in price. Now, the cool thing about elasticity of a supply is it's actually much easier to make a curve that has unit elasticity, or even if you want to think about it, constant elasticity. But if you want to have unit elasticity, the easiest curve I can draw for unit elasticity is going to look like this. Well, actually, this is the curve for unit elasticity. It will literally be a curve that looks like that. And the reason why it works in this case is because it's upward sloping. As price increases, so does quantity increase for the supply curve."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Well, actually, this is the curve for unit elasticity. It will literally be a curve that looks like that. And the reason why it works in this case is because it's upward sloping. As price increases, so does quantity increase for the supply curve. So at any point here, the two are going to be proportional. So a given change in quantity and a given change in price, they're going to represent the same percentages. Because as price is increasing, when you have large price or when you have medium price, you have medium quantity."}, {"video_title": "Elasticity of supply Elasticity Microeconomics Khan Academy.mp3", "Sentence": "As price increases, so does quantity increase for the supply curve. So at any point here, the two are going to be proportional. So a given change in quantity and a given change in price, they're going to represent the same percentages. Because as price is increasing, when you have large price or when you have medium price, you have medium quantity. When you have large price, you have large quantity. So these steps are going to be the same percentage of either one of them. When you have small prices, you have small quantities."}, {"video_title": "Profit maximization AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now in this video, we're going to extend that analysis by starting to think about profit. Now profit, you're probably already familiar with the term, but one way to think about it very generally, it's how much a firm brings in. You could consider that its revenue minus its costs, minus its costs, and a rational firm will want to maximize its profit, and so to understand how a firm might go about maximizing its profit or what quantity it would need to produce to maximize its profit based on its cost structure, we have to introduce revenue into this model here, and in particular, we are going to introduce the idea of marginal revenue, and we're going to assume that this firm is in a very competitive market, and so it is a price taker. So regardless of how much this firm produces, the incremental revenue per unit of what it produces, maybe this is a donut company, the incremental amount per donut is going to stay the same regardless of how much this firm in particular produces. So let's say that the marginal revenue in this industry, in this market, is right over here. So one way to think about it is this would be the unit price in that market. So let me put that right up there, marginal revenue."}, {"video_title": "Profit maximization AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So regardless of how much this firm produces, the incremental revenue per unit of what it produces, maybe this is a donut company, the incremental amount per donut is going to stay the same regardless of how much this firm in particular produces. So let's say that the marginal revenue in this industry, in this market, is right over here. So one way to think about it is this would be the unit price in that market. So let me put that right up there, marginal revenue. Once again, for every incremental unit, how much revenue are we going to get? So it would just be the price of that unit. So how much would a rational firm produce in order to maximize its profit?"}, {"video_title": "Profit maximization AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So let me put that right up there, marginal revenue. Once again, for every incremental unit, how much revenue are we going to get? So it would just be the price of that unit. So how much would a rational firm produce in order to maximize its profit? If the marginal revenue is higher than the marginal cost, well, that means every incremental unit it produces, it's going to bring in some net money into the door. So it's rational for it to do it. So it would keep producing, keep producing, keep producing, keep producing."}, {"video_title": "Profit maximization AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So how much would a rational firm produce in order to maximize its profit? If the marginal revenue is higher than the marginal cost, well, that means every incremental unit it produces, it's going to bring in some net money into the door. So it's rational for it to do it. So it would keep producing, keep producing, keep producing, keep producing. Now, it gets interesting as the marginal cost starts to approach the marginal revenue. As long as the marginal revenue is higher than the marginal cost, it's rational for the firm to produce. But right at that unit where the marginal cost is equal to the marginal revenue, well, there on that incremental unit, the firm just breaks even at least on the margin."}, {"video_title": "Profit maximization AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So it would keep producing, keep producing, keep producing, keep producing. Now, it gets interesting as the marginal cost starts to approach the marginal revenue. As long as the marginal revenue is higher than the marginal cost, it's rational for the firm to produce. But right at that unit where the marginal cost is equal to the marginal revenue, well, there on that incremental unit, the firm just breaks even at least on the margin. It might be able to utilize some of its fixed costs a little bit. But then after that point, it makes no sense at all for it to keep producing. Why is that?"}, {"video_title": "Profit maximization AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But right at that unit where the marginal cost is equal to the marginal revenue, well, there on that incremental unit, the firm just breaks even at least on the margin. It might be able to utilize some of its fixed costs a little bit. But then after that point, it makes no sense at all for it to keep producing. Why is that? Well, if the marginal cost is higher than the marginal revenue, that would be like saying, hey, I'm gonna sell a donut for a dollar even though that incremental donut costs me a dollar 10 to produce. Well, no rational person, if they wanna maximize their profit, would do that. So a rational firm that's trying to maximize its profit will produce the quantity where marginal cost intersects marginal revenue."}, {"video_title": "Profit maximization AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Why is that? Well, if the marginal cost is higher than the marginal revenue, that would be like saying, hey, I'm gonna sell a donut for a dollar even though that incremental donut costs me a dollar 10 to produce. Well, no rational person, if they wanna maximize their profit, would do that. So a rational firm that's trying to maximize its profit will produce the quantity where marginal cost intersects marginal revenue. It will produce this quantity right over there. Now, a natural question might be how much profit will it make from producing that quantity? Well, all you have to do is think about, this is the marginal revenue that it gets."}, {"video_title": "Profit maximization AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So a rational firm that's trying to maximize its profit will produce the quantity where marginal cost intersects marginal revenue. It will produce this quantity right over there. Now, a natural question might be how much profit will it make from producing that quantity? Well, all you have to do is think about, this is the marginal revenue that it gets. And another way you could think about it, because this is constant, it's also going to be the average revenue that it gets per unit. And this right over here is the average total cost per unit. And so what you could do is, this is how much it's getting on average per unit, and then multiply that times the number of units."}, {"video_title": "Profit maximization AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, all you have to do is think about, this is the marginal revenue that it gets. And another way you could think about it, because this is constant, it's also going to be the average revenue that it gets per unit. And this right over here is the average total cost per unit. And so what you could do is, this is how much it's getting on average per unit, and then multiply that times the number of units. And what you get is the area of this rectangle. So for those of you who are more visually inclined, one way to think about it is a profit-maximizing firm, a rational profit-maximizing firm, would want to maximize this area. Think about what would happen if they only produced this much."}, {"video_title": "Profit maximization AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so what you could do is, this is how much it's getting on average per unit, and then multiply that times the number of units. And what you get is the area of this rectangle. So for those of you who are more visually inclined, one way to think about it is a profit-maximizing firm, a rational profit-maximizing firm, would want to maximize this area. Think about what would happen if they only produced this much. Well, then they're giving up a ton of area. Then the rectangle would only be this big. This would be the profit that the firm is going to be making from those units."}, {"video_title": "Profit maximization AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Think about what would happen if they only produced this much. Well, then they're giving up a ton of area. Then the rectangle would only be this big. This would be the profit that the firm is going to be making from those units. And then if it decides for some irrational reason to produce more than this quantity that we settled on before, let's say this right over here, notice even though that the base of this rectangle is longer, the height is less, and this would actually have a lower area. And the reason why I feel very confident that this will have a lower area is because in this situation, the firm is losing money on all of these incremental units where the marginal cost is higher than the marginal revenue. So big takeaway, a rational firm that's trying to maximize its profit will produce the quantity where marginal cost and marginal revenue are equal to each other."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "And on the left you can see that this equilibrium price which is set by the intersection of the supply and demand curves, that that's just going to be the price that the firms have to take. And we've talked about that at length in other videos. That's going to define that the firm's marginal revenue, not just this firm, but all of the participants in the market. In other videos we've talked about the fact that the rational quantity for this firm to produce would be where marginal revenue intersects marginal cost. And it's also gonna be the point where you have zero economic profit. Where at that quantity, let's say the quantity for the firm, your average total cost is equal to your marginal revenue. If marginal revenue were higher than average total cost at this quantity, well then you would have other entrants into the market because you're having positive economic profit."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "In other videos we've talked about the fact that the rational quantity for this firm to produce would be where marginal revenue intersects marginal cost. And it's also gonna be the point where you have zero economic profit. Where at that quantity, let's say the quantity for the firm, your average total cost is equal to your marginal revenue. If marginal revenue were higher than average total cost at this quantity, well then you would have other entrants into the market because you're having positive economic profit. If marginal revenue is below average total cost at that quantity, well then firms are running economic losses and you will have people exiting the industry. And either of those situations would get us back to an equilibrium state that looks something like this. But now let's imagine a shock to the market somehow."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "If marginal revenue were higher than average total cost at this quantity, well then you would have other entrants into the market because you're having positive economic profit. If marginal revenue is below average total cost at that quantity, well then firms are running economic losses and you will have people exiting the industry. And either of those situations would get us back to an equilibrium state that looks something like this. But now let's imagine a shock to the market somehow. Let's say a new research study comes out that says that the apples that this market produces, that it's incredibly good for you, it'll make you live longer, it'll make you happier, it'll make you have more friends. Well then the demand for apples goes up and so you have a new demand curve that looks something like this, D prime. Well in that situation what's going to happen?"}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "But now let's imagine a shock to the market somehow. Let's say a new research study comes out that says that the apples that this market produces, that it's incredibly good for you, it'll make you live longer, it'll make you happier, it'll make you have more friends. Well then the demand for apples goes up and so you have a new demand curve that looks something like this, D prime. Well in that situation what's going to happen? Well now you have a new equilibrium price, you also have a new equilibrium quantity over here, let's call that P prime. This is going to define a new marginal revenue curve for the participants in the industry, so M marginal revenue prime. And now all of a sudden the rational quantity for them to produce would be out here, at least for this firm to produce, so Q prime for this firm is out here."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "Well in that situation what's going to happen? Well now you have a new equilibrium price, you also have a new equilibrium quantity over here, let's call that P prime. This is going to define a new marginal revenue curve for the participants in the industry, so M marginal revenue prime. And now all of a sudden the rational quantity for them to produce would be out here, at least for this firm to produce, so Q prime for this firm is out here. And you notice at that quantity it is making economic profit. For every unit it gets that much, it costs that much on average for every unit, so it's making that much per unit. And then you multiply that times the number of units, the quantity, this whole area is going to be the economic profit that this firm is getting."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "And now all of a sudden the rational quantity for them to produce would be out here, at least for this firm to produce, so Q prime for this firm is out here. And you notice at that quantity it is making economic profit. For every unit it gets that much, it costs that much on average for every unit, so it's making that much per unit. And then you multiply that times the number of units, the quantity, this whole area is going to be the economic profit that this firm is getting. And it's likely that all of the firms, or most of the firms in this perfectly competitive market are going to be getting it because they all have the same cost structure. But as we've said before, when you have this positive economic profit and there's no barriers to entry, in the long run more firms will enter because there's economic profit to be had. And in previous videos we talked about a situation where as firms enter into a market or exit a market it doesn't change the cost structures of the individual firms."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "And then you multiply that times the number of units, the quantity, this whole area is going to be the economic profit that this firm is getting. And it's likely that all of the firms, or most of the firms in this perfectly competitive market are going to be getting it because they all have the same cost structure. But as we've said before, when you have this positive economic profit and there's no barriers to entry, in the long run more firms will enter because there's economic profit to be had. And in previous videos we talked about a situation where as firms enter into a market or exit a market it doesn't change the cost structures of the individual firms. But let's imagine for a second that because of everyone entering into this market that seems to have economic profit for the firms that are participating into it, some of the inputs of say growing apples, which is what these firms do, start to go up in cost. So we're not talking about constant cost, perfectly competitive market. Now we're not talking about an increasing cost, perfectly competitive market."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "And in previous videos we talked about a situation where as firms enter into a market or exit a market it doesn't change the cost structures of the individual firms. But let's imagine for a second that because of everyone entering into this market that seems to have economic profit for the firms that are participating into it, some of the inputs of say growing apples, which is what these firms do, start to go up in cost. So we're not talking about constant cost, perfectly competitive market. Now we're not talking about an increasing cost, perfectly competitive market. Well then firm A and every firm's cost structure is going to change because as more firms come in you're going to have to pay more for maybe apple seeds, pay more for maybe pesticides or wax or maybe pay more for land on which to grow them. And so you would have a different marginal cost curve. Maybe the marginal cost curve now looks like this."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "Now we're not talking about an increasing cost, perfectly competitive market. Well then firm A and every firm's cost structure is going to change because as more firms come in you're going to have to pay more for maybe apple seeds, pay more for maybe pesticides or wax or maybe pay more for land on which to grow them. And so you would have a different marginal cost curve. Maybe the marginal cost curve now looks like this. So marginal cost curve prime. You would also have a new average total cost curve. Maybe it looks, maybe it looks something like this."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "Maybe the marginal cost curve now looks like this. So marginal cost curve prime. You would also have a new average total cost curve. Maybe it looks, maybe it looks something like this. So average total cost prime. And so you could imagine that firms will jump into the market in order to capture or think that they might be able to get some economic profit but they will only do so until the economic profit for all the firms goes to zero. So what point will the economic profit go to zero?"}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "Maybe it looks, maybe it looks something like this. So average total cost prime. And so you could imagine that firms will jump into the market in order to capture or think that they might be able to get some economic profit but they will only do so until the economic profit for all the firms goes to zero. So what point will the economic profit go to zero? Well that's when the marginal revenue for the firms is equal to our marginal cost, is equal to our average total cost. So it's that point right over there. So we would get to this point right over here."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "So what point will the economic profit go to zero? Well that's when the marginal revenue for the firms is equal to our marginal cost, is equal to our average total cost. So it's that point right over there. So we would get to this point right over here. Let's call that marginal revenue prime. And so more and more firms would enter into the market up until the point that the equilibrium price gets us to P prime. And so the supply would increase."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "So we would get to this point right over here. Let's call that marginal revenue prime. And so more and more firms would enter into the market up until the point that the equilibrium price gets us to P prime. And so the supply would increase. Those folks wanna get that economic profit but it would increase until this point. So it'd shift a little bit to the right and we would get to S prime. As you can see, based on this, we can now start to imagine a long run supply curve in this increasing cost, perfectly competitive market."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "And so the supply would increase. Those folks wanna get that economic profit but it would increase until this point. So it'd shift a little bit to the right and we would get to S prime. As you can see, based on this, we can now start to imagine a long run supply curve in this increasing cost, perfectly competitive market. We were over here. That was our equilibrium point before. Now we are over here."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "As you can see, based on this, we can now start to imagine a long run supply curve in this increasing cost, perfectly competitive market. We were over here. That was our equilibrium point before. Now we are over here. And so our long run supply curve in this increasing cost environment, even though it's perfectly competitive, might look something like this. So in a constant cost world, this was a flat line. Now in an increasing cost world, as more and more people enter the market, the cost structure, the inputs into producing an apple go up."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "Now we are over here. And so our long run supply curve in this increasing cost environment, even though it's perfectly competitive, might look something like this. So in a constant cost world, this was a flat line. Now in an increasing cost world, as more and more people enter the market, the cost structure, the inputs into producing an apple go up. Now long run supply is that. Remember, the long run is enough time to go by for people to enter and exit the market or enough time to go by so fixed costs aren't fixed anymore, that they can be shed or that they could be increased. Now you could do another thought exercise."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy.mp3", "Sentence": "Now in an increasing cost world, as more and more people enter the market, the cost structure, the inputs into producing an apple go up. Now long run supply is that. Remember, the long run is enough time to go by for people to enter and exit the market or enough time to go by so fixed costs aren't fixed anymore, that they can be shed or that they could be increased. Now you could do another thought exercise. Let's say we're dealing with a market where the more people that enter the market, the inputs actually get cheaper. And if that seems hard to believe, you could imagine, well, now people are able to produce seeds or wax at a new scale so the inputs actually get cheaper. Well, then you would see the opposite thing."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "Let's say that you own the only hotel that is in a city, and for a wide variety of reasons, maybe all of the city council members are your friends or whatever else, no one else can build a hotel in the city, so there are insurmountable barriers to entry. So in that situation, you would have a monopoly. You are the only player in the market, and there are very, very high barriers to entry. Now, this is a typical cost structure and demand curve for a monopoly. We've already talked about your marginal cost might dip down a little initially, but then it might go up, and we could debate whether that would be true for a hotel or not, but this is a typical model we see. And then while your marginal cost is below average total cost, average total cost trends down, and then it hits a minimum point where marginal cost intersects it, and then it starts to trend up as marginal cost is higher than that. And the demand curve for a monopoly looks familiar."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "Now, this is a typical cost structure and demand curve for a monopoly. We've already talked about your marginal cost might dip down a little initially, but then it might go up, and we could debate whether that would be true for a hotel or not, but this is a typical model we see. And then while your marginal cost is below average total cost, average total cost trends down, and then it hits a minimum point where marginal cost intersects it, and then it starts to trend up as marginal cost is higher than that. And the demand curve for a monopoly looks familiar. When the prices are high, if the prices on the hotel rooms per night are high, very few people will demand them. And if the prices are low, a lot of folks would demand them. Now, something that we've talked about in a lot of detail in other videos is how the marginal revenue curve is different than the demand curve for a monopoly."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And the demand curve for a monopoly looks familiar. When the prices are high, if the prices on the hotel rooms per night are high, very few people will demand them. And if the prices are low, a lot of folks would demand them. Now, something that we've talked about in a lot of detail in other videos is how the marginal revenue curve is different than the demand curve for a monopoly. And that's because if you were to charge a price of, let's say, $500 per room, you might be able to get one room, one room rented out for the night, but no other rooms. And if you wanted to get two rooms rented out, well, you would have to charge $400, not just for that room, so now we'd get a little bit further down this demand curve, but when you charge $400 maybe for that second room because someone's willingness to pay is $400, well, you might have to also charge $400 for that first room. So in many monopoly industries, whatever you charge to one consumer, you have to charge to other consumers."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "Now, something that we've talked about in a lot of detail in other videos is how the marginal revenue curve is different than the demand curve for a monopoly. And that's because if you were to charge a price of, let's say, $500 per room, you might be able to get one room, one room rented out for the night, but no other rooms. And if you wanted to get two rooms rented out, well, you would have to charge $400, not just for that room, so now we'd get a little bit further down this demand curve, but when you charge $400 maybe for that second room because someone's willingness to pay is $400, well, you might have to also charge $400 for that first room. So in many monopoly industries, whatever you charge to one consumer, you have to charge to other consumers. Now, I know what some of you are thinking. Hey, that doesn't always happen in a hotel, and that's why I picked this example because we're going to look at the situation where, one, you do have to charge the same to everyone, and then we'll look at another situation known as price discrimination where you don't have to charge the same to everyone. But let's just go with the model where you do have to change the same to everyone."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So in many monopoly industries, whatever you charge to one consumer, you have to charge to other consumers. Now, I know what some of you are thinking. Hey, that doesn't always happen in a hotel, and that's why I picked this example because we're going to look at the situation where, one, you do have to charge the same to everyone, and then we'll look at another situation known as price discrimination where you don't have to charge the same to everyone. But let's just go with the model where you do have to change the same to everyone. So when you go from one room at 500 to two rooms at 400, your marginal revenue isn't the incremental 400 because this 500 is now 400 as well. So you go from 500 to 800, so your marginal revenue is an incremental 300 as you go from 500 total to 400 plus 400 or 800 total. And that's why, and we go into significant detail in other videos on this, and we do it with tables of numbers, and I encourage you to do that."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "But let's just go with the model where you do have to change the same to everyone. So when you go from one room at 500 to two rooms at 400, your marginal revenue isn't the incremental 400 because this 500 is now 400 as well. So you go from 500 to 800, so your marginal revenue is an incremental 300 as you go from 500 total to 400 plus 400 or 800 total. And that's why, and we go into significant detail in other videos on this, and we do it with tables of numbers, and I encourage you to do that. That is why your marginal revenue curve for a monopoly has twice the slope, the negative slope, than your demand curve would have. So your marginal revenue curve would look something like this. And we've already talked about it in multiple videos."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And that's why, and we go into significant detail in other videos on this, and we do it with tables of numbers, and I encourage you to do that. That is why your marginal revenue curve for a monopoly has twice the slope, the negative slope, than your demand curve would have. So your marginal revenue curve would look something like this. And we've already talked about it in multiple videos. For any firm, it's rational to produce the quantity where marginal cost is equal to marginal revenue. So this monopoly would produce this quantity. And the price they would get, well, that quantity, we go to look at the demand curve, the price would be right over there."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And we've already talked about it in multiple videos. For any firm, it's rational to produce the quantity where marginal cost is equal to marginal revenue. So this monopoly would produce this quantity. And the price they would get, well, that quantity, we go to look at the demand curve, the price would be right over there. So this monopoly firm would be able to get that price. And we can think about what its economic profit would be. On every room in this case, it charges that price, and its average total cost is this blue line right over here, so its average total costs are there."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And the price they would get, well, that quantity, we go to look at the demand curve, the price would be right over there. So this monopoly firm would be able to get that price. And we can think about what its economic profit would be. On every room in this case, it charges that price, and its average total cost is this blue line right over here, so its average total costs are there. So the difference is how much economic profit per room, and then you multiply that times the total number of rooms, and so this area is the firm's economic profit. Now, there is still some consumer surplus here. This is benefit that consumers are getting above and beyond what they're paying for it."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "On every room in this case, it charges that price, and its average total cost is this blue line right over here, so its average total costs are there. So the difference is how much economic profit per room, and then you multiply that times the total number of rooms, and so this area is the firm's economic profit. Now, there is still some consumer surplus here. This is benefit that consumers are getting above and beyond what they're paying for it. So the consumer surplus in this situation would be all of this. So that first person who is willing to pay maybe $500 per room is now able to get this market price that everyone is able to get, which is maybe $300 per room. And so this benefit for that one unit goes to the consumer."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "This is benefit that consumers are getting above and beyond what they're paying for it. So the consumer surplus in this situation would be all of this. So that first person who is willing to pay maybe $500 per room is now able to get this market price that everyone is able to get, which is maybe $300 per room. And so this benefit for that one unit goes to the consumer. And we've also seen that there is deadweight loss here. You're allocatively efficient when marginal cost is equal to the demand curve. And so, and we studied that in other videos, this right over here is our deadweight loss."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And so this benefit for that one unit goes to the consumer. And we've also seen that there is deadweight loss here. You're allocatively efficient when marginal cost is equal to the demand curve. And so, and we studied that in other videos, this right over here is our deadweight loss. But now let's imagine the other scenario. Let's say that we are a hotel where we try to capture as much of someone's willingness to pay as possible. And I'll give a little bit of a idealistic scenario that doesn't really exist in the real world, but just to look at an extreme case."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And so, and we studied that in other videos, this right over here is our deadweight loss. But now let's imagine the other scenario. Let's say that we are a hotel where we try to capture as much of someone's willingness to pay as possible. And I'll give a little bit of a idealistic scenario that doesn't really exist in the real world, but just to look at an extreme case. Let's say that you were able to get a computer that can read people's minds, and every time they call for a quote on a room, you know exactly what their willingness to pay is. So if I call, the computer says, hey, Sal's willingness to pay for that room is $375. So you quote me."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And I'll give a little bit of a idealistic scenario that doesn't really exist in the real world, but just to look at an extreme case. Let's say that you were able to get a computer that can read people's minds, and every time they call for a quote on a room, you know exactly what their willingness to pay is. So if I call, the computer says, hey, Sal's willingness to pay for that room is $375. So you quote me. All right, $375. I say, okay, sure. And then when that first person who has a high willingness to pay calls, it says, okay, why don't we quote them $500?"}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So you quote me. All right, $375. I say, okay, sure. And then when that first person who has a high willingness to pay calls, it says, okay, why don't we quote them $500? And so we quote them $500, and so they get that room. And so in that situation, every incremental room, you don't have to change the prices on all the other ones causing this marginal revenue curve to slope down faster. Instead, every incremental room, you get those dollars."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And then when that first person who has a high willingness to pay calls, it says, okay, why don't we quote them $500? And so we quote them $500, and so they get that room. And so in that situation, every incremental room, you don't have to change the prices on all the other ones causing this marginal revenue curve to slope down faster. Instead, every incremental room, you get those dollars. And so in that situation, your demand curve is equal to your marginal revenue curve. You're able to discriminate on prices. Let me write this."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "Instead, every incremental room, you get those dollars. And so in that situation, your demand curve is equal to your marginal revenue curve. You're able to discriminate on prices. Let me write this. This is price discrimination. You're able to charge, and price discrimination is a general term for charging different customers, different consumers, different rates, ideally based on their willingness to pay. And it might sound bad."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "Let me write this. This is price discrimination. You're able to charge, and price discrimination is a general term for charging different customers, different consumers, different rates, ideally based on their willingness to pay. And it might sound bad. In normal life, we don't like discriminating against others. But price discrimination is a very legitimate thing. And actually, you will see it happen in things like the hotel industry where they're going to try to charge different prices to different people based on their willingness to pay for essentially the same room."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And it might sound bad. In normal life, we don't like discriminating against others. But price discrimination is a very legitimate thing. And actually, you will see it happen in things like the hotel industry where they're going to try to charge different prices to different people based on their willingness to pay for essentially the same room. If you go stay in a hotel, it's very likely that the person in an identical room next to you is paying a different rate. Airlines will also do it. Now, they're not going to be able to do it as perfectly as I just described with this magical computer, but they'll do it where, depending on how far ahead or whether you can return the ticket or cancel your reservation, you could get a different price and the prices change over time."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And actually, you will see it happen in things like the hotel industry where they're going to try to charge different prices to different people based on their willingness to pay for essentially the same room. If you go stay in a hotel, it's very likely that the person in an identical room next to you is paying a different rate. Airlines will also do it. Now, they're not going to be able to do it as perfectly as I just described with this magical computer, but they'll do it where, depending on how far ahead or whether you can return the ticket or cancel your reservation, you could get a different price and the prices change over time. And so they're trying to capture as much of consumers' willingness to pay as possible. But if we took this extreme situation where you're able to charge exactly everyone their willingness to pay, well then, what is going to be the rational quantity for this profit-maximizing monopoly to produce? Well, once again, it would be where marginal cost intersects marginal revenue, but the marginal revenue curve is now the demand curve."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "Now, they're not going to be able to do it as perfectly as I just described with this magical computer, but they'll do it where, depending on how far ahead or whether you can return the ticket or cancel your reservation, you could get a different price and the prices change over time. And so they're trying to capture as much of consumers' willingness to pay as possible. But if we took this extreme situation where you're able to charge exactly everyone their willingness to pay, well then, what is going to be the rational quantity for this profit-maximizing monopoly to produce? Well, once again, it would be where marginal cost intersects marginal revenue, but the marginal revenue curve is now the demand curve. So it'd be right over there. That's the quantity that this monopoly would produce. And then what's the price it would get?"}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "Well, once again, it would be where marginal cost intersects marginal revenue, but the marginal revenue curve is now the demand curve. So it'd be right over there. That's the quantity that this monopoly would produce. And then what's the price it would get? Pause this video and think about that. Well, you might be tempted to just go horizontally here and say, okay, this is the price it would get like we did here. But remember, it's able to get a different price for every consumer."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And then what's the price it would get? Pause this video and think about that. Well, you might be tempted to just go horizontally here and say, okay, this is the price it would get like we did here. But remember, it's able to get a different price for every consumer. So there isn't just one price like in this first example that everyone is paying. So we can see the quantity it is producing. You can see the average total cost at that quantity."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "But remember, it's able to get a different price for every consumer. So there isn't just one price like in this first example that everyone is paying. So we can see the quantity it is producing. You can see the average total cost at that quantity. But the profit per room is going to be dependent on what people are willing to pay. This first person is going to pay a lot for it. And so they're not going to get much of a, or they're not going to get any consumer surplus in this extreme example."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "You can see the average total cost at that quantity. But the profit per room is going to be dependent on what people are willing to pay. This first person is going to pay a lot for it. And so they're not going to get much of a, or they're not going to get any consumer surplus in this extreme example. And so all of this is going to accrue to the firm. And that's going to be the case for all of these consumers in this extreme circumstance. And so now you have a fascinating situation."}, {"video_title": "Price discrimination for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And so they're not going to get much of a, or they're not going to get any consumer surplus in this extreme example. And so all of this is going to accrue to the firm. And that's going to be the case for all of these consumers in this extreme circumstance. And so now you have a fascinating situation. Notice, when this monopoly firm is able to do price discrimination, now its economic profit is far larger. Economic profit. The consumer surplus shrunk through price discrimination in the extreme example, it disappeared."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "And if price goes down, the quantity demanded goes up. So if you hold all else equal, ceteris paribus, we are just moving along this curve depending on what price. But what we started talking about is what happens when you change some of those things that we've been holding equal. How does that change demand? In the last video, we talked about the price of related goods. And if the price of related goods change, both complements and substitutes, how that might increase or decrease demand, the entire curve, not just one particular scenario. Now let's talk about another one of those factors that we've been holding constant and think about how that would change demand, the entire curve, if we were to change that."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "How does that change demand? In the last video, we talked about the price of related goods. And if the price of related goods change, both complements and substitutes, how that might increase or decrease demand, the entire curve, not just one particular scenario. Now let's talk about another one of those factors that we've been holding constant and think about how that would change demand, the entire curve, if we were to change that. And that's expectations of future prices. I'll do that in the screen. So expectations of future prices."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "Now let's talk about another one of those factors that we've been holding constant and think about how that would change demand, the entire curve, if we were to change that. And that's expectations of future prices. I'll do that in the screen. So expectations of future prices. So let's talk about a first scenario right over here, where let's say that this curve, people didn't expect prices to change for my e-book. And now all of a sudden, there's a change in expectation. Now all of a sudden, they expect the prices to go up going forward."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "So expectations of future prices. So let's talk about a first scenario right over here, where let's say that this curve, people didn't expect prices to change for my e-book. And now all of a sudden, there's a change in expectation. Now all of a sudden, they expect the prices to go up going forward. So now expect the future price to go up. What's going to happen? If you expect the future price to go up and the good or the product in question is something that you can store, well, and depending on how much you expect it to go up, you're probably more likely to buy it now, buy it before the price goes up."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "Now all of a sudden, they expect the prices to go up going forward. So now expect the future price to go up. What's going to happen? If you expect the future price to go up and the good or the product in question is something that you can store, well, and depending on how much you expect it to go up, you're probably more likely to buy it now, buy it before the price goes up. So regardless of what point on this curve we're at, regardless of the price point, at any one of those price points, people now, because they want to, instead of buying it later, they want to buy it now, the current demand will go up at any of these price points. So at $2, more people will want to buy it because they think it's going to go up. At $4, more people want to buy it because they think it's going to go up."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "If you expect the future price to go up and the good or the product in question is something that you can store, well, and depending on how much you expect it to go up, you're probably more likely to buy it now, buy it before the price goes up. So regardless of what point on this curve we're at, regardless of the price point, at any one of those price points, people now, because they want to, instead of buying it later, they want to buy it now, the current demand will go up at any of these price points. So at $2, more people will want to buy it because they think it's going to go up. At $4, more people want to buy it because they think it's going to go up. At any of these price points, because now the expectations have gone from being neutral to now expecting prices to go up, it will shift the entire curve to the right. So this will shift the entire curve to the right. So this right over here is scenario one."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "At $4, more people want to buy it because they think it's going to go up. At any of these price points, because now the expectations have gone from being neutral to now expecting prices to go up, it will shift the entire curve to the right. So this will shift the entire curve to the right. So this right over here is scenario one. And it depends how much this changes to say how much this shifts to the right. This is just the general idea. This is scenario one."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is scenario one. And it depends how much this changes to say how much this shifts to the right. This is just the general idea. This is scenario one. And the shifting of the entire curve, you could say they increased demand. So this is literally demand increasing. And when we talk about demand, remember, and you're probably tired of me saying this, I'm not talking about a particular quantity."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "This is scenario one. And the shifting of the entire curve, you could say they increased demand. So this is literally demand increasing. And when we talk about demand, remember, and you're probably tired of me saying this, I'm not talking about a particular quantity. I'm talking about the entire curve shifting to the right because people expect future prices to go up. So the current demand went up. The current demand curve shifted to the right."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "And when we talk about demand, remember, and you're probably tired of me saying this, I'm not talking about a particular quantity. I'm talking about the entire curve shifting to the right because people expect future prices to go up. So the current demand went up. The current demand curve shifted to the right. And now we can just take the other side of that. Imagine what happens in scenario two. Before, people were neutral."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "The current demand curve shifted to the right. And now we can just take the other side of that. Imagine what happens in scenario two. Before, people were neutral. That was our curve right there. They didn't have any opinion about whether future prices were going to go up or down. Or maybe they just assumed they were going to stay the same."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "Before, people were neutral. That was our curve right there. They didn't have any opinion about whether future prices were going to go up or down. Or maybe they just assumed they were going to stay the same. And now they expect future prices to go down. Now expect future prices to go down. And this is something that happens in consumer electronics all the time."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "Or maybe they just assumed they were going to stay the same. And now they expect future prices to go down. Now expect future prices to go down. And this is something that happens in consumer electronics all the time. You see, whenever you buy a laptop or any type of electronic device, we now assume that the prices will go down. Now, what we're talking about is a change in expectations. So you're going from neutrality, or let's say you're going from you expect them to go down, but now you expect them to go down even faster."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "And this is something that happens in consumer electronics all the time. You see, whenever you buy a laptop or any type of electronic device, we now assume that the prices will go down. Now, what we're talking about is a change in expectations. So you're going from neutrality, or let's say you're going from you expect them to go down, but now you expect them to go down even faster. And if all of a sudden you expect them to go down even faster, you're even less likely to buy them now. So if before you thought prices were going to be roughly constant, and now you expect them to go down, now you're going to say, well, hey, at any given price point, why don't I just hold off a little bit and wait a little bit? So it's going to lower demand."}, {"video_title": "Change in expected future prices and demand Microeconomics Khan Academy.mp3", "Sentence": "So you're going from neutrality, or let's say you're going from you expect them to go down, but now you expect them to go down even faster. And if all of a sudden you expect them to go down even faster, you're even less likely to buy them now. So if before you thought prices were going to be roughly constant, and now you expect them to go down, now you're going to say, well, hey, at any given price point, why don't I just hold off a little bit and wait a little bit? So it's going to lower demand. So in this scenario, the whole curve will shift to the left. At any given price point, the quantity demanded will go down at any point in that curve. And so the entire demand curve will be shifted to the left."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "So that's the willingness to pay or the marginal benefit of that incremental pound. But let's say you decide to set the price at $2 and you are able to sell 300 oranges in that week. What I want to think about is what is the total consumer surplus that your consumers got? And the way to think about consumer surplus is how much benefit did they get above and beyond what they paid? So for example, the person who bought, let's just think about the exact, the hundredth pound. The hundredth pound, they paid $2, but their benefit looks like it was like, I don't know, $3.30. So $3.30, but they only paid $2, so their benefit on that one pound, their benefit, or I should say their consumer surplus, is going to be 330 minus the 230."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "And the way to think about consumer surplus is how much benefit did they get above and beyond what they paid? So for example, the person who bought, let's just think about the exact, the hundredth pound. The hundredth pound, they paid $2, but their benefit looks like it was like, I don't know, $3.30. So $3.30, but they only paid $2, so their benefit on that one pound, their benefit, or I should say their consumer surplus, is going to be 330 minus the 230. So that person who bought that hundredth pound, not all the hundred pounds, just that hundredth pound, got a consumer surplus of 330 minus $2, which is a $1.30 consumer surplus. So if you wanted to figure out the entire consumer surplus, well you would just have to do it for all of the pounds. So that was the hundredth pound, you would find, so essentially that was the, you could view this as the area of this little thing right over here."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "So $3.30, but they only paid $2, so their benefit on that one pound, their benefit, or I should say their consumer surplus, is going to be 330 minus the 230. So that person who bought that hundredth pound, not all the hundred pounds, just that hundredth pound, got a consumer surplus of 330 minus $2, which is a $1.30 consumer surplus. So if you wanted to figure out the entire consumer surplus, well you would just have to do it for all of the pounds. So that was the hundredth pound, you would find, so essentially that was the, you could view this as the area of this little thing right over here. And let me zoom in just to make sure you understand what's going on. That thing that I just drew, if we zoom in, will look something like this. It was one pound wide, and it was this right over here, this right over here was $2, and then we had our marginal benefit curve, or our demand curve, sloping down like that, and this point right over here was $3.30."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "So that was the hundredth pound, you would find, so essentially that was the, you could view this as the area of this little thing right over here. And let me zoom in just to make sure you understand what's going on. That thing that I just drew, if we zoom in, will look something like this. It was one pound wide, and it was this right over here, this right over here was $2, and then we had our marginal benefit curve, or our demand curve, sloping down like that, and this point right over here was $3.30. And so to figure out the consumer surplus for that pound, we said, okay, for that pound, they were willing to pay $3.30, the benefit to them was $3.30, but they only had to pay $2, so the height of this, the height of this right over here, was $1.30. And so the consumer surplus is $1.30 per pound times one pound, times one pound, and so that's where we got the $1.30 consumer surplus. Now, we could do that for every one of the pounds."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "It was one pound wide, and it was this right over here, this right over here was $2, and then we had our marginal benefit curve, or our demand curve, sloping down like that, and this point right over here was $3.30. And so to figure out the consumer surplus for that pound, we said, okay, for that pound, they were willing to pay $3.30, the benefit to them was $3.30, but they only had to pay $2, so the height of this, the height of this right over here, was $1.30. And so the consumer surplus is $1.30 per pound times one pound, times one pound, and so that's where we got the $1.30 consumer surplus. Now, we could do that for every one of the pounds. So we could do that for the hundredth and first pound. I'll do that a different color. The hundredth and first pound, we would do it like that."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "Now, we could do that for every one of the pounds. So we could do that for the hundredth and first pound. I'll do that a different color. The hundredth and first pound, we would do it like that. Then the hundredth and second pound, we would do it like that. Hundredth and third pound, like that. We do it for the 99th pound, like that."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "The hundredth and first pound, we would do it like that. Then the hundredth and second pound, we would do it like that. Hundredth and third pound, like that. We do it for the 99th pound, like that. And so you could imagine, if we wanted to find the total consumer surplus, what are we doing? Well, we're essentially just finding the area between our demand curve and this line where the price is equal to two. So we're just going to sum up this area."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "We do it for the 99th pound, like that. And so you could imagine, if we wanted to find the total consumer surplus, what are we doing? Well, we're essentially just finding the area between our demand curve and this line where the price is equal to two. So we're just going to sum up this area. And if you're familiar with calculus, you might know that you can actually make these things arbitrarily small. You could take smaller and smaller. You don't have to take a one pound wide rectangle."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "So we're just going to sum up this area. And if you're familiar with calculus, you might know that you can actually make these things arbitrarily small. You could take smaller and smaller. You don't have to take a one pound wide rectangle. You could take a half a pound wide rectangle or quarter pound wide rectangle. Then you'll just have more rectangles. It doesn't matter so much if you have a linear demand curve, but if you had a nonlinear demand curve, then it would matter."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "You don't have to take a one pound wide rectangle. You could take a half a pound wide rectangle or quarter pound wide rectangle. Then you'll just have more rectangles. It doesn't matter so much if you have a linear demand curve, but if you had a nonlinear demand curve, then it would matter. You'd want to get smaller and smaller and smaller or thinner and thinner and thinner rectangles so you could get better and better approximations for the consumer surplus. But needless to say, what you're really doing, especially if you get unbelievably thin rectangles and you have an unbelievably high number of them, you're really just estimating the area under the demand curve and above the price equals $2. And so if you want to know this consumer surplus, and I really want you to understand why this was."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "It doesn't matter so much if you have a linear demand curve, but if you had a nonlinear demand curve, then it would matter. You'd want to get smaller and smaller and smaller or thinner and thinner and thinner rectangles so you could get better and better approximations for the consumer surplus. But needless to say, what you're really doing, especially if you get unbelievably thin rectangles and you have an unbelievably high number of them, you're really just estimating the area under the demand curve and above the price equals $2. And so if you want to know this consumer surplus, and I really want you to understand why this was. I mean, just think about it for each pound. It was just how much more value that pound, whoever bought that pound, how much more value did they get relative to what they paid? And we're just summing that up across all of the pounds."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "And so if you want to know this consumer surplus, and I really want you to understand why this was. I mean, just think about it for each pound. It was just how much more value that pound, whoever bought that pound, how much more value did they get relative to what they paid? And we're just summing that up across all of the pounds. So to really figure out the total consumer surplus, we just have to find the area, this area of this blue area, and that's just finding the area of a triangle. So this right over here, you have a base of 300. This length right over here is 300 pounds."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "And we're just summing that up across all of the pounds. So to really figure out the total consumer surplus, we just have to find the area, this area of this blue area, and that's just finding the area of a triangle. So this right over here, you have a base of 300. This length right over here is 300 pounds. And then our height over here. And we can just use this as the area of a triangle because this is a simple linear demand curve. We would actually have to use a little bit of calculus if this was a nonlinear curve."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "This length right over here is 300 pounds. And then our height over here. And we can just use this as the area of a triangle because this is a simple linear demand curve. We would actually have to use a little bit of calculus if this was a nonlinear curve. But the height here is two. The height here is two. So our area, the area between the demand curve and our price equals two is equal to 1 1\u20442 times base times height."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "We would actually have to use a little bit of calculus if this was a nonlinear curve. But the height here is two. The height here is two. So our area, the area between the demand curve and our price equals two is equal to 1 1\u20442 times base times height. 1 1\u20442 times the base, which is 300 pounds, times 300 pounds, times the height, which is $2, which is $2 per pound, times $2, all right, this way, times $2 per pound. The pounds cancel out. 1 1\u20442 times two is one, times 300 is 300."}, {"video_title": "Total consumer surplus as area Microeconomics Khan Academy.mp3", "Sentence": "So our area, the area between the demand curve and our price equals two is equal to 1 1\u20442 times base times height. 1 1\u20442 times the base, which is 300 pounds, times 300 pounds, times the height, which is $2, which is $2 per pound, times $2, all right, this way, times $2 per pound. The pounds cancel out. 1 1\u20442 times two is one, times 300 is 300. So we get 300, 300, and all we're left with is dollars. So the total consumer surplus in this case is $300. And it really is just the area between the demand curve and this price equals two line right over there."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So let's say that this is that both of our players in our duopoly, and this would actually apply to an oligopoly generally, but the analysis would be a little bit more difficult if we had more than two players. But let's say each player has an identical, they're identical companies. And they both have a marginal cost curve that looks something like that. So they both have a marginal cost curve, an individual marginal cost curve that looks like that. And they both have an average total cost curve that looks something like this. So they both have an average total cost curve that looks something like that. And they are identical."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So they both have a marginal cost curve, an individual marginal cost curve that looks like that. And they both have an average total cost curve that looks something like this. So they both have an average total cost curve that looks something like that. And they are identical. So I'll just draw it once. This is the marginal cost and average total cost for both firms. Now let's think about what it would look like for the market."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And they are identical. So I'll just draw it once. This is the marginal cost and average total cost for both firms. Now let's think about what it would look like for the market. Well, one way to think about it, pick an arbitrary marginal cost. So for one firm, what can they produce, or what quantity will they be at that marginal cost? Well, they'll be at this quantity for that marginal cost."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now let's think about what it would look like for the market. Well, one way to think about it, pick an arbitrary marginal cost. So for one firm, what can they produce, or what quantity will they be at that marginal cost? Well, they'll be at this quantity for that marginal cost. But if you have two firms that are just like that, they could have twice as much quantity to be at that point in marginal cost. So two firms will be over there. And if you picked this marginal cost, one firm would produce that quantity to be right at that marginal cost for that next incremental good."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Well, they'll be at this quantity for that marginal cost. But if you have two firms that are just like that, they could have twice as much quantity to be at that point in marginal cost. So two firms will be over there. And if you picked this marginal cost, one firm would produce that quantity to be right at that marginal cost for that next incremental good. But two firms could produce two, especially if they had the exact same cost structure, could produce two. So what you're going to have is you're essentially adding this curve to itself in the horizontal direction. So if you look at the marginal cost curve for both firms together, you're essentially going to get a curve that is twice as fat as the marginal cost curve for one firm."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And if you picked this marginal cost, one firm would produce that quantity to be right at that marginal cost for that next incremental good. But two firms could produce two, especially if they had the exact same cost structure, could produce two. So what you're going to have is you're essentially adding this curve to itself in the horizontal direction. So if you look at the marginal cost curve for both firms together, you're essentially going to get a curve that is twice as fat as the marginal cost curve for one firm. So it will look something like this. And I'll do it in yellow. So it will look something like that."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So if you look at the marginal cost curve for both firms together, you're essentially going to get a curve that is twice as fat as the marginal cost curve for one firm. So it will look something like this. And I'll do it in yellow. So it will look something like that. So that is the marginal cost for the market, where the market in this example is both of these firms. And that will also be true for the average total cost. If at this price, or actually I should say if the average total cost is up here for one firm, that means that they are producing this quantity."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So it will look something like that. So that is the marginal cost for the market, where the market in this example is both of these firms. And that will also be true for the average total cost. If at this price, or actually I should say if the average total cost is up here for one firm, that means that they are producing this quantity. But two firms together could provide twice the quantity of that average total cost. So two firms would produce twice. And so what you're going to have is an average total cost curve that is twice as fat as the average total cost curve for one firm, if you talk about the market."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If at this price, or actually I should say if the average total cost is up here for one firm, that means that they are producing this quantity. But two firms together could provide twice the quantity of that average total cost. So two firms would produce twice. And so what you're going to have is an average total cost curve that is twice as fat as the average total cost curve for one firm, if you talk about the market. So the market's average total cost curve is going to look something like this. It's going to be twice as fat. It's the exact same logic."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so what you're going to have is an average total cost curve that is twice as fat as the average total cost curve for one firm, if you talk about the market. So the market's average total cost curve is going to look something like this. It's going to be twice as fat. It's the exact same logic. It's going to look something like that. So that is the average total cost curve for the market. So so far, the convention that I've ended up using is orange for an individual firm, and then this dotted yellow line for the market as a whole."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "It's the exact same logic. It's going to look something like that. So that is the average total cost curve for the market. So so far, the convention that I've ended up using is orange for an individual firm, and then this dotted yellow line for the market as a whole. Now let's think about what a good equilibrium price, or what the right price should be if they were able to coordinate together, if they were to essentially combine their firms and almost behave like a monopoly. And to think about that, we're going to have to draw a demand curve. So let me draw the market demand curve."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So so far, the convention that I've ended up using is orange for an individual firm, and then this dotted yellow line for the market as a whole. Now let's think about what a good equilibrium price, or what the right price should be if they were able to coordinate together, if they were to essentially combine their firms and almost behave like a monopoly. And to think about that, we're going to have to draw a demand curve. So let me draw the market demand curve. Let's say the market demand curve looks something like that. It's really big, so it's hard for me. We'll assume that this is a line."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So let me draw the market demand curve. Let's say the market demand curve looks something like that. It's really big, so it's hard for me. We'll assume that this is a line. So that's pretty good. So this is the market demand curve. Market demand curve."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "We'll assume that this is a line. So that's pretty good. So this is the market demand curve. Market demand curve. So if both of these firms operated together, if they and oh, I drew the market demand curve, I also want to draw the market marginal revenue curve. Now remember, we're going to assume that both of these firms are acting together. If they perfectly coordinate, they can join their capacities and act essentially like a monopoly."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Market demand curve. So if both of these firms operated together, if they and oh, I drew the market demand curve, I also want to draw the market marginal revenue curve. Now remember, we're going to assume that both of these firms are acting together. If they perfectly coordinate, they can join their capacities and act essentially like a monopoly. So if they did act like a monopoly, their marginal revenue curve would be twice the slope of this market demand curve. So it would hit the horizontal axis right over there. And so it would look something like this."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If they perfectly coordinate, they can join their capacities and act essentially like a monopoly. So if they did act like a monopoly, their marginal revenue curve would be twice the slope of this market demand curve. So it would hit the horizontal axis right over there. And so it would look something like this. It would look something like that. So this right over here is the market marginal revenue curve. So if they were to behave like a monopoly, you could view this dotted line as their marginal cost curve."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so it would look something like this. It would look something like that. So this right over here is the market marginal revenue curve. So if they were to behave like a monopoly, you could view this dotted line as their marginal cost curve. This would be their average total cost. And now this is their marginal revenue. If they were to behave as a monopoly, what would be the optimal quantity?"}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So if they were to behave like a monopoly, you could view this dotted line as their marginal cost curve. This would be their average total cost. And now this is their marginal revenue. If they were to behave as a monopoly, what would be the optimal quantity? Well, it would be right there, right where marginal revenue is equal to marginal cost. Before that, they would keep wanting to produce because marginal revenue is higher than marginal quantity. Marginal revenue is higher than marginal cost."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If they were to behave as a monopoly, what would be the optimal quantity? Well, it would be right there, right where marginal revenue is equal to marginal cost. Before that, they would keep wanting to produce because marginal revenue is higher than marginal quantity. Marginal revenue is higher than marginal cost. And then after that, they don't want to produce because marginal cost is higher than marginal revenue. And they're going to take economic losses on each of those incremental units. And so this is the quantity that they would produce."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Marginal revenue is higher than marginal cost. And then after that, they don't want to produce because marginal cost is higher than marginal revenue. And they're going to take economic losses on each of those incremental units. And so this is the quantity that they would produce. And the price they would get for that, they just have to go to the market demand curve. They would get this price right over here. Let's say they would get that price right over there."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so this is the quantity that they would produce. And the price they would get for that, they just have to go to the market demand curve. They would get this price right over here. Let's say they would get that price right over there. And their average total cost per unit, once again, we have to go to the market here. It's this dotted line right over here. That is their average total cost per unit."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Let's say they would get that price right over there. And their average total cost per unit, once again, we have to go to the market here. It's this dotted line right over here. That is their average total cost per unit. So their average economic profit per unit is going to be their revenue per unit minus their average total cost per unit. So this height is their economic profit per unit. And if we multiply that times the total number of units, you would get their total economic profit if they coordinate perfectly, essentially behaving like a monopoly."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "That is their average total cost per unit. So their average economic profit per unit is going to be their revenue per unit minus their average total cost per unit. So this height is their economic profit per unit. And if we multiply that times the total number of units, you would get their total economic profit if they coordinate perfectly, essentially behaving like a monopoly. And let's just say for argument that this height right over here, let's say that that is 10. And let's say that this quantity that they would want to produce as a monopolist is 50. So what is the total economic profit here?"}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And if we multiply that times the total number of units, you would get their total economic profit if they coordinate perfectly, essentially behaving like a monopoly. And let's just say for argument that this height right over here, let's say that that is 10. And let's say that this quantity that they would want to produce as a monopolist is 50. So what is the total economic profit here? Well, their total economic profit is 500, if they coordinate is 500. And so they see this. And they say, look, why don't we agree to each produce exactly half of this, and we would split the economic profit."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So what is the total economic profit here? Well, their total economic profit is 500, if they coordinate is 500. And so they see this. And they say, look, why don't we agree to each produce exactly half of this, and we would split the economic profit. And to see that, let's just say one firm says, OK, they both decide that they're going to produce 25. They're going to get this price for it up here, which was the market price. They're going to get that price for it."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And they say, look, why don't we agree to each produce exactly half of this, and we would split the economic profit. And to see that, let's just say one firm says, OK, they both decide that they're going to produce 25. They're going to get this price for it up here, which was the market price. They're going to get that price for it. And their costs are right here. Now we're going on each individual firm. And that makes sense, because this cost is just twice as far away as this cost."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "They're going to get that price for it. And their costs are right here. Now we're going on each individual firm. And that makes sense, because this cost is just twice as far away as this cost. And the dotted line yellow average total cost for the market is just a fatter version, twice as fat as the orange line. And so each firm will make this much economic profit per unit times 25 units. And so each firm would make this orange area in terms of economic profit, or half of the entire 500, or 250 per firm."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And that makes sense, because this cost is just twice as far away as this cost. And the dotted line yellow average total cost for the market is just a fatter version, twice as fat as the orange line. And so each firm will make this much economic profit per unit times 25 units. And so each firm would make this orange area in terms of economic profit, or half of the entire 500, or 250 per firm. Now let's think about why there is an incentive for one or both of the firms to cheat. Let's say one firm in particular. So the other firm holds at 25 units."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so each firm would make this orange area in terms of economic profit, or half of the entire 500, or 250 per firm. Now let's think about why there is an incentive for one or both of the firms to cheat. Let's say one firm in particular. So the other firm holds at 25 units. But the other firm says, hey, I like this price. I'm already making economic profit. Let me produce 10 more units."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So the other firm holds at 25 units. But the other firm says, hey, I like this price. I'm already making economic profit. Let me produce 10 more units. So the other firm says, I'm not going to produce 25. I am going to produce 35 units. And if that guy produces 35 units, and the other firm in the market, the other duopolist, I guess we could say it, continues to produce at 25, then the total market production is now going to be 60."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Let me produce 10 more units. So the other firm says, I'm not going to produce 25. I am going to produce 35 units. And if that guy produces 35 units, and the other firm in the market, the other duopolist, I guess we could say it, continues to produce at 25, then the total market production is now going to be 60. Now what is the total economic profit? So we can go up the demand curve right over there. That's the new price."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And if that guy produces 35 units, and the other firm in the market, the other duopolist, I guess we could say it, continues to produce at 25, then the total market production is now going to be 60. Now what is the total economic profit? So we can go up the demand curve right over there. That's the new price. That right over there is the new price. The cost per unit is this right over here. And then the number of units that they're producing is 60."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "That's the new price. That right over there is the new price. The cost per unit is this right over here. And then the number of units that they're producing is 60. So the new economic profit is this area. And this bluish, purplish color that I just drew. And even visually, this is true."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And then the number of units that they're producing is 60. So the new economic profit is this area. And this bluish, purplish color that I just drew. And even visually, this is true. Looks like the demand curve and the average total cost curve have gotten closer together. So let's say that this height right over here is 8. And it's going to be $8 of economic profit per unit times 60 units."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And even visually, this is true. Looks like the demand curve and the average total cost curve have gotten closer together. So let's say that this height right over here is 8. And it's going to be $8 of economic profit per unit times 60 units. So if they cheat, let's talk about the cheating circumstance. If they cheat, this was coordinate. Now let's think about if they cheat."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And it's going to be $8 of economic profit per unit times 60 units. So if they cheat, let's talk about the cheating circumstance. If they cheat, this was coordinate. Now let's think about if they cheat. Now we have 60 units for the whole market times $8 of economic profit per unit. You're going to have total economic profit of 480. Your total economic profit went down."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now let's think about if they cheat. Now we have 60 units for the whole market times $8 of economic profit per unit. You're going to have total economic profit of 480. Your total economic profit went down. And that makes sense. Because now as a market, you're producing beyond the point where marginal revenue is equal to marginal cost. Now marginal cost as a market is higher than marginal revenue."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Your total economic profit went down. And that makes sense. Because now as a market, you're producing beyond the point where marginal revenue is equal to marginal cost. Now marginal cost as a market is higher than marginal revenue. And so all of this is essentially you're creating economic loss. Because each of these incremental units as a market, the cost is higher than the revenue, and you have an economic loss. And so that's why your total economic profit as a market went down from 500 to 480."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now marginal cost as a market is higher than marginal revenue. And so all of this is essentially you're creating economic loss. Because each of these incremental units as a market, the cost is higher than the revenue, and you have an economic loss. And so that's why your total economic profit as a market went down from 500 to 480. But how much is this character going to be making? The one that decided to cheat. Well, he now has 35 units."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so that's why your total economic profit as a market went down from 500 to 480. But how much is this character going to be making? The one that decided to cheat. Well, he now has 35 units. He's producing 35 units. And he's getting an economic profit of $8 per unit. So he gets this entire area right over here."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Well, he now has 35 units. He's producing 35 units. And he's getting an economic profit of $8 per unit. So he gets this entire area right over here. So let's multiply 35 times 8. I'll do it right over here. 35 times 8."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So he gets this entire area right over here. So let's multiply 35 times 8. I'll do it right over here. 35 times 8. 5 times 8 is 40. 3 times 8 is 24. Plus 4 is 280."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "35 times 8. 5 times 8 is 40. 3 times 8 is 24. Plus 4 is 280. So now the cheating firm has $280 of economic profit in this period. And then the honest firm or the fair firm, what they're both doing might be illegal by even attempting to coordinate, the non-cheater, I guess I could call them, the non-cheater will have the rest. The non-cheater is going to have the balance of the economic profit."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Plus 4 is 280. So now the cheating firm has $280 of economic profit in this period. And then the honest firm or the fair firm, what they're both doing might be illegal by even attempting to coordinate, the non-cheater, I guess I could call them, the non-cheater will have the rest. The non-cheater is going to have the balance of the economic profit. And if the total economic profit was 480, the cheater is getting 280. The non-cheater is only going to get 200. So the cheater definitely benefited by increasing quantity past that optimal one."}, {"video_title": "Why parties to cartels cheat Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "The non-cheater is going to have the balance of the economic profit. And if the total economic profit was 480, the cheater is getting 280. The non-cheater is only going to get 200. So the cheater definitely benefited by increasing quantity past that optimal one. He went from 250 to 280. So it made sense for him. It reduced the total economic profit."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "And in all of these videos, whether we're talking about renting units or hiring people, these are huge oversimplifications. But we're doing it this way so we can apply some of these basic ideas that we're being exposed to in this kind of survey of microeconomics so that we can apply those basic ideas to kind of real-world things. But it's important to realize that we're making huge oversimplifications and oftentimes the real context can be more complicated or a little bit nuanced. But it gives us a way of thinking about things. So this is the unskilled labor market, so people who don't have any specific training or experience for a given job. The vertical axis is their wage rate per hour. It's essentially the price of labor."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "But it gives us a way of thinking about things. So this is the unskilled labor market, so people who don't have any specific training or experience for a given job. The vertical axis is their wage rate per hour. It's essentially the price of labor. This little gap here shows I started at zero, but then I jumped up to five, six, seven. And this right here is a quantity of labor. We're measuring that in terms of millions of hours per month."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "It's essentially the price of labor. This little gap here shows I started at zero, but then I jumped up to five, six, seven. And this right here is a quantity of labor. We're measuring that in terms of millions of hours per month. And once again, we have this little gap here so we can jump to 20, 20 million hours, 21 million hours. And it's important to realize when we think about demand in the labor market, we're not talking about individual consumers. We're talking about employers."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "We're measuring that in terms of millions of hours per month. And once again, we have this little gap here so we can jump to 20, 20 million hours, 21 million hours. And it's important to realize when we think about demand in the labor market, we're not talking about individual consumers. We're talking about employers. In most cases, demand comes from individual consumers, but now the demand is coming from employers. These are the people who are essentially buying labor. And the supply is not coming from corporations."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "We're talking about employers. In most cases, demand comes from individual consumers, but now the demand is coming from employers. These are the people who are essentially buying labor. And the supply is not coming from corporations. The supply is coming from the people who provide labor. So now it's coming from individual workers. So now it is coming from workers."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "And the supply is not coming from corporations. The supply is coming from the people who provide labor. So now it's coming from individual workers. So now it is coming from workers. So let's just say that this market starts off being completely unregulated. And so it has a natural equilibrium price or equilibrium wage at $6 an hour and an equilibrium quantity of labor supplied, which is 22 millions of hours per month. But let's say the government in this hypothetical city or country says, you know what, $6 is a really low wage."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "So now it is coming from workers. So let's just say that this market starts off being completely unregulated. And so it has a natural equilibrium price or equilibrium wage at $6 an hour and an equilibrium quantity of labor supplied, which is 22 millions of hours per month. But let's say the government in this hypothetical city or country says, you know what, $6 is a really low wage. We have trouble imagining how people live well off of a $6 an hour wage. So they say that this right over here is too low. The government does not like it."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "But let's say the government in this hypothetical city or country says, you know what, $6 is a really low wage. We have trouble imagining how people live well off of a $6 an hour wage. So they say that this right over here is too low. The government does not like it. And maybe many of their voters are people making that wage. So they say, hey, you know what? We are going to pass some well-intentioned legislation."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "The government does not like it. And maybe many of their voters are people making that wage. So they say, hey, you know what? We are going to pass some well-intentioned legislation. We are going to pass a minimum wage. We are going to pass a law, minimum wage, that says any employer has to pay at least $7 an hour. $7 an hour."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "We are going to pass some well-intentioned legislation. We are going to pass a minimum wage. We are going to pass a law, minimum wage, that says any employer has to pay at least $7 an hour. $7 an hour. So it has to be at least $7 an hour. So this right over here is a price floor. This is a minimum price in the market."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "$7 an hour. So it has to be at least $7 an hour. So this right over here is a price floor. This is a minimum price in the market. When we talked about rent control, that was a price ceiling. That was a maximum price for rent. Now this is a minimum price for labor."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "This is a minimum price in the market. When we talked about rent control, that was a price ceiling. That was a maximum price for rent. Now this is a minimum price for labor. And since the price floor, this minimum price, is higher than the actual clearing price, it's going to distort the market. So our price floor is right over here, $7. So this right over here is our minimum wage."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "Now this is a minimum price for labor. And since the price floor, this minimum price, is higher than the actual clearing price, it's going to distort the market. So our price floor is right over here, $7. So this right over here is our minimum wage. So this right over here is our minimum wage. So what's going to happen here? Well, if you look at the demand side of things, the employers are going to say, wow, if I have to pay $7 an hour now, I can only afford 21 million hours of labor."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is our minimum wage. So this right over here is our minimum wage. So what's going to happen here? Well, if you look at the demand side of things, the employers are going to say, wow, if I have to pay $7 an hour now, I can only afford 21 million hours of labor. So they're going to say, I can only afford now 21 million hours of labor. But if you look at the workers, they're going to say, gee, if I can make $7 an hour, if I can make $7 an hour, then more people are going to be willing to work. Either an individual might say, well, if I was working 40 hours a week, making $6 an hour, if I'm making $7 an hour, I'm willing to work 45 hours a week."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "Well, if you look at the demand side of things, the employers are going to say, wow, if I have to pay $7 an hour now, I can only afford 21 million hours of labor. So they're going to say, I can only afford now 21 million hours of labor. But if you look at the workers, they're going to say, gee, if I can make $7 an hour, if I can make $7 an hour, then more people are going to be willing to work. Either an individual might say, well, if I was working 40 hours a week, making $6 an hour, if I'm making $7 an hour, I'm willing to work 45 hours a week. Or there might be a student who's on the fence who says, wow, now wages have gone up enough that it makes sense for me to work. There might be maybe someone who's retired and now $6 wasn't enough for them to come out of retirement but $7 is, maybe a stay-at-home parent now says $7 is enough for them to come out of retirement or not stay at home anymore. And so it actually, the labor, the supply, the quantity supplied of labor in terms of hours will increase."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "Either an individual might say, well, if I was working 40 hours a week, making $6 an hour, if I'm making $7 an hour, I'm willing to work 45 hours a week. Or there might be a student who's on the fence who says, wow, now wages have gone up enough that it makes sense for me to work. There might be maybe someone who's retired and now $6 wasn't enough for them to come out of retirement but $7 is, maybe a stay-at-home parent now says $7 is enough for them to come out of retirement or not stay at home anymore. And so it actually, the labor, the supply, the quantity supplied of labor in terms of hours will increase. And so at $7 an hour, people will be willing to supply that much labor. But what's going to happen, what's going to happen in this situation right over here? Well, in this situation, you have all of these people who want to work, but there's only demand for this much work."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "And so it actually, the labor, the supply, the quantity supplied of labor in terms of hours will increase. And so at $7 an hour, people will be willing to supply that much labor. But what's going to happen, what's going to happen in this situation right over here? Well, in this situation, you have all of these people who want to work, but there's only demand for this much work. So this is right here, this is going to be an oversupply of labor. Oversupply of labor. So another way to think about it, there's only jobs for 21 million people now and now 23 million people want to work."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "Well, in this situation, you have all of these people who want to work, but there's only demand for this much work. So this is right here, this is going to be an oversupply of labor. Oversupply of labor. So another way to think about it, there's only jobs for 21 million people now and now 23 million people want to work. So you're going to have 2 million people who are by the classical definition of unemployed, people who are looking for work, who can't find work now. And once again, this is completely oversimplified because at this point right over here, based on the way I just viewed that, you would have no unemployment. And we all know even when the economy is humming maximally and there's no regulation, there is some unemployment just due to frictions in the market, people just randomly quitting jobs or firing, getting, or looking for a new job."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "So another way to think about it, there's only jobs for 21 million people now and now 23 million people want to work. So you're going to have 2 million people who are by the classical definition of unemployed, people who are looking for work, who can't find work now. And once again, this is completely oversimplified because at this point right over here, based on the way I just viewed that, you would have no unemployment. And we all know even when the economy is humming maximally and there's no regulation, there is some unemployment just due to frictions in the market, people just randomly quitting jobs or firing, getting, or looking for a new job. But so you could almost view this as excess unemployment, or you could view this as just a very oversimplified model. And in the ideal world, you get close to zero unemployment. Now you have more people looking for jobs because the wages have gone, but fewer jobs because the employers are forced to pay more."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "And we all know even when the economy is humming maximally and there's no regulation, there is some unemployment just due to frictions in the market, people just randomly quitting jobs or firing, getting, or looking for a new job. But so you could almost view this as excess unemployment, or you could view this as just a very oversimplified model. And in the ideal world, you get close to zero unemployment. Now you have more people looking for jobs because the wages have gone, but fewer jobs because the employers are forced to pay more. If we make all of the assumptions in the model, you just want to say how many fewer jobs are there because this obviously we're talking about more people even looking for jobs because the perceived wages have gone up. But in the absolute level, if you, based on these linear supply and demand curves, before there was demand for 22 million jobs and that was actually where the quantity demanded was, and that's also where the quantity supplied was, but now it's only 21 million. So based on this model, you're going to have 1 million fewer jobs."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "Now you have more people looking for jobs because the wages have gone, but fewer jobs because the employers are forced to pay more. If we make all of the assumptions in the model, you just want to say how many fewer jobs are there because this obviously we're talking about more people even looking for jobs because the perceived wages have gone up. But in the absolute level, if you, based on these linear supply and demand curves, before there was demand for 22 million jobs and that was actually where the quantity demanded was, and that's also where the quantity supplied was, but now it's only 21 million. So based on this model, you're going to have 1 million fewer jobs. 1 million fewer jobs. Now, when you think about it in terms of surplus, so before the minimum wage, the entire surplus was this entire area over here. So this entire area that's below the demand curve and above the supply curve."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "So based on this model, you're going to have 1 million fewer jobs. 1 million fewer jobs. Now, when you think about it in terms of surplus, so before the minimum wage, the entire surplus was this entire area over here. So this entire area that's below the demand curve and above the supply curve. This entire was a total surplus and it was being divided between the consumer surplus and the producer surplus. So this right over here, so between the price and the supply curve was the producer surplus. And the producer surplus, remember the producers of labor are the individual workers."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "So this entire area that's below the demand curve and above the supply curve. This entire was a total surplus and it was being divided between the consumer surplus and the producer surplus. So this right over here, so between the price and the supply curve was the producer surplus. And the producer surplus, remember the producers of labor are the individual workers. So this was the benefit above and beyond the opportunity cost that the workers were getting was this area right over here that I'm doing kind of in dark white or filled in white. And the consumer surplus or the employer surplus here was the value that the employers were getting, the value that the employers were getting above and beyond the price that they had to pay. Now, in this situation of a minimum wage, now this is the set price."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "And the producer surplus, remember the producers of labor are the individual workers. So this was the benefit above and beyond the opportunity cost that the workers were getting was this area right over here that I'm doing kind of in dark white or filled in white. And the consumer surplus or the employer surplus here was the value that the employers were getting, the value that the employers were getting above and beyond the price that they had to pay. Now, in this situation of a minimum wage, now this is the set price. This is the quantity of labor that is demanded. And so what you lose now, the surplus that we lose is this quantity right over here. This quantity right over here."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "Now, in this situation of a minimum wage, now this is the set price. This is the quantity of labor that is demanded. And so what you lose now, the surplus that we lose is this quantity right over here. This quantity right over here. And we could figure out that area quite easily. Let's see, this height right over here is 1 million hours per month. So it's going to be 1 million, I'll just write one for, we'll just remember it's on millions, times this height, times this height right over here, which is $2 per hour."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "This quantity right over here. And we could figure out that area quite easily. Let's see, this height right over here is 1 million hours per month. So it's going to be 1 million, I'll just write one for, we'll just remember it's on millions, times this height, times this height right over here, which is $2 per hour. So times two, times 1 1\u20442. If we just multiply these, we get this whole rectangle. For the area of the triangle, we multiply it times 1 1\u20442."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "So it's going to be 1 million, I'll just write one for, we'll just remember it's on millions, times this height, times this height right over here, which is $2 per hour. So times two, times 1 1\u20442. If we just multiply these, we get this whole rectangle. For the area of the triangle, we multiply it times 1 1\u20442. Times 1 1\u20442. That gives us, that cancels out, that gives us exactly one. And the units are dollars per hour times millions of hours per month gives us millions of dollars per month."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "For the area of the triangle, we multiply it times 1 1\u20442. Times 1 1\u20442. That gives us, that cancels out, that gives us exactly one. And the units are dollars per hour times millions of hours per month gives us millions of dollars per month. So it becomes $1 million per month of surplus, of benefit, of benefit above and beyond, of total benefit that is lost to this market because of this regulation, if you assume all of the things in this model. So just like we talked about in the last video, we have a $1 million per month deadweight loss. Deadweight loss."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "And the units are dollars per hour times millions of hours per month gives us millions of dollars per month. So it becomes $1 million per month of surplus, of benefit, of benefit above and beyond, of total benefit that is lost to this market because of this regulation, if you assume all of the things in this model. So just like we talked about in the last video, we have a $1 million per month deadweight loss. Deadweight loss. Now, not everyone loses here. Because the price was set up, because the price is set up over here, for the people who are working, those first 21 million hours per month, their producer surplus has now increased because the space between what they're getting and their opportunity cost has now increased. So for those lucky enough to produce, to actually have a job, they are, those workers now do have a higher surplus."}, {"video_title": "Minimum wage and price floors Microeconomics Khan Academy.mp3", "Sentence": "Deadweight loss. Now, not everyone loses here. Because the price was set up, because the price is set up over here, for the people who are working, those first 21 million hours per month, their producer surplus has now increased because the space between what they're getting and their opportunity cost has now increased. So for those lucky enough to produce, to actually have a job, they are, those workers now do have a higher surplus. But for those employers, which is on the demand side right now, their surplus, who are employing those first 21 million hours of labor, they now have a smaller consumer surplus or demand surplus or employer surplus right there. So for the first 21 million units of labor, it's redistributing the pie between the employers and the workers. But then because you are making the wage higher, it's reducing the overall demand."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "Now we're gonna talk about the markets for the factors of production, often known as the factor markets. What are those factors of production? Well, we've talked about them multiple times, things like land, labor, capital, and in particular, we're going to focus in this video on labor. So what we have here are some axes where the vertical axis is labeled the wage rate. You could view that as the price of labor, it'd be per unit time. And on the horizontal axis in both of these cases, we have the quantity of labor, which would be the number of workers in, say, that unit of time. And what we're going to do on the right-hand side right here is think about it from the point of view of a firm, and then on the left-hand side, we're gonna think about it from the point of view of the market as a whole."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "So what we have here are some axes where the vertical axis is labeled the wage rate. You could view that as the price of labor, it'd be per unit time. And on the horizontal axis in both of these cases, we have the quantity of labor, which would be the number of workers in, say, that unit of time. And what we're going to do on the right-hand side right here is think about it from the point of view of a firm, and then on the left-hand side, we're gonna think about it from the point of view of the market as a whole. And to understand it first on the firm's point of view, we can think about the demand from a firm. How much benefit is a firm getting when it hires that incremental worker? And to do that, we're gonna think about something called marginal revenue product."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "And what we're going to do on the right-hand side right here is think about it from the point of view of a firm, and then on the left-hand side, we're gonna think about it from the point of view of the market as a whole. And to understand it first on the firm's point of view, we can think about the demand from a firm. How much benefit is a firm getting when it hires that incremental worker? And to do that, we're gonna think about something called marginal revenue product. Now marginal revenue product sounds very fancy, but I'm gonna set up a little table here so that we can understand it in reasonable terms. So let's say that this is our labor unit, so I'm gonna set up several columns here. This is how much product the firm can produce based on the number of labor units."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "And to do that, we're gonna think about something called marginal revenue product. Now marginal revenue product sounds very fancy, but I'm gonna set up a little table here so that we can understand it in reasonable terms. So let's say that this is our labor unit, so I'm gonna set up several columns here. This is how much product the firm can produce based on the number of labor units. Then you have the marginal product of labor, which is for each incremental unit of labor, how much more are you able to produce? So let me make some columns here, and I'm going to add more columns in a little bit. So let's say we could have zero units of labor, one unit of labor, two units of labor."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "This is how much product the firm can produce based on the number of labor units. Then you have the marginal product of labor, which is for each incremental unit of labor, how much more are you able to produce? So let me make some columns here, and I'm going to add more columns in a little bit. So let's say we could have zero units of labor, one unit of labor, two units of labor. When you have zero units, you're definitely going to produce zero units in that time period. Let's say when you have one unit of labor, one worker in the time period, you're able to produce two. When you have that second laborer or that second worker, you're now able to produce six."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "So let's say we could have zero units of labor, one unit of labor, two units of labor. When you have zero units, you're definitely going to produce zero units in that time period. Let's say when you have one unit of labor, one worker in the time period, you're able to produce two. When you have that second laborer or that second worker, you're now able to produce six. And so we can think about the marginal product of labor. That first worker is able to produce an incremental two. We went from zero to two."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "When you have that second laborer or that second worker, you're now able to produce six. And so we can think about the marginal product of labor. That first worker is able to produce an incremental two. We went from zero to two. But that second worker, by adding them, now you're able to produce an incremental three units. And so here, this might be due to specialization, things like that, but over time, you might have diminishing marginal products of labor. But then if you want to think about, well, what's the real benefit to the firm?"}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "We went from zero to two. But that second worker, by adding them, now you're able to produce an incremental three units. And so here, this might be due to specialization, things like that, but over time, you might have diminishing marginal products of labor. But then if you want to think about, well, what's the real benefit to the firm? It's not just what is being produced, but how much the firm can get for that. So we could think about the marginal revenue. And so let's just say that that is, I don't know, $4."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "But then if you want to think about, well, what's the real benefit to the firm? It's not just what is being produced, but how much the firm can get for that. So we could think about the marginal revenue. And so let's just say that that is, I don't know, $4. And it's just a constant $4. And then we could think about the marginal revenue product, which is just going to be the marginal product of labor times the amount of dollars or incremental amount of dollars per unit. So it's just gonna be two times four here, which is just going to be $8."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "And so let's just say that that is, I don't know, $4. And it's just a constant $4. And then we could think about the marginal revenue product, which is just going to be the marginal product of labor times the amount of dollars or incremental amount of dollars per unit. So it's just gonna be two times four here, which is just going to be $8. So one way to think about it, when the firm goes from zero laborers or zero workers to one worker, you're going to have an incremental $8 of revenue based on what that worker can produce. And then when you add another worker, you get three times four. You get an incremental $12 of revenue."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "So it's just gonna be two times four here, which is just going to be $8. So one way to think about it, when the firm goes from zero laborers or zero workers to one worker, you're going to have an incremental $8 of revenue based on what that worker can produce. And then when you add another worker, you get three times four. You get an incremental $12 of revenue. And so we can graph this. And as I said, sometimes you might say, initially, you could get some benefits of specialization, but then over time, you get diminishing returns. So it might look something like this."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "You get an incremental $12 of revenue. And so we can graph this. And as I said, sometimes you might say, initially, you could get some benefits of specialization, but then over time, you get diminishing returns. So it might look something like this. Typically, in an econ class, you'll just see a downward-sloping line for simplicity. But the firm's marginal revenue product, you can view it as that individual firm's demand for labor. At those first few units of labor, it has a very high marginal revenue product, but then over time, you have diminishing returns from adding more and more people onto the staff."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "So it might look something like this. Typically, in an econ class, you'll just see a downward-sloping line for simplicity. But the firm's marginal revenue product, you can view it as that individual firm's demand for labor. At those first few units of labor, it has a very high marginal revenue product, but then over time, you have diminishing returns from adding more and more people onto the staff. Now, how would this look at the market? Well, what you could do is you could add up all the marginal revenue products from all the firms in the market, and if you add them up, you're going to get a market labor demand curve. And let me do this in a slightly different color."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "At those first few units of labor, it has a very high marginal revenue product, but then over time, you have diminishing returns from adding more and more people onto the staff. Now, how would this look at the market? Well, what you could do is you could add up all the marginal revenue products from all the firms in the market, and if you add them up, you're going to get a market labor demand curve. And let me do this in a slightly different color. If you add all of these up, you are going to get something like this. Let me write that out. That is the market labor demand curve."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "And let me do this in a slightly different color. If you add all of these up, you are going to get something like this. Let me write that out. That is the market labor demand curve. Now, what is going to be the reasonable level of labor quantity, both in the market, and how much would be rational for this firm to hire? Well, to think about that, we think about the market labor supply curve, and I'm gonna focus on the market first. And just like the market for most things, the higher the wage, you're going to have more folks willing to participate in that labor market."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "That is the market labor demand curve. Now, what is going to be the reasonable level of labor quantity, both in the market, and how much would be rational for this firm to hire? Well, to think about that, we think about the market labor supply curve, and I'm gonna focus on the market first. And just like the market for most things, the higher the wage, you're going to have more folks willing to participate in that labor market. So at a low wage, not a lot of people are going to wanna work in this industry, but as wages get higher and higher, well, then more and more people are going to be up for participating in this labor market. And so this right over here is the market labor supply curve. Supply curve."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "And just like the market for most things, the higher the wage, you're going to have more folks willing to participate in that labor market. So at a low wage, not a lot of people are going to wanna work in this industry, but as wages get higher and higher, well, then more and more people are going to be up for participating in this labor market. And so this right over here is the market labor supply curve. Supply curve. And so what would be the equilibrium price of labor, which was really just the wage rate? Well, it's where your supply and demand curves intersect, and we've seen this multiple times already. So this is, I'll just call that wage star like that."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "Supply curve. And so what would be the equilibrium price of labor, which was really just the wage rate? Well, it's where your supply and demand curves intersect, and we've seen this multiple times already. So this is, I'll just call that wage star like that. And then the equilibrium quantity of labor, we could just call that Q star right over here. Now, how would that impact what's going on in the firm? Well, if we assume that this is a perfectly competitive labor market, we'll assume that this firm can't set the wage."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "So this is, I'll just call that wage star like that. And then the equilibrium quantity of labor, we could just call that Q star right over here. Now, how would that impact what's going on in the firm? Well, if we assume that this is a perfectly competitive labor market, we'll assume that this firm can't set the wage. It's just going to have to pay people whatever the equilibrium wage actually is. And so this right over here is going to be the firm's, what's known as marginal factor cost, the cost per incremental unit of labor. That's just the wage it's going to have to pay."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "Well, if we assume that this is a perfectly competitive labor market, we'll assume that this firm can't set the wage. It's just going to have to pay people whatever the equilibrium wage actually is. And so this right over here is going to be the firm's, what's known as marginal factor cost, the cost per incremental unit of labor. That's just the wage it's going to have to pay. It can get as much of that labor as we need, we assume, because we're talking about a perfectly competitive labor market in this industry. I'm just trying to draw a straighter line. So this right over here is our marginal factor cost."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "That's just the wage it's going to have to pay. It can get as much of that labor as we need, we assume, because we're talking about a perfectly competitive labor market in this industry. I'm just trying to draw a straighter line. So this right over here is our marginal factor cost. And so you can imagine what is the rational quantity for this firm to hire. It would keep hiring all the way until the incremental revenue per unit of labor it gets is no longer higher than the incremental cost of that labor. And that would happen right over here."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is our marginal factor cost. And so you can imagine what is the rational quantity for this firm to hire. It would keep hiring all the way until the incremental revenue per unit of labor it gets is no longer higher than the incremental cost of that labor. And that would happen right over here. So this would tell us the rational quantity of labor. I'll call that quantity for, I'll call it Q star for the firm right over there. I'll leave you there now."}, {"video_title": "Introduction to labor markets Microeconomics Khan Academy.mp3", "Sentence": "And that would happen right over here. So this would tell us the rational quantity of labor. I'll call that quantity for, I'll call it Q star for the firm right over there. I'll leave you there now. The important thing to realize, this seems similar to what we've seen before when we talked about things like marginal revenue and marginal cost for a firm's goods. But here we're talking about a firm's inputs. And so instead of it being the marginal revenue and the price in a perfectly competitive firm that is defined by the equilibrium price, here it is the firm's cost that is defined by the equilibrium wage in the market."}, {"video_title": "Budget Line.mp3", "Sentence": "It's kind of a derivative idea of what you've seen often in an introductory algebra course, where, hey, you've gotten a certain amount of money, and you can spend it on a certain combination of goods. What are all the different possibilities that you can actually buy? So that's really what a budget line is. So let's say that you have an income, and I'll do it both in the abstract and the concrete. So I'll do it with variables, and then I'll also do it with actual numbers. So let's say your income in a month is y, and let's say that you spend all of your money. So your income is equal to your expenditures."}, {"video_title": "Budget Line.mp3", "Sentence": "So let's say that you have an income, and I'll do it both in the abstract and the concrete. So I'll do it with variables, and then I'll also do it with actual numbers. So let's say your income in a month is y, and let's say that you spend all of your money. So your income is equal to your expenditures. So we're assuming in our little model here that you're not going to be saving any money. And to show how overly simplified we can make a model, we are going to only assume that you can spend on two different goods, and that's so that we can actually plot all of the combinations on a two-dimensional surface, like the screen over here. Obviously, most people buy money more, or they at least are choosing between many, many more than two goods."}, {"video_title": "Budget Line.mp3", "Sentence": "So your income is equal to your expenditures. So we're assuming in our little model here that you're not going to be saving any money. And to show how overly simplified we can make a model, we are going to only assume that you can spend on two different goods, and that's so that we can actually plot all of the combinations on a two-dimensional surface, like the screen over here. Obviously, most people buy money more, or they at least are choosing between many, many more than two goods. But let's say you can choose between two goods and two, let's just take goods that we've been using in recent videos. The two goods that you buy are either chocolate or fruit. You can buy chocolate by the bar or fruit by the pound."}, {"video_title": "Budget Line.mp3", "Sentence": "Obviously, most people buy money more, or they at least are choosing between many, many more than two goods. But let's say you can choose between two goods and two, let's just take goods that we've been using in recent videos. The two goods that you buy are either chocolate or fruit. You can buy chocolate by the bar or fruit by the pound. So what are going to be your expenditures, assuming you spend it all on chocolate and fruit? Well, the amount that you spend on chocolate will be the price of chocolate times the quantity of chocolate you buy, which is the number of bars. And then the amount you spend on fruit will be the price of fruit per pound times the quantity of fruit."}, {"video_title": "Budget Line.mp3", "Sentence": "You can buy chocolate by the bar or fruit by the pound. So what are going to be your expenditures, assuming you spend it all on chocolate and fruit? Well, the amount that you spend on chocolate will be the price of chocolate times the quantity of chocolate you buy, which is the number of bars. And then the amount you spend on fruit will be the price of fruit per pound times the quantity of fruit. And so, for example, if y is equal to $20 a month, $20 per month, and the price, and we actually will plot this in a second, the price of chocolate is equal to $1 per bar, and the price of fruit is equal to $2 per pound, I think these were the prices I used, per pound of fruit, then all of a sudden you would know what this is, you would know what this is and this is, you would know what the p's are and the y, and then you could actually graph one of these quantities relative to the other. And what we can do is, and let's do that, we can graph, we can graph the quantity of one relative to the other. Why don't we put the quantity of chocolate on this axis over here, and let's put the quantity of fruit on this axis over here."}, {"video_title": "Budget Line.mp3", "Sentence": "And then the amount you spend on fruit will be the price of fruit per pound times the quantity of fruit. And so, for example, if y is equal to $20 a month, $20 per month, and the price, and we actually will plot this in a second, the price of chocolate is equal to $1 per bar, and the price of fruit is equal to $2 per pound, I think these were the prices I used, per pound of fruit, then all of a sudden you would know what this is, you would know what this is and this is, you would know what the p's are and the y, and then you could actually graph one of these quantities relative to the other. And what we can do is, and let's do that, we can graph, we can graph the quantity of one relative to the other. Why don't we put the quantity of chocolate on this axis over here, and let's put the quantity of fruit on this axis over here. And first, and if we wanted to graph it, I like to put it, since I put quantity of chocolate on the vertical axis here, I'd like to solve this equation for quantity of chocolate as a function of quantity of fruit, and it should make it pretty straightforward to graph. So let's try that out. So first I'm just going to rewrite this without expenditures in between."}, {"video_title": "Budget Line.mp3", "Sentence": "Why don't we put the quantity of chocolate on this axis over here, and let's put the quantity of fruit on this axis over here. And first, and if we wanted to graph it, I like to put it, since I put quantity of chocolate on the vertical axis here, I'd like to solve this equation for quantity of chocolate as a function of quantity of fruit, and it should make it pretty straightforward to graph. So let's try that out. So first I'm just going to rewrite this without expenditures in between. So we have our income, our income y, is equal to the price of chocolate times the quantity of chocolate, plus the price of fruit times the quantity of fruit. Now, I want to solve for the quantity of chocolate. Let me make that orange so we know that this is this one right over here."}, {"video_title": "Budget Line.mp3", "Sentence": "So first I'm just going to rewrite this without expenditures in between. So we have our income, our income y, is equal to the price of chocolate times the quantity of chocolate, plus the price of fruit times the quantity of fruit. Now, I want to solve for the quantity of chocolate. Let me make that orange so we know that this is this one right over here. So if I want to solve for that, the best way I could isolate it on one side of this equation, so let me get rid of this yellow part right over here, and the best way to do that is to subtract it from both sides. So let's subtract the price of fruit times the quantity of fruit. And I can substitute the numbers in first, and that might actually make it a little bit easier to understand, but I like to keep it general first, so you see you don't have to just use it with these numbers."}, {"video_title": "Budget Line.mp3", "Sentence": "Let me make that orange so we know that this is this one right over here. So if I want to solve for that, the best way I could isolate it on one side of this equation, so let me get rid of this yellow part right over here, and the best way to do that is to subtract it from both sides. So let's subtract the price of fruit times the quantity of fruit. And I can substitute the numbers in first, and that might actually make it a little bit easier to understand, but I like to keep it general first, so you see you don't have to just use it with these numbers. You can just see kind of the general result here. So I'm going to subtract it from the left-hand side and the right-hand side. And the whole point is to get rid of it from the right-hand side."}, {"video_title": "Budget Line.mp3", "Sentence": "And I can substitute the numbers in first, and that might actually make it a little bit easier to understand, but I like to keep it general first, so you see you don't have to just use it with these numbers. You can just see kind of the general result here. So I'm going to subtract it from the left-hand side and the right-hand side. And the whole point is to get rid of it from the right-hand side. This cancels out. The left-hand side becomes your income minus the price of fruit times the quantity of fruit, and this is going to be equal to your right-hand side, which is just the price of chocolate times the quantity of chocolate. Now, if we want to solve for the quantity of chocolate, we just divide both sides by the price of chocolate, and then you get, and I'll flip the sides, you get the quantity of chocolate is going to be equal to your income divided by the price of chocolate minus the price of fruit times the quantity of fruit, all of that over the price of chocolate."}, {"video_title": "Budget Line.mp3", "Sentence": "And the whole point is to get rid of it from the right-hand side. This cancels out. The left-hand side becomes your income minus the price of fruit times the quantity of fruit, and this is going to be equal to your right-hand side, which is just the price of chocolate times the quantity of chocolate. Now, if we want to solve for the quantity of chocolate, we just divide both sides by the price of chocolate, and then you get, and I'll flip the sides, you get the quantity of chocolate is going to be equal to your income divided by the price of chocolate minus the price of fruit times the quantity of fruit, all of that over the price of chocolate. And we can actually substitute these numbers in here, and then we can actually plot what this, essentially this budget line will look like. So in our situation, 20, y is equal to 20, the price of chocolate is equal to 1, and so this term right over here, $20 per month divided by $1 per bar, which would actually give you 20 bars per month if you work out the units. So this term right over here just simplifies to 20."}, {"video_title": "Budget Line.mp3", "Sentence": "Now, if we want to solve for the quantity of chocolate, we just divide both sides by the price of chocolate, and then you get, and I'll flip the sides, you get the quantity of chocolate is going to be equal to your income divided by the price of chocolate minus the price of fruit times the quantity of fruit, all of that over the price of chocolate. And we can actually substitute these numbers in here, and then we can actually plot what this, essentially this budget line will look like. So in our situation, 20, y is equal to 20, the price of chocolate is equal to 1, and so this term right over here, $20 per month divided by $1 per bar, which would actually give you 20 bars per month if you work out the units. So this term right over here just simplifies to 20. And this is actually an interesting term. Your income in dollars divided by the price of an actual good or service, you can view this term right over here as your real income. And the reason why it's called real income is it's actually pegging what your earnings to what you can buy."}, {"video_title": "Budget Line.mp3", "Sentence": "So this term right over here just simplifies to 20. And this is actually an interesting term. Your income in dollars divided by the price of an actual good or service, you can view this term right over here as your real income. And the reason why it's called real income is it's actually pegging what your earnings to what you can buy. It's pegging it to a certain real goods. It's not tied to some abstract quantity like money, which always has a changing buying power. What you could buy for $20 in 2010 is very different than what you could buy for $20 in 1940."}, {"video_title": "Budget Line.mp3", "Sentence": "And the reason why it's called real income is it's actually pegging what your earnings to what you can buy. It's pegging it to a certain real goods. It's not tied to some abstract quantity like money, which always has a changing buying power. What you could buy for $20 in 2010 is very different than what you could buy for $20 in 1940. But here, when you divide your income by a price of some good, it's really telling you your income in terms of that good. So you could view your income as $20 per month, or you could view your income, if you wanted your income in chocolate bars, you could say my income is, I could buy 20 chocolate bars each month, so I could say my income is 20 chocolate bars per month. They would be equivalent to you, assuming that you could sell the chocolate bars for the same price you could buy it, and that's somewhat of an assumption."}, {"video_title": "Budget Line.mp3", "Sentence": "What you could buy for $20 in 2010 is very different than what you could buy for $20 in 1940. But here, when you divide your income by a price of some good, it's really telling you your income in terms of that good. So you could view your income as $20 per month, or you could view your income, if you wanted your income in chocolate bars, you could say my income is, I could buy 20 chocolate bars each month, so I could say my income is 20 chocolate bars per month. They would be equivalent to you, assuming that you could sell the chocolate bars for the same price you could buy it, and that's somewhat of an assumption. But you could say I have the equivalent income of 20 bars a month. You could have also done it in fruit. I have the equivalent income of 20 divided by 2, 10 pounds of fruit a month."}, {"video_title": "Budget Line.mp3", "Sentence": "They would be equivalent to you, assuming that you could sell the chocolate bars for the same price you could buy it, and that's somewhat of an assumption. But you could say I have the equivalent income of 20 bars a month. You could have also done it in fruit. I have the equivalent income of 20 divided by 2, 10 pounds of fruit a month. It's tying your income to real things, not the abstract quantity like money. But anyway, so this is going to be equal to, so let me write it over here, my quantity of chocolate is going to be equal to, this term right over here is 20, and if you wanted to do the units, it would be 20 bars per month, and you could do a little bit of dimensional analysis to come up with that. You could treat the units just like numbers and see how they cancel out."}, {"video_title": "Budget Line.mp3", "Sentence": "I have the equivalent income of 20 divided by 2, 10 pounds of fruit a month. It's tying your income to real things, not the abstract quantity like money. But anyway, so this is going to be equal to, so let me write it over here, my quantity of chocolate is going to be equal to, this term right over here is 20, and if you wanted to do the units, it would be 20 bars per month, and you could do a little bit of dimensional analysis to come up with that. You could treat the units just like numbers and see how they cancel out. 20 bars per month, and then minus the price of fruit divided by the price of chocolate. $2 per pound of fruit, so it's going to be, so the price of fruit is going to be $2, and I actually want to look at the units because that's interesting. So it's going to be, let me write it here."}, {"video_title": "Budget Line.mp3", "Sentence": "You could treat the units just like numbers and see how they cancel out. 20 bars per month, and then minus the price of fruit divided by the price of chocolate. $2 per pound of fruit, so it's going to be, so the price of fruit is going to be $2, and I actually want to look at the units because that's interesting. So it's going to be, let me write it here. So the price of fruit, the price of fruit is equal to $2 per pound, let me write it this way, $2 per pound of fruit, I'll show you how the units cancel out, and then we're dividing that by the price of chocolate, dividing it by the price of chocolate, which is equal to $1 per bar of chocolate. Now obviously the math is fairly straightforward, we just get 2, but the units are a little bit interesting. You have a dollar in the numerator of the numerator and a dollar in the numerator of the denominator, those will cancel out."}, {"video_title": "Budget Line.mp3", "Sentence": "So it's going to be, let me write it here. So the price of fruit, the price of fruit is equal to $2 per pound, let me write it this way, $2 per pound of fruit, I'll show you how the units cancel out, and then we're dividing that by the price of chocolate, dividing it by the price of chocolate, which is equal to $1 per bar of chocolate. Now obviously the math is fairly straightforward, we just get 2, but the units are a little bit interesting. You have a dollar in the numerator of the numerator and a dollar in the numerator of the denominator, those will cancel out. You could actually view this as, this is going to be the same thing, just to look at the units, so this is going to be, this is the same thing as the numerator times the inverse, times the inverse, or the reciprocal of the denominator right over here. So you could say $2 per pound times, the reciprocal of 1 is just 1, times 1 bar per dollar. And then the dollars cancel out, and you are left with 2 bars per pound of fruit."}, {"video_title": "Budget Line.mp3", "Sentence": "You have a dollar in the numerator of the numerator and a dollar in the numerator of the denominator, those will cancel out. You could actually view this as, this is going to be the same thing, just to look at the units, so this is going to be, this is the same thing as the numerator times the inverse, times the inverse, or the reciprocal of the denominator right over here. So you could say $2 per pound times, the reciprocal of 1 is just 1, times 1 bar per dollar. And then the dollars cancel out, and you are left with 2 bars per pound of fruit. So what we've actually done over here, this term right over here, it gives us bars of chocolate per pound of fruit, and it simplifies to 2 bars of chocolate per pound of fruit, it's actually giving you the opportunity cost of a pound of fruit. It's saying, hey, you could buy a pound of fruit, but you'd be giving up 2 bars of chocolate, because the price, you could get 2 bars of chocolate for every pound of fruit. So you can view this as the relative price, so this right over here is the relative price, this is the relative price, relative price of fruit in this example."}, {"video_title": "Budget Line.mp3", "Sentence": "And then the dollars cancel out, and you are left with 2 bars per pound of fruit. So what we've actually done over here, this term right over here, it gives us bars of chocolate per pound of fruit, and it simplifies to 2 bars of chocolate per pound of fruit, it's actually giving you the opportunity cost of a pound of fruit. It's saying, hey, you could buy a pound of fruit, but you'd be giving up 2 bars of chocolate, because the price, you could get 2 bars of chocolate for every pound of fruit. So you can view this as the relative price, so this right over here is the relative price, this is the relative price, relative price of fruit in this example. It's telling you the opportunity cost, it's telling you how much fruit costs in terms of chocolate bars. But regardless, that number is fairly straightforward, it was just a 2, so minus 2 times the quantity of fruit, and this is fairly straightforward to plot. So if the quantity of fruit is 0, our quantity of chocolate is 20."}, {"video_title": "Budget Line.mp3", "Sentence": "So you can view this as the relative price, so this right over here is the relative price, this is the relative price, relative price of fruit in this example. It's telling you the opportunity cost, it's telling you how much fruit costs in terms of chocolate bars. But regardless, that number is fairly straightforward, it was just a 2, so minus 2 times the quantity of fruit, and this is fairly straightforward to plot. So if the quantity of fruit is 0, our quantity of chocolate is 20. So this is going to be 20 over here, so this is 20, this is going to be 10, this is 15, this is 5, so this is a point on our budget line right over there. And there's multiple ways that you could think about this. One way you could say is if you buy no chocolate, if the quantity of chocolate is 0, what is going to be the quantity of fruit?"}, {"video_title": "Budget Line.mp3", "Sentence": "So if the quantity of fruit is 0, our quantity of chocolate is 20. So this is going to be 20 over here, so this is 20, this is going to be 10, this is 15, this is 5, so this is a point on our budget line right over there. And there's multiple ways that you could think about this. One way you could say is if you buy no chocolate, if the quantity of chocolate is 0, what is going to be the quantity of fruit? And then you could solve this, or you could just say, look, if I have $20 a month and I'm going to spend it all on fruit, I can buy 10 pounds of fruit. So let's say that this right over here is 10, so let's say this right over here is 10, this is 5, so this is also on our budget line, and every point in between is going to be on our budget line. Every point in between is going to be on our budget line."}, {"video_title": "Budget Line.mp3", "Sentence": "One way you could say is if you buy no chocolate, if the quantity of chocolate is 0, what is going to be the quantity of fruit? And then you could solve this, or you could just say, look, if I have $20 a month and I'm going to spend it all on fruit, I can buy 10 pounds of fruit. So let's say that this right over here is 10, so let's say this right over here is 10, this is 5, so this is also on our budget line, and every point in between is going to be on our budget line. Every point in between is going to be on our budget line. Another way you could have done this, and this comes straight out of your typical Algebra 1 course, you could say, look, in this case, if you view this as the y-axis, you could say your y-intercept, or you could say my chocolate quantity intercept is 20, and then my slope is negative 2. My slope is negative 2. For every extra pound of fruit I buy, I have to give up 2 pounds of chocolate."}, {"video_title": "Budget Line.mp3", "Sentence": "Every point in between is going to be on our budget line. Another way you could have done this, and this comes straight out of your typical Algebra 1 course, you could say, look, in this case, if you view this as the y-axis, you could say your y-intercept, or you could say my chocolate quantity intercept is 20, and then my slope is negative 2. My slope is negative 2. For every extra pound of fruit I buy, I have to give up 2 pounds of chocolate. You could also view this as the opportunity cost of fruit. So you see the slope. As we go forward, if we buy one more quantity of fruit, we're giving up 2 bars of chocolate."}, {"video_title": "Budget Line.mp3", "Sentence": "For every extra pound of fruit I buy, I have to give up 2 pounds of chocolate. You could also view this as the opportunity cost of fruit. So you see the slope. As we go forward, if we buy one more quantity of fruit, we're giving up 2 bars of chocolate. Now one statement I did just make, I said every point on this line is a possibility, and I can only say that if we assume that both of these goods are divisible goods, which means we can buy arbitrarily small amounts of it, that we could buy a tenth of a bar of chocolate, on average especially, or we could buy a hundredth of a pound of fruit. If they weren't divisible, if they were indivisible, then only the whole quantities would be the possibility points. But we'll just assume they're divisible, especially even if the store only sells indivisible bars of chocolate."}, {"video_title": "Budget Line.mp3", "Sentence": "As we go forward, if we buy one more quantity of fruit, we're giving up 2 bars of chocolate. Now one statement I did just make, I said every point on this line is a possibility, and I can only say that if we assume that both of these goods are divisible goods, which means we can buy arbitrarily small amounts of it, that we could buy a tenth of a bar of chocolate, on average especially, or we could buy a hundredth of a pound of fruit. If they weren't divisible, if they were indivisible, then only the whole quantities would be the possibility points. But we'll just assume they're divisible, especially even if the store only sells indivisible bars of chocolate. If you buy one bar of chocolate every four months, on average you're buying 0.25 bars of chocolate per month. So even in that way, on average, almost anything here is divisible. So this line right over here shows all the combinations we can buy, all the combinations of the divisible goods we can buy if we spend all of our money."}, {"video_title": "Budget Line.mp3", "Sentence": "But we'll just assume they're divisible, especially even if the store only sells indivisible bars of chocolate. If you buy one bar of chocolate every four months, on average you're buying 0.25 bars of chocolate per month. So even in that way, on average, almost anything here is divisible. So this line right over here shows all the combinations we can buy, all the combinations of the divisible goods we can buy if we spend all of our money. So that right over there is our budget line. And any combination out here is unaffordable. We don't have enough money for that."}, {"video_title": "Budget Line.mp3", "Sentence": "So this line right over here shows all the combinations we can buy, all the combinations of the divisible goods we can buy if we spend all of our money. So that right over there is our budget line. And any combination out here is unaffordable. We don't have enough money for that. And any combination down here is affordable, and actually we would end up with extra money if we're below the budget line. And this isn't all that different than what we saw with the production possibilities frontier. Remember, we had a curve that really showed if we were producing two goods, what combinations of goods we could produce."}, {"video_title": "Budget Line.mp3", "Sentence": "We don't have enough money for that. And any combination down here is affordable, and actually we would end up with extra money if we're below the budget line. And this isn't all that different than what we saw with the production possibilities frontier. Remember, we had a curve that really showed if we were producing two goods, what combinations of goods we could produce. Anything on that curve for the production possibility frontier was efficient. Anything outside of it was unattainable. And anything inside was attainable but inefficient."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Now let's think about what happens at the market level. So we're gonna go back to some of what we've thought about in the past in terms of just supply and demand curves. So this is the orange juice market, and let's just draw some supply and demand curves right over here. So this is going to be the price per gallon. Price per gallon. And let's say that this right over here is $1. This right over here is 50 cents."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So this is going to be the price per gallon. Price per gallon. And let's say that this right over here is $1. This right over here is 50 cents. And this is zero. Zero. And let's say that this is the quantity."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "This right over here is 50 cents. And this is zero. Zero. And let's say that this is the quantity. Quantity. In gallons per week. And gallons per week, and we're gonna talk about the entire orange juice market."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And let's say that this is the quantity. Quantity. In gallons per week. And gallons per week, and we're gonna talk about the entire orange juice market. So this is going to be in millions of gallons per week. Millions. Millions of gallons per week."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And gallons per week, and we're gonna talk about the entire orange juice market. So this is going to be in millions of gallons per week. Millions. Millions of gallons per week. Per week. And that is, let's say this is one, two, three, four, five, and six. And let's just say, and I'm gonna simplify it relative to what we saw in the last video."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Millions of gallons per week. Per week. And that is, let's say this is one, two, three, four, five, and six. And let's just say, and I'm gonna simplify it relative to what we saw in the last video. Let's just say that the supply curve for the orange juice market, and I'll be careful this time. This is the near-term supply curve, or the short-term supply curve. Looks like, looks something like this."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And let's just say, and I'm gonna simplify it relative to what we saw in the last video. Let's just say that the supply curve for the orange juice market, and I'll be careful this time. This is the near-term supply curve, or the short-term supply curve. Looks like, looks something like this. That is the supply curve. And this is the entire market. These are all of the orange juice producers."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Looks like, looks something like this. That is the supply curve. And this is the entire market. These are all of the orange juice producers. So you get to make them produce even that first gallon. It looks like they need about 20 cents for that first gallon. And then each incremental gallon, they need more and more money."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "These are all of the orange juice producers. So you get to make them produce even that first gallon. It looks like they need about 20 cents for that first gallon. And then each incremental gallon, they need more and more money. The marginal cost of that incremental gallon for the market as a whole is going higher and higher and higher. They have to get oranges from further away and transport them further and further. So this right over here is the supply curve, or you could view it as the marginal cost."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And then each incremental gallon, they need more and more money. The marginal cost of that incremental gallon for the market as a whole is going higher and higher and higher. They have to get oranges from further away and transport them further and further. So this right over here is the supply curve, or you could view it as the marginal cost. Marginal cost curve. Now let's just draw an arbitrary demand curve here. So the demand curve, let's say it looks something like this."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is the supply curve, or you could view it as the marginal cost. Marginal cost curve. Now let's just draw an arbitrary demand curve here. So the demand curve, let's say it looks something like this. Say that's our current demand. That is our current demand curve. And now what I'm going to add to this is I'm going to add the price at which firms, the suppliers of the orange juice, make our neutral with returns to economic profit, or when economic profit is equal to zero."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So the demand curve, let's say it looks something like this. Say that's our current demand. That is our current demand curve. And now what I'm going to add to this is I'm going to add the price at which firms, the suppliers of the orange juice, make our neutral with returns to economic profit, or when economic profit is equal to zero. So let's say right over here, which happens to be our current equilibrium price, this is the price, so 50 cents per gallon, this is the price at which economic profit is zero. So I'll just write economic profit is equal to zero. And I want to remind you, economic profit being zero does not mean that the accounting profit is zero."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And now what I'm going to add to this is I'm going to add the price at which firms, the suppliers of the orange juice, make our neutral with returns to economic profit, or when economic profit is equal to zero. So let's say right over here, which happens to be our current equilibrium price, this is the price, so 50 cents per gallon, this is the price at which economic profit is zero. So I'll just write economic profit is equal to zero. And I want to remind you, economic profit being zero does not mean that the accounting profit is zero. People could be making money at this price. It just says that they're neutral whether or not they should be doing this business, that the amount of money that they're making is roughly comparable to their opportunity cost to be doing other things. So when I say economic profit is zero, sometimes that's called the normal profit, when economic profit is zero."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And I want to remind you, economic profit being zero does not mean that the accounting profit is zero. People could be making money at this price. It just says that they're neutral whether or not they should be doing this business, that the amount of money that they're making is roughly comparable to their opportunity cost to be doing other things. So when I say economic profit is zero, sometimes that's called the normal profit, when economic profit is zero. This is the price at which people are neutral between shutting down and starting up their business. If you have positive economic profit, that means that more people will want to go into this market. And if you have negative economic profit, that means that people are going to want to essentially use up their fixed expenses, their equipment and any labor contracts they might have, and then go out of business."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So when I say economic profit is zero, sometimes that's called the normal profit, when economic profit is zero. This is the price at which people are neutral between shutting down and starting up their business. If you have positive economic profit, that means that more people will want to go into this market. And if you have negative economic profit, that means that people are going to want to essentially use up their fixed expenses, their equipment and any labor contracts they might have, and then go out of business. So this is where, this is that point right over there. Now let's think of a couple of scenarios. Let's say a research paper comes out, and in that research paper, for whatever reason, we don't know if it was well done research, it says oranges are bad for you, for whatever reason."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And if you have negative economic profit, that means that people are going to want to essentially use up their fixed expenses, their equipment and any labor contracts they might have, and then go out of business. So this is where, this is that point right over there. Now let's think of a couple of scenarios. Let's say a research paper comes out, and in that research paper, for whatever reason, we don't know if it was well done research, it says oranges are bad for you, for whatever reason. So when the research paper comes out, says oranges are bad for you, what happens to demand? Well at any given price, demand will go down. At any given price, demand will go down, and the new demand curve might look something like this."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Let's say a research paper comes out, and in that research paper, for whatever reason, we don't know if it was well done research, it says oranges are bad for you, for whatever reason. So when the research paper comes out, says oranges are bad for you, what happens to demand? Well at any given price, demand will go down. At any given price, demand will go down, and the new demand curve might look something like this. Now in the near term, we have a new equilibrium price, and we have a new equilibrium quantity. This was the old equilibrium price, that the way I set it up, was just happened to be the price at which economic profit is zero, and this was our old equilibrium quantity, a little over three million gallons a week. Now we have a new lower equilibrium price."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "At any given price, demand will go down, and the new demand curve might look something like this. Now in the near term, we have a new equilibrium price, and we have a new equilibrium quantity. This was the old equilibrium price, that the way I set it up, was just happened to be the price at which economic profit is zero, and this was our old equilibrium quantity, a little over three million gallons a week. Now we have a new lower equilibrium price. We have a new lower equilibrium price. I don't know, this looks like about 40 cents per gallon, and we have a new lower equilibrium quantity. Now what happens at this price?"}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Now we have a new lower equilibrium price. We have a new lower equilibrium price. I don't know, this looks like about 40 cents per gallon, and we have a new lower equilibrium quantity. Now what happens at this price? Obviously in the near term, people are willing to produce there, because that's where their marginal cost is. So, and we saw in multiple videos, that someone's willing to produce when the price is equal to their marginal cost, or they're willing to produce a quantity up to when their marginal cost is equal to the marginal revenue, or the price that they're going to get. But I just said, that they need to be getting 50 cents a gallon in order to make an economic profit."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Now what happens at this price? Obviously in the near term, people are willing to produce there, because that's where their marginal cost is. So, and we saw in multiple videos, that someone's willing to produce when the price is equal to their marginal cost, or they're willing to produce a quantity up to when their marginal cost is equal to the marginal revenue, or the price that they're going to get. But I just said, that they need to be getting 50 cents a gallon in order to make an economic profit. Now if they get, I don't know, this looks like about 40 cents a gallon, they're going to be having an economic loss. So no profit. No profit there."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "But I just said, that they need to be getting 50 cents a gallon in order to make an economic profit. Now if they get, I don't know, this looks like about 40 cents a gallon, they're going to be having an economic loss. So no profit. No profit there. And if there's no profit there, it really doesn't make sense for them to continue, or at least doesn't make sense for all of them to continue in that business. So what's going to happen is that over time, it will make sense for them in the near term to produce, to use up, they've already put in their costs for their equipment and maybe labor contracts and whatever else, but over time, when prices are this low, as people use up their equipment, there's no incentive for them to buy new equipment. As the labor contracts expire, there's no incentive for them to renew the labor contract."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "No profit there. And if there's no profit there, it really doesn't make sense for them to continue, or at least doesn't make sense for all of them to continue in that business. So what's going to happen is that over time, it will make sense for them in the near term to produce, to use up, they've already put in their costs for their equipment and maybe labor contracts and whatever else, but over time, when prices are this low, as people use up their equipment, there's no incentive for them to buy new equipment. As the labor contracts expire, there's no incentive for them to renew the labor contract. As those things expire, they're just going to shut down the business. And so as they shut down the business, as they shut down the business, two things will happen. Quantity produced in the market will go down and the price will go up."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "As the labor contracts expire, there's no incentive for them to renew the labor contract. As those things expire, they're just going to shut down the business. And so as they shut down the business, as they shut down the business, two things will happen. Quantity produced in the market will go down and the price will go up. We will essentially move along this curve until we get to this point. That's the point, once the price is at 50 cents a gallon again, then people are neutral now. They're not going to shut down their firms."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Quantity produced in the market will go down and the price will go up. We will essentially move along this curve until we get to this point. That's the point, once the price is at 50 cents a gallon again, then people are neutral now. They're not going to shut down their firms. So we're going to get to this new equilibrium price and equilibrium quantity in the long term. In the long term. Now let's think of another situation."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "They're not going to shut down their firms. So we're going to get to this new equilibrium price and equilibrium quantity in the long term. In the long term. Now let's think of another situation. Instead of a newspaper report saying that oranges are bad, let's say a newspaper report comes out saying oranges are very good. They make you live longer. They are the best thing that you can have."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Now let's think of another situation. Instead of a newspaper report saying that oranges are bad, let's say a newspaper report comes out saying oranges are very good. They make you live longer. They are the best thing that you can have. Well then at any given price, you're going to have more demand. And so you would have a demand curve that looks something like that. And then you'd have a higher equilibrium quantity and a higher equilibrium price."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "They are the best thing that you can have. Well then at any given price, you're going to have more demand. And so you would have a demand curve that looks something like that. And then you'd have a higher equilibrium quantity and a higher equilibrium price. And people are going to be making, since the price is higher than the price at which the economic profit is zero, people are going to be making very positive economic profits, which means that there's a strong incentive, that people are neutral between shutting down the business or starting up the business. At that point, a lot of people are strongly motivated to enter into the business. So what's going to happen is more and more people are going to get more and more equipment, hire more and more people."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And then you'd have a higher equilibrium quantity and a higher equilibrium price. And people are going to be making, since the price is higher than the price at which the economic profit is zero, people are going to be making very positive economic profits, which means that there's a strong incentive, that people are neutral between shutting down the business or starting up the business. At that point, a lot of people are strongly motivated to enter into the business. So what's going to happen is more and more people are going to get more and more equipment, hire more and more people. And as they do that, quantity is going to go up and the price is going to go down. And so over the long term, you're going to shift back to this line. Once the price gets down to that, then there's no reason for more people to enter."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So what's going to happen is more and more people are going to get more and more equipment, hire more and more people. And as they do that, quantity is going to go up and the price is going to go down. And so over the long term, you're going to shift back to this line. Once the price gets down to that, then there's no reason for more people to enter. They're kind of neutral about it. So what you see happening is in the short term, you would look at where the demand curve intersects with the short term supply curve. But in the long term, you care where it intersects with this kind of horizontal line, which is the price at which economic profit is zero."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Once the price gets down to that, then there's no reason for more people to enter. They're kind of neutral about it. So what you see happening is in the short term, you would look at where the demand curve intersects with the short term supply curve. But in the long term, you care where it intersects with this kind of horizontal line, which is the price at which economic profit is zero. And that's why you will hear, and this is kind of a more precise way of thinking about it than we've done in the previous videos, this horizontal line right over here, you could view this as the long run, the long run supply curve. Long run supply curve. And that says, look, pretty much whatever we will always produce over the long run, we will always produce whatever supply is kind of necessary, given that people are neutral when it comes to economic profit."}, {"video_title": "Long term supply curve and economic profit Microeconomics Khan Academy.mp3", "Sentence": "But in the long term, you care where it intersects with this kind of horizontal line, which is the price at which economic profit is zero. And that's why you will hear, and this is kind of a more precise way of thinking about it than we've done in the previous videos, this horizontal line right over here, you could view this as the long run, the long run supply curve. Long run supply curve. And that says, look, pretty much whatever we will always produce over the long run, we will always produce whatever supply is kind of necessary, given that people are neutral when it comes to economic profit. You go down here, yes, people will try to use up their fixed costs, but once they're used up their fixed costs, no incentive for them to stay in business. Then some of them go out of business, price goes up, quantity goes down. You get back to the long run supply curve and where that intersects with the demand curve."}, {"video_title": "Marginal Utility.mp3", "Sentence": "What I want to do in this video is think about a concept that we've already thought about multiple times in the context of many, many videos. And this is the idea of utility, which is really just a way of saying how much benefit or satisfaction or value do you get out of getting a good or service. But the angle that we're going to take in this video is going to be slightly different. In the past, when we were measuring benefit or value, we either measured in terms of dollars, where we said, hey, the benefit of getting an incremental Honda Civic was $5,000. And when we talk about the incremental, we're talking about, and we've heard the word many times, we were talking about the marginal benefit. Or early on, when we talked about the production possibilities frontier, and we talked about the marginal benefit of another squirrel, we were talking about it in terms of berries. We were talking about it in terms of another good or service."}, {"video_title": "Marginal Utility.mp3", "Sentence": "In the past, when we were measuring benefit or value, we either measured in terms of dollars, where we said, hey, the benefit of getting an incremental Honda Civic was $5,000. And when we talk about the incremental, we're talking about, and we've heard the word many times, we were talking about the marginal benefit. Or early on, when we talked about the production possibilities frontier, and we talked about the marginal benefit of another squirrel, we were talking about it in terms of berries. We were talking about it in terms of another good or service. What we're going to do in this video is just think about it in absolute terms. We're just going to think of some arbitrary way of measuring utility, and then just assign values to what's the value of getting one chocolate bar? And then what's the value that we give to the next chocolate bar?"}, {"video_title": "Marginal Utility.mp3", "Sentence": "We were talking about it in terms of another good or service. What we're going to do in this video is just think about it in absolute terms. We're just going to think of some arbitrary way of measuring utility, and then just assign values to what's the value of getting one chocolate bar? And then what's the value that we give to the next chocolate bar? And then the chocolate bar after that. And we're going to do the same things about fruit. And from that, we're going to see if we can kind of build up some of the things that we already know about demand curves and how things relate to price and the price of other goods and things like that."}, {"video_title": "Marginal Utility.mp3", "Sentence": "And then what's the value that we give to the next chocolate bar? And then the chocolate bar after that. And we're going to do the same things about fruit. And from that, we're going to see if we can kind of build up some of the things that we already know about demand curves and how things relate to price and the price of other goods and things like that. And in particular, we're going to focus on marginal utility. So obviously, you could have total utility. If I have four chocolate bars, you could say the total utility I'm getting from all four of them."}, {"video_title": "Marginal Utility.mp3", "Sentence": "And from that, we're going to see if we can kind of build up some of the things that we already know about demand curves and how things relate to price and the price of other goods and things like that. And in particular, we're going to focus on marginal utility. So obviously, you could have total utility. If I have four chocolate bars, you could say the total utility I'm getting from all four of them. Or you could think about marginal utility, the utility I'm getting from the next incremental chocolate bar or the next incremental pound of fruit. And before I move on, there's one thing. This was a point of confusion for me when I first learned this."}, {"video_title": "Marginal Utility.mp3", "Sentence": "If I have four chocolate bars, you could say the total utility I'm getting from all four of them. Or you could think about marginal utility, the utility I'm getting from the next incremental chocolate bar or the next incremental pound of fruit. And before I move on, there's one thing. This was a point of confusion for me when I first learned this. OK, I'm using the word marginal utility now. In the past, I've used the word marginal benefit. They sound very similar."}, {"video_title": "Marginal Utility.mp3", "Sentence": "This was a point of confusion for me when I first learned this. OK, I'm using the word marginal utility now. In the past, I've used the word marginal benefit. They sound very similar. In fact, I even used the word benefit when I defined the word utility. How are these two things different? And the simple answer is, conceptually, they aren't."}, {"video_title": "Marginal Utility.mp3", "Sentence": "They sound very similar. In fact, I even used the word benefit when I defined the word utility. How are these two things different? And the simple answer is, conceptually, they aren't. Conceptually, they are the exact same thing. The difference is how the words tend to be used in the context of a traditional microeconomics class. So when people talk about utility, they tend to measure it in terms of some type of absolute measure that they just came up with, some type of, you could view them as utility units, some type of satisfaction units."}, {"video_title": "Marginal Utility.mp3", "Sentence": "And the simple answer is, conceptually, they aren't. Conceptually, they are the exact same thing. The difference is how the words tend to be used in the context of a traditional microeconomics class. So when people talk about utility, they tend to measure it in terms of some type of absolute measure that they just came up with, some type of, you could view them as utility units, some type of satisfaction units. While when they talk about marginal benefit, they tend to measure it either in dollars or in terms of some other goods. But I've seen either term used either way. So they really do mean the exact same thing."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So when people talk about utility, they tend to measure it in terms of some type of absolute measure that they just came up with, some type of, you could view them as utility units, some type of satisfaction units. While when they talk about marginal benefit, they tend to measure it either in dollars or in terms of some other goods. But I've seen either term used either way. So they really do mean the exact same thing. But in this video, we're going to use the term utility. And we're going to come up with a measuring scale. And it's a somewhat arbitrary one."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So they really do mean the exact same thing. But in this video, we're going to use the term utility. And we're going to come up with a measuring scale. And it's a somewhat arbitrary one. And we're going to use that to come up with some conclusions about the kind of the basket of goods someone might purchase, depending on different prices. So as you can imagine, I pre-wrote these two things. We're going to talk about chocolate bars."}, {"video_title": "Marginal Utility.mp3", "Sentence": "And it's a somewhat arbitrary one. And we're going to use that to come up with some conclusions about the kind of the basket of goods someone might purchase, depending on different prices. So as you can imagine, I pre-wrote these two things. We're going to talk about chocolate bars. And we are going to talk about fruit. So right here in these little tables here, I've shown the marginal utility of each incremental, in the case of chocolate bars, each incremental bar. And in the case of fruit, each incremental pound of fruit."}, {"video_title": "Marginal Utility.mp3", "Sentence": "We're going to talk about chocolate bars. And we are going to talk about fruit. So right here in these little tables here, I've shown the marginal utility of each incremental, in the case of chocolate bars, each incremental bar. And in the case of fruit, each incremental pound of fruit. So this is saying that first chocolate bar, obviously if I have no chocolate bars, I'm getting no utility from chocolate bars. And this is saying that that first chocolate bar has a marginal utility. So the utility of that next incremental one is 100."}, {"video_title": "Marginal Utility.mp3", "Sentence": "And in the case of fruit, each incremental pound of fruit. So this is saying that first chocolate bar, obviously if I have no chocolate bars, I'm getting no utility from chocolate bars. And this is saying that that first chocolate bar has a marginal utility. So the utility of that next incremental one is 100. I'm not saying $100. I'm not saying it's equivalent to 100 pounds of fruit. I'm not saying it's equivalent to 100 berries."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So the utility of that next incremental one is 100. I'm not saying $100. I'm not saying it's equivalent to 100 pounds of fruit. I'm not saying it's equivalent to 100 berries. I'm just arbitrarily saying it is 100. And what matters is not that this is 100 or 1,000 or 1,000,000, what matters is how this compares to other things. So for example, if I say this is 100, and if I know that I like fruit, a pound of fruit 20% more, then that first, or if I like an incremental, my first pound of fruit 20% more, then I would have to say that the marginal utility of my first pound of fruit is 120."}, {"video_title": "Marginal Utility.mp3", "Sentence": "I'm not saying it's equivalent to 100 berries. I'm just arbitrarily saying it is 100. And what matters is not that this is 100 or 1,000 or 1,000,000, what matters is how this compares to other things. So for example, if I say this is 100, and if I know that I like fruit, a pound of fruit 20% more, then that first, or if I like an incremental, my first pound of fruit 20% more, then I would have to say that the marginal utility of my first pound of fruit is 120. And this is what we said right over here. And if another way to think about it is if the marginal utility of the second chocolate bar I get, because I've already enjoyed a little bit of chocolate bar and I'm a little chocolated out, is 20% less than that, then if this is 100, then this would have to be 80. I could have said this to be 1,000 and this to be 800 and this to be 1,200."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So for example, if I say this is 100, and if I know that I like fruit, a pound of fruit 20% more, then that first, or if I like an incremental, my first pound of fruit 20% more, then I would have to say that the marginal utility of my first pound of fruit is 120. And this is what we said right over here. And if another way to think about it is if the marginal utility of the second chocolate bar I get, because I've already enjoyed a little bit of chocolate bar and I'm a little chocolated out, is 20% less than that, then if this is 100, then this would have to be 80. I could have said this to be 1,000 and this to be 800 and this to be 1,200. I could have said this to be 10 and this to be 8 and this to be 12. What matters is that they really just have the same ratios between them that really do reflect my actual preferences. So let's just think about this a little bit."}, {"video_title": "Marginal Utility.mp3", "Sentence": "I could have said this to be 1,000 and this to be 800 and this to be 1,200. I could have said this to be 10 and this to be 8 and this to be 12. What matters is that they really just have the same ratios between them that really do reflect my actual preferences. So let's just think about this a little bit. My first chocolate bar, I'm pretty excited. I just call it 100. The next chocolate bar, I'm a little bit less excited about it."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So let's just think about this a little bit. My first chocolate bar, I'm pretty excited. I just call it 100. The next chocolate bar, I'm a little bit less excited about it. I've already had some chocolate. My craving has been satiated to some degree. But I still like chocolate, so I'll call that an 80."}, {"video_title": "Marginal Utility.mp3", "Sentence": "The next chocolate bar, I'm a little bit less excited about it. I've already had some chocolate. My craving has been satiated to some degree. But I still like chocolate, so I'll call that an 80. We could call it 80 satisfaction units, whatever you want to call it. Then the next chocolate bar after this, now I'm starting to get pretty stuffed. And I'm really chocolated out."}, {"video_title": "Marginal Utility.mp3", "Sentence": "But I still like chocolate, so I'll call that an 80. We could call it 80 satisfaction units, whatever you want to call it. Then the next chocolate bar after this, now I'm starting to get pretty stuffed. And I'm really chocolated out. And so I'm not getting as much benefit from it. And then finally, if you give me another chocolate bar, it's even less. And if we were to list a fifth chocolate bar, I might not want it at all."}, {"video_title": "Marginal Utility.mp3", "Sentence": "And I'm really chocolated out. And so I'm not getting as much benefit from it. And then finally, if you give me another chocolate bar, it's even less. And if we were to list a fifth chocolate bar, I might not want it at all. My marginal utility might go to 0 maybe for that fifth chocolate bar. Maybe a sixth chocolate bar, I have to somehow get rid of it somehow because I'm so tired of chocolate bars. Maybe I have a negative marginal utility."}, {"video_title": "Marginal Utility.mp3", "Sentence": "And if we were to list a fifth chocolate bar, I might not want it at all. My marginal utility might go to 0 maybe for that fifth chocolate bar. Maybe a sixth chocolate bar, I have to somehow get rid of it somehow because I'm so tired of chocolate bars. Maybe I have a negative marginal utility. And we could think about the same thing with fruit. The first pound of fruit, I'm pretty excited about fruit. I have a fruit craving."}, {"video_title": "Marginal Utility.mp3", "Sentence": "Maybe I have a negative marginal utility. And we could think about the same thing with fruit. The first pound of fruit, I'm pretty excited about fruit. I have a fruit craving. I like that first pound of fruit even more than that first chocolate bar. I like it 20% more. So I get 120, you could call it, utility points or whatever arbitrary unit you want to call it."}, {"video_title": "Marginal Utility.mp3", "Sentence": "I have a fruit craving. I like that first pound of fruit even more than that first chocolate bar. I like it 20% more. So I get 120, you could call it, utility points or whatever arbitrary unit you want to call it. Then my next pound of fruit, once again, I'm having diminishing utility, diminishing benefit as I get more and more incremental pounds of fruit. Now, it's very important to realize this is marginal utility, not total utility. This is the utility I'm getting from each incremental pound."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So I get 120, you could call it, utility points or whatever arbitrary unit you want to call it. Then my next pound of fruit, once again, I'm having diminishing utility, diminishing benefit as I get more and more incremental pounds of fruit. Now, it's very important to realize this is marginal utility, not total utility. This is the utility I'm getting from each incremental pound. It's positive, so I'm still enjoying that next incremental pound. I'm just enjoying it a little bit less than the pound before. And to realize what total utility is, if I were to have two pounds of fruit, I would have 120 of utility from that first pound."}, {"video_title": "Marginal Utility.mp3", "Sentence": "This is the utility I'm getting from each incremental pound. It's positive, so I'm still enjoying that next incremental pound. I'm just enjoying it a little bit less than the pound before. And to realize what total utility is, if I were to have two pounds of fruit, I would have 120 of utility from that first pound. And then I would have 100 from the second pound. And so you would say I had a total utility of 220, you could call them utility units, from both pounds. Now, with just the information that I've given here, there's a few things you could say."}, {"video_title": "Marginal Utility.mp3", "Sentence": "And to realize what total utility is, if I were to have two pounds of fruit, I would have 120 of utility from that first pound. And then I would have 100 from the second pound. And so you would say I had a total utility of 220, you could call them utility units, from both pounds. Now, with just the information that I've given here, there's a few things you could say. Well, look, my first pound of fruit, I enjoy 20% more than my first chocolate bar. You could also say that my second pound of fruit, I enjoy it, or I derive about the same amount of value as my first chocolate bar. You could say that my second chocolate bar, I enjoy less than my first chocolate bar."}, {"video_title": "Marginal Utility.mp3", "Sentence": "Now, with just the information that I've given here, there's a few things you could say. Well, look, my first pound of fruit, I enjoy 20% more than my first chocolate bar. You could also say that my second pound of fruit, I enjoy it, or I derive about the same amount of value as my first chocolate bar. You could say that my second chocolate bar, I enjoy less than my first chocolate bar. You could even say 20% less, if these numbers are good. But this still doesn't give you a lot of information about how you would actually spend your money. You might say, well, obviously, wouldn't you want to just buy fruit over chocolate bars, or at least that first pound of fruit or that first chocolate bar?"}, {"video_title": "Marginal Utility.mp3", "Sentence": "You could say that my second chocolate bar, I enjoy less than my first chocolate bar. You could even say 20% less, if these numbers are good. But this still doesn't give you a lot of information about how you would actually spend your money. You might say, well, obviously, wouldn't you want to just buy fruit over chocolate bars, or at least that first pound of fruit or that first chocolate bar? Well, you might, but it depends on how much that fruit actually costs. Just looking at this alone, we can just make relative judgments about how much we prefer each incremental bar or each incremental pound or them relative to each other. But it really doesn't tell us how we would spend our actual money."}, {"video_title": "Marginal Utility.mp3", "Sentence": "You might say, well, obviously, wouldn't you want to just buy fruit over chocolate bars, or at least that first pound of fruit or that first chocolate bar? Well, you might, but it depends on how much that fruit actually costs. Just looking at this alone, we can just make relative judgments about how much we prefer each incremental bar or each incremental pound or them relative to each other. But it really doesn't tell us how we would spend our actual money. So let's think about things. Let's put some prices on some of these goods and think about how we would actually allocate our dollar, given these marginal utility numbers right over here. So let's say that the chocolate bars are $1 per bar."}, {"video_title": "Marginal Utility.mp3", "Sentence": "But it really doesn't tell us how we would spend our actual money. So let's think about things. Let's put some prices on some of these goods and think about how we would actually allocate our dollar, given these marginal utility numbers right over here. So let's say that the chocolate bars are $1 per bar. And let's say that the fruit is $2 per pound. So this is going to be per pound. This is going to be per bar."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So let's say that the chocolate bars are $1 per bar. And let's say that the fruit is $2 per pound. So this is going to be per pound. This is going to be per bar. And what we're going to think about is we're going to think about marginal utility for that incremental chocolate bar per price of that incremental chocolate bar. And here, the price is going to be at $1 per pound. So here, for that first bar, I'm going to be spending $1."}, {"video_title": "Marginal Utility.mp3", "Sentence": "This is going to be per bar. And what we're going to think about is we're going to think about marginal utility for that incremental chocolate bar per price of that incremental chocolate bar. And here, the price is going to be at $1 per pound. So here, for that first bar, I'm going to be spending $1. And I'm getting 100 marginal utility points, whatever you want to call it. So I'm getting 100 marginal utility points for that dollar. So I'm getting 100 marginal utility points per dollar."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So here, for that first bar, I'm going to be spending $1. And I'm getting 100 marginal utility points, whatever you want to call it. So I'm getting 100 marginal utility points for that dollar. So I'm getting 100 marginal utility points per dollar. Here, same logic. I'm getting 80 marginal utility points per dollar. This is pretty simple math."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So I'm getting 100 marginal utility points per dollar. Here, same logic. I'm getting 80 marginal utility points per dollar. This is pretty simple math. Here, I'm getting 60 marginal utility points for the dollar. Here, I'm getting 40. So that doesn't seem too interesting."}, {"video_title": "Marginal Utility.mp3", "Sentence": "This is pretty simple math. Here, I'm getting 60 marginal utility points for the dollar. Here, I'm getting 40. So that doesn't seem too interesting. It might be a little bit more interesting here. I'm getting more marginal utility per incremental fruit than I'm getting per dollar, per price, or actually per price of the incremental fruit here. Well, here, that first pound of fruit, I'm getting 120 marginal utility points, we can call them."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So that doesn't seem too interesting. It might be a little bit more interesting here. I'm getting more marginal utility per incremental fruit than I'm getting per dollar, per price, or actually per price of the incremental fruit here. Well, here, that first pound of fruit, I'm getting 120 marginal utility points, we can call them. But I paid $2 for it. So 120, let me write it over here. So for that first incremental fruit, the marginal utility for that first fruit is 120."}, {"video_title": "Marginal Utility.mp3", "Sentence": "Well, here, that first pound of fruit, I'm getting 120 marginal utility points, we can call them. But I paid $2 for it. So 120, let me write it over here. So for that first incremental fruit, the marginal utility for that first fruit is 120. And the price of that first pound of fruit is equal to 2. So I'm getting 60 marginal utility points per dollar. I'm getting 60."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So for that first incremental fruit, the marginal utility for that first fruit is 120. And the price of that first pound of fruit is equal to 2. So I'm getting 60 marginal utility points per dollar. I'm getting 60. Here, 100 marginal utility points, but I'm spending $2. So that's 50 points per dollar. This is 25 points per dollar."}, {"video_title": "Marginal Utility.mp3", "Sentence": "I'm getting 60. Here, 100 marginal utility points, but I'm spending $2. So that's 50 points per dollar. This is 25 points per dollar. This is 10 points per dollar. Now this makes things a little bit more interesting. If I had $5 to spend, how would I want to spend my $5?"}, {"video_title": "Marginal Utility.mp3", "Sentence": "This is 25 points per dollar. This is 10 points per dollar. Now this makes things a little bit more interesting. If I had $5 to spend, how would I want to spend my $5? Well, you really just want to think about where are you getting the most satisfaction for each dollar? Where are you getting the most bang for your buck? So where am I going to spend my first dollar?"}, {"video_title": "Marginal Utility.mp3", "Sentence": "If I had $5 to spend, how would I want to spend my $5? Well, you really just want to think about where are you getting the most satisfaction for each dollar? Where are you getting the most bang for your buck? So where am I going to spend my first dollar? So $1. So let's think about it a little bit. My first dollar, so $1, where am I going to get the most satisfaction per dollar?"}, {"video_title": "Marginal Utility.mp3", "Sentence": "So where am I going to spend my first dollar? So $1. So let's think about it a little bit. My first dollar, so $1, where am I going to get the most satisfaction per dollar? Well, I get the most satisfaction per dollar right over here. I get 100 satisfaction units per dollar. Even though I like a pound of fruit, I'm getting less satisfaction per dollar."}, {"video_title": "Marginal Utility.mp3", "Sentence": "My first dollar, so $1, where am I going to get the most satisfaction per dollar? Well, I get the most satisfaction per dollar right over here. I get 100 satisfaction units per dollar. Even though I like a pound of fruit, I'm getting less satisfaction per dollar. So I'm getting less bang for my buck. So my first dollar is going to go right over there. I'm going to buy one candy bar."}, {"video_title": "Marginal Utility.mp3", "Sentence": "Even though I like a pound of fruit, I'm getting less satisfaction per dollar. So I'm getting less bang for my buck. So my first dollar is going to go right over there. I'm going to buy one candy bar. Then where am I going to spend my second dollar? $1, $2. So once again, I just want to look at all of my options."}, {"video_title": "Marginal Utility.mp3", "Sentence": "I'm going to buy one candy bar. Then where am I going to spend my second dollar? $1, $2. So once again, I just want to look at all of my options. And we're going to assume that I'm going to spend my $5 on either of these two just to limit our universe. Once again, I'm going to maximize my bang for buck. I get 80 satisfaction points or marginal utility points over here per dollar."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So once again, I just want to look at all of my options. And we're going to assume that I'm going to spend my $5 on either of these two just to limit our universe. Once again, I'm going to maximize my bang for buck. I get 80 satisfaction points or marginal utility points over here per dollar. I only get 60 over here. So I'm going to buy even a second chocolate bar. I am going to buy a second chocolate bar."}, {"video_title": "Marginal Utility.mp3", "Sentence": "I get 80 satisfaction points or marginal utility points over here per dollar. I only get 60 over here. So I'm going to buy even a second chocolate bar. I am going to buy a second chocolate bar. Let's keep going. Where am I going to spend my third dollar? Now it gets a little bit interesting."}, {"video_title": "Marginal Utility.mp3", "Sentence": "I am going to buy a second chocolate bar. Let's keep going. Where am I going to spend my third dollar? Now it gets a little bit interesting. Now it gets a little bit interesting. I could spend my third dollar right over here and get 60 points per dollar. Or I could spend it over here and get 60 points per dollar."}, {"video_title": "Marginal Utility.mp3", "Sentence": "Now it gets a little bit interesting. Now it gets a little bit interesting. I could spend my third dollar right over here and get 60 points per dollar. Or I could spend it over here and get 60 points per dollar. Or I could actually get the same amount. They're both 60 points per dollar. So I'm kind of neutral."}, {"video_title": "Marginal Utility.mp3", "Sentence": "Or I could spend it over here and get 60 points per dollar. Or I could actually get the same amount. They're both 60 points per dollar. So I'm kind of neutral. I'm going to get the same bang for my buck whether I get another chocolate bar or whether I get another fruit. So just for simplicity, let's say I get another chocolate bar. I could have got the fruit too."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So I'm kind of neutral. I'm going to get the same bang for my buck whether I get another chocolate bar or whether I get another fruit. So just for simplicity, let's say I get another chocolate bar. I could have got the fruit too. These are really a toss up. I could flip a coin and I choose to get another chocolate bar. So I first spent my first $3 on three chocolate bars."}, {"video_title": "Marginal Utility.mp3", "Sentence": "I could have got the fruit too. These are really a toss up. I could flip a coin and I choose to get another chocolate bar. So I first spent my first $3 on three chocolate bars. Now where am I going to spend my fourth dollar? Well, my fourth dollar, now my best bang for my buck isn't to get another chocolate bar. I'm only going to get 40 units per buck there."}, {"video_title": "Marginal Utility.mp3", "Sentence": "So I first spent my first $3 on three chocolate bars. Now where am I going to spend my fourth dollar? Well, my fourth dollar, now my best bang for my buck isn't to get another chocolate bar. I'm only going to get 40 units per buck there. Now it is to spend it on fruit. So now the next dollar I could spend on half a pound of fruit and I would get this. And then I have my fourth dollar I could spend on this for half a pound of fruit because it's $2 per pound."}, {"video_title": "Marginal Utility.mp3", "Sentence": "I'm only going to get 40 units per buck there. Now it is to spend it on fruit. So now the next dollar I could spend on half a pound of fruit and I would get this. And then I have my fourth dollar I could spend on this for half a pound of fruit because it's $2 per pound. And then I could spend my fifth dollar there too. So this is my fourth and my fifth dollar because it's $2. You could think of it that we're spending $2 for one pound of fruit and we're getting 60 utility points per dollar."}, {"video_title": "Marginal Utility.mp3", "Sentence": "And then I have my fourth dollar I could spend on this for half a pound of fruit because it's $2 per pound. And then I could spend my fifth dollar there too. So this is my fourth and my fifth dollar because it's $2. You could think of it that we're spending $2 for one pound of fruit and we're getting 60 utility points per dollar. We're getting the best bang for our buck right over there. But what was useful about this is it allowed us, without thinking about money, just saying, how much do we like these things, irrespective of their actual price? And then given a certain price, it allowed us to think rationally about, well, how would we actually spend our money?"}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So this is some laptop that's on the market. And this, let's just say, is the cheapest car that happens to be on the market. This is actually a picture of a 1985 Yugo. But we're just assuming it's the cheapest car on the market. So let's just think about their hypothetical demand curves right now. So once again, in the vertical axis, we're going to put price. In the horizontal axis, we put quantity."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "But we're just assuming it's the cheapest car on the market. So let's just think about their hypothetical demand curves right now. So once again, in the vertical axis, we're going to put price. In the horizontal axis, we put quantity. Quantity. Quantity. And then over here, let me do it for the same thing."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "In the horizontal axis, we put quantity. Quantity. Quantity. And then over here, let me do it for the same thing. So this is price. This is price. And this right over here is quantity."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And then over here, let me do it for the same thing. So this is price. This is price. And this right over here is quantity. And both of them satisfy the law of demand. If the price is really high, the quantity demanded is going to be really low for the laptop. And so it might be right over there."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And this right over here is quantity. And both of them satisfy the law of demand. If the price is really high, the quantity demanded is going to be really low for the laptop. And so it might be right over there. And if the price is low, the quantity demanded is going to increase. So the demand curve might look something like that. And it doesn't have to be a curve, or it doesn't have to be a line."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so it might be right over there. And if the price is low, the quantity demanded is going to increase. So the demand curve might look something like that. And it doesn't have to be a curve, or it doesn't have to be a line. It could be a curve. It could be anything like that. So that is the current demand for the laptop."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And it doesn't have to be a curve, or it doesn't have to be a line. It could be a curve. It could be anything like that. So that is the current demand for the laptop. So this is the current demand. All else equal. So we're not talking about shifting any of those other factors that we've been talking about in the last few videos."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So that is the current demand for the laptop. So this is the current demand. All else equal. So we're not talking about shifting any of those other factors that we've been talking about in the last few videos. Now, we could draw a similar demand curve for this very cheap automobile. If the price is high, very few people are going to want to buy it. And I'm not going to even specify what the price is, but this is a general idea."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So we're not talking about shifting any of those other factors that we've been talking about in the last few videos. Now, we could draw a similar demand curve for this very cheap automobile. If the price is high, very few people are going to want to buy it. And I'm not going to even specify what the price is, but this is a general idea. If the price is higher, fewer people are going to want to buy it. If the price is lower, more people are going to want to buy it. So its demand curve will also have this shape."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And I'm not going to even specify what the price is, but this is a general idea. If the price is higher, fewer people are going to want to buy it. If the price is lower, more people are going to want to buy it. So its demand curve will also have this shape. From the top left to the bottom right, it satisfies the law of demand. So once again, that is the current demand. Now let's think about how the demand for each of these goods might change depending on changes in income."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So its demand curve will also have this shape. From the top left to the bottom right, it satisfies the law of demand. So once again, that is the current demand. Now let's think about how the demand for each of these goods might change depending on changes in income. So we're going to focus on the income factor, the income effect for this video, and see how these two products might change. So let's just assume that income in the general population goes up. So for something like a laptop, wow, if more people are making more money, especially in real terms, they have more money to spend."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now let's think about how the demand for each of these goods might change depending on changes in income. So we're going to focus on the income factor, the income effect for this video, and see how these two products might change. So let's just assume that income in the general population goes up. So for something like a laptop, wow, if more people are making more money, especially in real terms, they have more money to spend. Well, at any given price point, there's going to be a higher quantity that's demanded. At any given price point, higher quantity demanded. At any price point, a higher quantity demanded."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So for something like a laptop, wow, if more people are making more money, especially in real terms, they have more money to spend. Well, at any given price point, there's going to be a higher quantity that's demanded. At any given price point, higher quantity demanded. At any price point, a higher quantity demanded. And so if income goes up for this laptop, the demand will increase. And the way we show demand increasing is the whole curve shifts to the right. So this right over here, demand increased."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "At any price point, a higher quantity demanded. And so if income goes up for this laptop, the demand will increase. And the way we show demand increasing is the whole curve shifts to the right. So this right over here, demand increased. Demand went up when income went up. And that makes complete sense. And if income were to go down, demand would go down because people would have less money to buy something like a laptop."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So this right over here, demand increased. Demand went up when income went up. And that makes complete sense. And if income were to go down, demand would go down because people would have less money to buy something like a laptop. And this is the case for most goods. And we call things like this, when income goes up, demand goes up. The whole curve shifts to the right."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And if income were to go down, demand would go down because people would have less money to buy something like a laptop. And this is the case for most goods. And we call things like this, when income goes up, demand goes up. The whole curve shifts to the right. Income goes down, demand goes down. Whole curve shifts to the left. We call this a normal good."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "The whole curve shifts to the right. Income goes down, demand goes down. Whole curve shifts to the left. We call this a normal good. So this right over here is a normal good. Now let's think about what happens with the cheapest car on the market. And let's assume that we are in a developed country where almost everyone has some form of a car."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "We call this a normal good. So this right over here is a normal good. Now let's think about what happens with the cheapest car on the market. And let's assume that we are in a developed country where almost everyone has some form of a car. Now, what happens when income goes up? So people have more money, but are they going to spend that money buying the cheapest car on the market? Well, in most cases, if income goes up generally, people say, well, I have a little bit more money now."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And let's assume that we are in a developed country where almost everyone has some form of a car. Now, what happens when income goes up? So people have more money, but are they going to spend that money buying the cheapest car on the market? Well, in most cases, if income goes up generally, people say, well, I have a little bit more money now. Maybe I'll buy a slightly nicer car. And maybe in particular, the people who were going to buy this car at any given price point. At this price point, the people who were going to buy the car will say, wait, I can now afford a better car."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Well, in most cases, if income goes up generally, people say, well, I have a little bit more money now. Maybe I'll buy a slightly nicer car. And maybe in particular, the people who were going to buy this car at any given price point. At this price point, the people who were going to buy the car will say, wait, I can now afford a better car. Why should I go, this is not safe maybe, or not as safe as the other cars, and I want to impress my friends from high school and all of that. So something very strange might happen for this car, for the demand for this car. It actually will decrease."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "At this price point, the people who were going to buy the car will say, wait, I can now afford a better car. Why should I go, this is not safe maybe, or not as safe as the other cars, and I want to impress my friends from high school and all of that. So something very strange might happen for this car, for the demand for this car. It actually will decrease. So the whole curve could shift to the left. So income did a very strange thing for this good. Because income increasing made people say, hey, you know what?"}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "It actually will decrease. So the whole curve could shift to the left. So income did a very strange thing for this good. Because income increasing made people say, hey, you know what? I could trade out of this good. I could get a good that I'd rather have than just getting more of this thing right over here. Demand went down."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Because income increasing made people say, hey, you know what? I could trade out of this good. I could get a good that I'd rather have than just getting more of this thing right over here. Demand went down. And goods like this we call inferior goods. And the general way to think about inferior goods are the goods that people will want to not own if they had more money. They would want to buy, I guess, less inferior goods."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Demand went down. And goods like this we call inferior goods. And the general way to think about inferior goods are the goods that people will want to not own if they had more money. They would want to buy, I guess, less inferior goods. Or another way to think about it is if income were to go down and more people are budget strapped and they can't afford the Mercedes-Benz or the BMW or even the midsize sedan anymore, so if incomes were to go down and things would get tighter, more people would want this car. More people would have to trade down to this because they're strapped, they're tightening their belts. And so you would have this strange situation where if income goes down, demand would go up for this thing."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "They would want to buy, I guess, less inferior goods. Or another way to think about it is if income were to go down and more people are budget strapped and they can't afford the Mercedes-Benz or the BMW or even the midsize sedan anymore, so if incomes were to go down and things would get tighter, more people would want this car. More people would have to trade down to this because they're strapped, they're tightening their belts. And so you would have this strange situation where if income goes down, demand would go up for this thing. So income goes down, demand goes up. And remember, when we're talking about demand, we're talking about the entire shifting of the curve. At any given price point, the quantity demanded will go up because this is the, or we're assuming it's the cheapest car on the market."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so you would have this strange situation where if income goes down, demand would go up for this thing. So income goes down, demand goes up. And remember, when we're talking about demand, we're talking about the entire shifting of the curve. At any given price point, the quantity demanded will go up because this is the, or we're assuming it's the cheapest car on the market. And likewise, if income were to go down, for a normal good, it would do what you expect. Demand would go down. So an inferior good does the opposite of a normal good."}, {"video_title": "Normal and inferior goods Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "At any given price point, the quantity demanded will go up because this is the, or we're assuming it's the cheapest car on the market. And likewise, if income were to go down, for a normal good, it would do what you expect. Demand would go down. So an inferior good does the opposite of a normal good. And that's when we're talking about the income effect, and this is important. When we're talking about the income effect, an inferior good will do the opposite of a normal good. And that's because people want to trade out of it when their income goes up or they don't want to buy it."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "We have already thought about the demand curves for perfect competition and monopolies and the types of economic profit that might result in. And this video, we're going to focus on something in between which we've talked about in previous videos which is monopolistic competition. So as you can see in all three scenarios, we have a similar cost structure. We have our marginal cost curve and our average total cost curve that's at a minimum point right where it intersects the marginal cost curve. But it's very different whether we're talking about a monopoly or perfect competition when it comes to the demand curve. For perfect competition, it is one of many firms with an undifferentiated product and no barriers to entry. So these firms just have to be price takers."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "We have our marginal cost curve and our average total cost curve that's at a minimum point right where it intersects the marginal cost curve. But it's very different whether we're talking about a monopoly or perfect competition when it comes to the demand curve. For perfect competition, it is one of many firms with an undifferentiated product and no barriers to entry. So these firms just have to be price takers. Whatever the price is in the market, each of those firms just have to take that price. And that price is going to be their demand curve and their marginal revenue curve. And we've talked about that in the long run under perfect competition, none of these firms are going to be able to make an economic profit."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "So these firms just have to be price takers. Whatever the price is in the market, each of those firms just have to take that price. And that price is going to be their demand curve and their marginal revenue curve. And we've talked about that in the long run under perfect competition, none of these firms are going to be able to make an economic profit. That if they are, they're going to have more entrance which is going to push this price down. And if they're making negative economic profit, then you're going to have people who are going to exit which is going to push this line up. And so it's going to, in the long run, be at a point where none of the firms are making economic profit."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "And we've talked about that in the long run under perfect competition, none of these firms are going to be able to make an economic profit. That if they are, they're going to have more entrance which is going to push this price down. And if they're making negative economic profit, then you're going to have people who are going to exit which is going to push this line up. And so it's going to, in the long run, be at a point where none of the firms are making economic profit. And so another way to think about it, where our marginal revenue curve intersects with our marginal cost curve, which for any of these situations is the rational amount to produce, the rational quantity to produce for a profit-maximizing firm, that's going to be exactly at a level where the price is equal to average total cost so you have zero economic profit, zero economic profit. Now there's some interesting things about this. We talked about how it's allocatively efficient because we're producing at a quantity where marginal cost is equal to demand."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "And so it's going to, in the long run, be at a point where none of the firms are making economic profit. And so another way to think about it, where our marginal revenue curve intersects with our marginal cost curve, which for any of these situations is the rational amount to produce, the rational quantity to produce for a profit-maximizing firm, that's going to be exactly at a level where the price is equal to average total cost so you have zero economic profit, zero economic profit. Now there's some interesting things about this. We talked about how it's allocatively efficient because we're producing at a quantity where marginal cost is equal to demand. It's also productively efficient because we're producing at the minimum point of the average total cost curve. So it's very efficient from a productive point of view. Now a monopoly is the opposite extreme."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "We talked about how it's allocatively efficient because we're producing at a quantity where marginal cost is equal to demand. It's also productively efficient because we're producing at the minimum point of the average total cost curve. So it's very efficient from a productive point of view. Now a monopoly is the opposite extreme. They are the only player in the market with insurmountable barriers to entry. And so their demand curve, they're the only player. So you could view this as the market demand curve, but it's their demand curve because they're the only product there."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "Now a monopoly is the opposite extreme. They are the only player in the market with insurmountable barriers to entry. And so their demand curve, they're the only player. So you could view this as the market demand curve, but it's their demand curve because they're the only product there. So at high prices, you have a low quantity demanded, and at low prices, you have a high quantity demanded. And in multiple videos, we've talked about that in many situations, a monopoly firm cannot do price discrimination. It has to charge the same price to every consumer."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "So you could view this as the market demand curve, but it's their demand curve because they're the only product there. So at high prices, you have a low quantity demanded, and at low prices, you have a high quantity demanded. And in multiple videos, we've talked about that in many situations, a monopoly firm cannot do price discrimination. It has to charge the same price to every consumer. Well, in that situation, your marginal revenue is going to go down twice as fast because as you go further and further down the demand curve, you're lowering the price for everyone. And we've studied this. This is all review, but it never hurts to get more review."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "It has to charge the same price to every consumer. Well, in that situation, your marginal revenue is going to go down twice as fast because as you go further and further down the demand curve, you're lowering the price for everyone. And we've studied this. This is all review, but it never hurts to get more review. The rational quantity to produce, and once again, this is true for any firm, is where marginal revenue intersects marginal cost. So we would produce at that quantity. And the price at that quantity would go to the demand curve."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "This is all review, but it never hurts to get more review. The rational quantity to produce, and once again, this is true for any firm, is where marginal revenue intersects marginal cost. So we would produce at that quantity. And the price at that quantity would go to the demand curve. It would be right over there. And you could see that this monopoly firm is able to get quite a nice economic profit because the average total cost at that quantity is right over there. And so on a per unit basis, they're able to make that much times the number of units."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "And the price at that quantity would go to the demand curve. It would be right over there. And you could see that this monopoly firm is able to get quite a nice economic profit because the average total cost at that quantity is right over there. And so on a per unit basis, they're able to make that much times the number of units. And so you have a nice economic profit. Now, the negative from an economic or market point of view, if you were to be allocatively efficient, you'd be producing at a quantity where marginal cost intersects demand. But that is not happening over here."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "And so on a per unit basis, they're able to make that much times the number of units. And so you have a nice economic profit. Now, the negative from an economic or market point of view, if you were to be allocatively efficient, you'd be producing at a quantity where marginal cost intersects demand. But that is not happening over here. And so you have all of this deadweight loss right over there. Now, to help understand monopolistic competition, let's say you start as a monopoly, but now all of a sudden, the market dynamics have changed where what were insurmountable barriers to entry now become low barriers to entry. What is likely to happen?"}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "But that is not happening over here. And so you have all of this deadweight loss right over there. Now, to help understand monopolistic competition, let's say you start as a monopoly, but now all of a sudden, the market dynamics have changed where what were insurmountable barriers to entry now become low barriers to entry. What is likely to happen? Well, you have this nice economic profit going on here, so more firms are likely to enter the market. And if more firms enter the market, what is going to happen to your demand curve? Well, the demand for your specific product is going to go down because there's other people who are offering similar alternatives."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "What is likely to happen? Well, you have this nice economic profit going on here, so more firms are likely to enter the market. And if more firms enter the market, what is going to happen to your demand curve? Well, the demand for your specific product is going to go down because there's other people who are offering similar alternatives. In monopolistic competition, you aren't completely undifferentiated. You might have a brand, you might have certain features that are better or worse, but there are other substitutes which people could go for which are giving you that competition. So as more and more people enter as you have this economic profit, your particular demand curve is going to shift down and to the left."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "Well, the demand for your specific product is going to go down because there's other people who are offering similar alternatives. In monopolistic competition, you aren't completely undifferentiated. You might have a brand, you might have certain features that are better or worse, but there are other substitutes which people could go for which are giving you that competition. So as more and more people enter as you have this economic profit, your particular demand curve is going to shift down and to the left. And so your demand curve will keep shifting until you're no longer able to get any economic profit. And so your demand curve might go something like this. Once the firms aren't able to get economic profit, well, then it doesn't really make sense for more people to try to enter it."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "So as more and more people enter as you have this economic profit, your particular demand curve is going to shift down and to the left. And so your demand curve will keep shifting until you're no longer able to get any economic profit. And so your demand curve might go something like this. Once the firms aren't able to get economic profit, well, then it doesn't really make sense for more people to try to enter it. So if you started a monopoly, your demand would shift to the left like that to the point where you get like that. And your marginal revenue curve would look something like this. It would have twice the slope, twice the slope down."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "Once the firms aren't able to get economic profit, well, then it doesn't really make sense for more people to try to enter it. So if you started a monopoly, your demand would shift to the left like that to the point where you get like that. And your marginal revenue curve would look something like this. It would have twice the slope, twice the slope down. So this would be your marginal revenue curve. And notice what has now happened. It is now rational for you to be producing at a quantity where the price that you are getting is equal to your average total cost."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "It would have twice the slope, twice the slope down. So this would be your marginal revenue curve. And notice what has now happened. It is now rational for you to be producing at a quantity where the price that you are getting is equal to your average total cost. So once again, as more and more people entered because you were getting economic profit and the players in this industry were getting economic profit, the demand curve has shifted to the left so now there is zero economic profit in the long run. Now, once again, this is a situation where you have deadweight loss. This is not allocatively efficient."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "It is now rational for you to be producing at a quantity where the price that you are getting is equal to your average total cost. So once again, as more and more people entered because you were getting economic profit and the players in this industry were getting economic profit, the demand curve has shifted to the left so now there is zero economic profit in the long run. Now, once again, this is a situation where you have deadweight loss. This is not allocatively efficient. You're not producing at a level where marginal cost is equal to demand. It's also not productively efficient. To be productively efficient, you'd be producing at a quantity where you're at the minimum point of your average total cost curve."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "This is not allocatively efficient. You're not producing at a level where marginal cost is equal to demand. It's also not productively efficient. To be productively efficient, you'd be producing at a quantity where you're at the minimum point of your average total cost curve. And so this difference right over here, we could view this as the quantity for, I'll call it efficient scale. This right over here, this distance, this is going, you could view this as excess capacity. Excess capacity."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "To be productively efficient, you'd be producing at a quantity where you're at the minimum point of your average total cost curve. And so this difference right over here, we could view this as the quantity for, I'll call it efficient scale. This right over here, this distance, this is going, you could view this as excess capacity. Excess capacity. Now, one thing that might be a little bit counterintuitive is in previous videos, we talk about how, hey, as people enter and exit a market, it would shift the supply curve. But here we're shifting the demand curve. Well, when people enter and exit the market, it shifts the supply curve for the entire market."}, {"video_title": "Long term economic profit for monopolistic competition Microeconomics Khan Academy.mp3", "Sentence": "Excess capacity. Now, one thing that might be a little bit counterintuitive is in previous videos, we talk about how, hey, as people enter and exit a market, it would shift the supply curve. But here we're shifting the demand curve. Well, when people enter and exit the market, it shifts the supply curve for the entire market. It would not shift the demand curve for the entire market. But what we have drawn over here is not the demand curve for the entire market. What we have drawn here is the demand curve for this particular firm's product."}, {"video_title": "Cost minimizing choice of inputs Microeconomics Khan Academy.mp3", "Sentence": "In fact, in this video, we're going to start thinking about capital as well, which we know is another one of the factors of production. But just as a little bit of review, we've already thought about it from a firm's perspective on what is the rational amount of labor to hire based on the marginal revenue product of labor and based on the marginal factor cost of labor. So in the horizontal axis, we have the quantity of labor hired by the firm, and in the vertical axis, you have the wage rate, wage rate, which you could view as the price of labor. And we've seen this multiple times. You're likely to have a downward-sloping marginal revenue product curve, MRP, and I'm going to be very specific that this one is the marginal revenue product of labor. And then we have the marginal factor cost curve, and if we're assuming that this firm is in a competitive, perfectly competitive labor market, well, they're just going to have to pay whatever the wage is in the market, and so that's why we have a horizontal line there. So that's the marginal factor cost of labor."}, {"video_title": "Cost minimizing choice of inputs Microeconomics Khan Academy.mp3", "Sentence": "And we've seen this multiple times. You're likely to have a downward-sloping marginal revenue product curve, MRP, and I'm going to be very specific that this one is the marginal revenue product of labor. And then we have the marginal factor cost curve, and if we're assuming that this firm is in a competitive, perfectly competitive labor market, well, they're just going to have to pay whatever the wage is in the market, and so that's why we have a horizontal line there. So that's the marginal factor cost of labor. And we've talked about multiple times that it's rational for the firm to keep hiring as long as the marginal revenue product of labor, as long as the incremental revenue that the firm gets for each of those people or each of those units of labor that they hire is higher than the incremental cost of each of those units of labor, and so it'll keep hiring until these two lines intersect, and so it would be rational for it to hire that quantity of labor. I'll do this as the labor for the firm, and I'll put a little star over here, so that quantity of labor. And we can draw an analogous thing for capital."}, {"video_title": "Cost minimizing choice of inputs Microeconomics Khan Academy.mp3", "Sentence": "So that's the marginal factor cost of labor. And we've talked about multiple times that it's rational for the firm to keep hiring as long as the marginal revenue product of labor, as long as the incremental revenue that the firm gets for each of those people or each of those units of labor that they hire is higher than the incremental cost of each of those units of labor, and so it'll keep hiring until these two lines intersect, and so it would be rational for it to hire that quantity of labor. I'll do this as the labor for the firm, and I'll put a little star over here, so that quantity of labor. And we can draw an analogous thing for capital. So this is how a firm thinks about that input, how it thinks about labor, but we could also do something similar for capital, or we could do it for land as well, but hopefully, so this is going to be the firm, the firm as they think about capital, and we'll see that they have analogous axes. The horizontal axis right over here is going to be the quantity not of labor, but the quantity of capital, and then the vertical axis, the price of capital, you could view that as the rent rate, rent rate, if you're thinking about maybe you're renting some type of machinery, and so you will have your marginal revenue product of capital. We could still imagine that you have diminishing returns, so that's why it's downward sloping, so marginal revenue product, and we typically use a K for capital, just so we don't get the C confused with other things, and then we have our marginal factor cost, which is really just, and we'll assume, once again, that this is a perfectly competitive capital market, so you just have to pay whatever the market rate for renting that capital is, and so that would be the marginal factor cost of the capital, and so once again, it makes sense to keep bringing on more and more and more capital as long as the incremental revenue that you get from each of those extra units of capital is higher than the cost of each of those extra units of capital, and so here, it would be rational for the firm, if we're just looking at the dimension of capital, to produce this much, so this would be, actually, let me, this would be the capital, the quantity of capital for the firm to employ."}, {"video_title": "Cost minimizing choice of inputs Microeconomics Khan Academy.mp3", "Sentence": "And we can draw an analogous thing for capital. So this is how a firm thinks about that input, how it thinks about labor, but we could also do something similar for capital, or we could do it for land as well, but hopefully, so this is going to be the firm, the firm as they think about capital, and we'll see that they have analogous axes. The horizontal axis right over here is going to be the quantity not of labor, but the quantity of capital, and then the vertical axis, the price of capital, you could view that as the rent rate, rent rate, if you're thinking about maybe you're renting some type of machinery, and so you will have your marginal revenue product of capital. We could still imagine that you have diminishing returns, so that's why it's downward sloping, so marginal revenue product, and we typically use a K for capital, just so we don't get the C confused with other things, and then we have our marginal factor cost, which is really just, and we'll assume, once again, that this is a perfectly competitive capital market, so you just have to pay whatever the market rate for renting that capital is, and so that would be the marginal factor cost of the capital, and so once again, it makes sense to keep bringing on more and more and more capital as long as the incremental revenue that you get from each of those extra units of capital is higher than the cost of each of those extra units of capital, and so here, it would be rational for the firm, if we're just looking at the dimension of capital, to produce this much, so this would be, actually, let me, this would be the capital, the quantity of capital for the firm to employ. Now, an interesting question that might have already crossed your minds are is that firms have a certain amount of resources that they are going to think about, well, how much do I put in labor versus how much do I put into capital, so they don't just think about these dimensions of how many, how much inputs of these factors they want. They have to think about them relative to each other, and to help us think through this, let's say that we are at a certain level of output, so let's say that our output right now, I don't know, our current output, our current output is, I'm just going to make up something, 1,000 units per day, and at our current output, we know what the marginal product of labor and the marginal product of capital is. Let's say that we know that our marginal product of labor at this output, remember, it changes as we have very different output and we bring on more labor or more capital, so our marginal product of labor at that level is 90 units, so another way to think about it, for every incremental unit of labor we bring on, we're going to be able to produce 90 more units of output, so this is, and then let's say that the price of labor, which is the wage rate, is equal to $10, $10 per unit of labor, so let me call this output units, output units, and let's say that the marginal product of capital, I'm using a different color, the marginal product of capital right now is 80 output units, output units, so every unit of this factor of capital, we are able to produce an incremental 80 output units, and let's say that the price of capital, which would be the rent, is equal to $5, $5 per input unit of the factor, so right at this moment, if I have an incremental dollar, would it be more rational for me to add more labor or would it be more rational for me to add more capital?"}, {"video_title": "Cost minimizing choice of inputs Microeconomics Khan Academy.mp3", "Sentence": "We could still imagine that you have diminishing returns, so that's why it's downward sloping, so marginal revenue product, and we typically use a K for capital, just so we don't get the C confused with other things, and then we have our marginal factor cost, which is really just, and we'll assume, once again, that this is a perfectly competitive capital market, so you just have to pay whatever the market rate for renting that capital is, and so that would be the marginal factor cost of the capital, and so once again, it makes sense to keep bringing on more and more and more capital as long as the incremental revenue that you get from each of those extra units of capital is higher than the cost of each of those extra units of capital, and so here, it would be rational for the firm, if we're just looking at the dimension of capital, to produce this much, so this would be, actually, let me, this would be the capital, the quantity of capital for the firm to employ. Now, an interesting question that might have already crossed your minds are is that firms have a certain amount of resources that they are going to think about, well, how much do I put in labor versus how much do I put into capital, so they don't just think about these dimensions of how many, how much inputs of these factors they want. They have to think about them relative to each other, and to help us think through this, let's say that we are at a certain level of output, so let's say that our output right now, I don't know, our current output, our current output is, I'm just going to make up something, 1,000 units per day, and at our current output, we know what the marginal product of labor and the marginal product of capital is. Let's say that we know that our marginal product of labor at this output, remember, it changes as we have very different output and we bring on more labor or more capital, so our marginal product of labor at that level is 90 units, so another way to think about it, for every incremental unit of labor we bring on, we're going to be able to produce 90 more units of output, so this is, and then let's say that the price of labor, which is the wage rate, is equal to $10, $10 per unit of labor, so let me call this output units, output units, and let's say that the marginal product of capital, I'm using a different color, the marginal product of capital right now is 80 output units, output units, so every unit of this factor of capital, we are able to produce an incremental 80 output units, and let's say that the price of capital, which would be the rent, is equal to $5, $5 per input unit of the factor, so right at this moment, if I have an incremental dollar, would it be more rational for me to add more labor or would it be more rational for me to add more capital? Pause this video and see if you can figure that out. Well, to think about which one is more rational, you just have to think about which one do I get more of a bang for my buck? So per dollar, how many output units do I get when I put a dollar into labor versus per dollar, how many output units do I get when I put that dollar into capital?"}, {"video_title": "Cost minimizing choice of inputs Microeconomics Khan Academy.mp3", "Sentence": "Let's say that we know that our marginal product of labor at this output, remember, it changes as we have very different output and we bring on more labor or more capital, so our marginal product of labor at that level is 90 units, so another way to think about it, for every incremental unit of labor we bring on, we're going to be able to produce 90 more units of output, so this is, and then let's say that the price of labor, which is the wage rate, is equal to $10, $10 per unit of labor, so let me call this output units, output units, and let's say that the marginal product of capital, I'm using a different color, the marginal product of capital right now is 80 output units, output units, so every unit of this factor of capital, we are able to produce an incremental 80 output units, and let's say that the price of capital, which would be the rent, is equal to $5, $5 per input unit of the factor, so right at this moment, if I have an incremental dollar, would it be more rational for me to add more labor or would it be more rational for me to add more capital? Pause this video and see if you can figure that out. Well, to think about which one is more rational, you just have to think about which one do I get more of a bang for my buck? So per dollar, how many output units do I get when I put a dollar into labor versus per dollar, how many output units do I get when I put that dollar into capital? So let's do it first for labor. So if you want your bang for the buck, so to speak, you would just take your marginal, let me do this in a different color, if you want your bang for a buck, you would just take your marginal product of labor, so your output, and divide it by the price, so this is gonna tell you output per dollar, and so in this situation, it's 90 output units, we could say widgets for a general term for output units, output units, over $10, over $10, and so this is going to be equal to nine output units per dollar, so this is equal to nine output units per dollar, so that's our measure of our bang for our buck when we put an incremental buck into labor. Now what about for capital?"}, {"video_title": "Cost minimizing choice of inputs Microeconomics Khan Academy.mp3", "Sentence": "So per dollar, how many output units do I get when I put a dollar into labor versus per dollar, how many output units do I get when I put that dollar into capital? So let's do it first for labor. So if you want your bang for the buck, so to speak, you would just take your marginal, let me do this in a different color, if you want your bang for a buck, you would just take your marginal product of labor, so your output, and divide it by the price, so this is gonna tell you output per dollar, and so in this situation, it's 90 output units, we could say widgets for a general term for output units, output units, over $10, over $10, and so this is going to be equal to nine output units per dollar, so this is equal to nine output units per dollar, so that's our measure of our bang for our buck when we put an incremental buck into labor. Now what about for capital? Well, our marginal product of capital divided by the price of capital, right at this moment, remember it changes depending on our output level and different combinations, is going to be equal to 80 output units divided by $5, which is equal to 16 output units per dollar. So which one would I get a better bang for my buck? Well, right at this moment, I'm getting a better bang for my buck from investing in capital."}, {"video_title": "Cost minimizing choice of inputs Microeconomics Khan Academy.mp3", "Sentence": "Now what about for capital? Well, our marginal product of capital divided by the price of capital, right at this moment, remember it changes depending on our output level and different combinations, is going to be equal to 80 output units divided by $5, which is equal to 16 output units per dollar. So which one would I get a better bang for my buck? Well, right at this moment, I'm getting a better bang for my buck from investing in capital. Every extra dollar I put, I get 16 output units, so it'd be rational for this firm that wants to maximize its profit and reduce its cost, if it has an extra dollar to invest, it would put it into capital. And so maybe it puts it into capital and then it gets a little bit more output, and then the marginal product of capital is likely to go down, and so you could imagine at some point, these things might be equal and then the firm might be indifferent between the two, and then maybe at some point, if they kept adding capital, then maybe you get a better bang for your buck from the labor. In general, a firm would wanna keep investing in one or the other until these two things are equal to each other."}, {"video_title": "Cost minimizing choice of inputs Microeconomics Khan Academy.mp3", "Sentence": "Well, right at this moment, I'm getting a better bang for my buck from investing in capital. Every extra dollar I put, I get 16 output units, so it'd be rational for this firm that wants to maximize its profit and reduce its cost, if it has an extra dollar to invest, it would put it into capital. And so maybe it puts it into capital and then it gets a little bit more output, and then the marginal product of capital is likely to go down, and so you could imagine at some point, these things might be equal and then the firm might be indifferent between the two, and then maybe at some point, if they kept adding capital, then maybe you get a better bang for your buck from the labor. In general, a firm would wanna keep investing in one or the other until these two things are equal to each other. So big picture, you would look at the marginal product of the factor divided by the price of the factor, and then you'd compare that to the marginal product of the other factors divided by the price of those other factors, and whichever one has the best bang for the buck, that's where it would be rational to invest in. And then you have, in some ways, one way is a very efficient combination, is if you get to that point that you're indifferent, when the marginal product divided by the prices of the various factors are equal to each other. So for example, if I were to tell you that we're at a different point of production, let me, let me cordon this off."}, {"video_title": "Cost minimizing choice of inputs Microeconomics Khan Academy.mp3", "Sentence": "In general, a firm would wanna keep investing in one or the other until these two things are equal to each other. So big picture, you would look at the marginal product of the factor divided by the price of the factor, and then you'd compare that to the marginal product of the other factors divided by the price of those other factors, and whichever one has the best bang for the buck, that's where it would be rational to invest in. And then you have, in some ways, one way is a very efficient combination, is if you get to that point that you're indifferent, when the marginal product divided by the prices of the various factors are equal to each other. So for example, if I were to tell you that we're at a different point of production, let me, let me cordon this off. So if we're at a different level of production where our marginal product of labor is equal to, I'll call it 10 widgets, this saves time, and let's say that the price of labor is equal to $5, and let's say that the price of capital is equal to $10, what would have to be the marginal product of capital for me to be indifferent between labor and capital? Pause this video and try to figure that out. Well, in order for me to be indifferent right over here, that means my marginal product of labor divided by price of labor needs to be equal to my marginal product of capital divided by my price of capital."}, {"video_title": "Cost minimizing choice of inputs Microeconomics Khan Academy.mp3", "Sentence": "So for example, if I were to tell you that we're at a different point of production, let me, let me cordon this off. So if we're at a different level of production where our marginal product of labor is equal to, I'll call it 10 widgets, this saves time, and let's say that the price of labor is equal to $5, and let's say that the price of capital is equal to $10, what would have to be the marginal product of capital for me to be indifferent between labor and capital? Pause this video and try to figure that out. Well, in order for me to be indifferent right over here, that means my marginal product of labor divided by price of labor needs to be equal to my marginal product of capital divided by my price of capital. And so I would have 10 over five would have to be equal to my marginal product of capital over 10. So 10 over five, this is two widgets per dollar. And so if I want two widgets per dollar over here, this has got to be equal to 20."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "You gotta love these worlds created in these economic questions. The table below describes the production possibilities of each country in a day. So here it tells us that Kalos, if it puts all of its energy behind charms, it could produce 10 charms in a day. But if it put all of its energy behind berries, it could produce 20 berries in a day. And then Joto, all of its energy behind charms, 25. All of its energy behind berries, 75. Given these numbers are based on both countries having the same labor and capital inputs, who has the absolute advantage in charms?"}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "But if it put all of its energy behind berries, it could produce 20 berries in a day. And then Joto, all of its energy behind charms, 25. All of its energy behind berries, 75. Given these numbers are based on both countries having the same labor and capital inputs, who has the absolute advantage in charms? So pause the video and see if you can figure this out. All right, so let's just remind ourselves. Absolute advantage is just who is more efficient?"}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Given these numbers are based on both countries having the same labor and capital inputs, who has the absolute advantage in charms? So pause the video and see if you can figure this out. All right, so let's just remind ourselves. Absolute advantage is just who is more efficient? Who, given the same inputs, can produce more? And they told us that these countries, they have the same labor and capital inputs. So this is really just a question of who can produce more charms in a day."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Absolute advantage is just who is more efficient? Who, given the same inputs, can produce more? And they told us that these countries, they have the same labor and capital inputs. So this is really just a question of who can produce more charms in a day. And you can see very clearly that Joto can produce more charms in a day. And so I would say Joto, because they produce, let me write that a little bit neater, they produce more charms per day, charms per day, per day, with same inputs. Same inputs."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So this is really just a question of who can produce more charms in a day. And you can see very clearly that Joto can produce more charms in a day. And so I would say Joto, because they produce, let me write that a little bit neater, they produce more charms per day, charms per day, per day, with same inputs. Same inputs. So they are more efficient. More efficient. So they have the absolute advantage."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Same inputs. So they are more efficient. More efficient. So they have the absolute advantage. Now this is an interesting thing, because our intuition might say, well, whoever has the absolute advantage, maybe they're the ones that should be producing charms. But this is what's interesting when we study comparative advantage. That is not always the case."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So they have the absolute advantage. Now this is an interesting thing, because our intuition might say, well, whoever has the absolute advantage, maybe they're the ones that should be producing charms. But this is what's interesting when we study comparative advantage. That is not always the case. I suspect that this question will lead us there. All right, next question. They say, calculate the opportunity cost in kalos of charms."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "That is not always the case. I suspect that this question will lead us there. All right, next question. They say, calculate the opportunity cost in kalos of charms. So the opportunity cost in kalos of charms. So when kalos decides to produce 10 charms, they're trading off 20 berries. Or another way of thinking about it, it costs them 20 berries to produce 10 charms."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "They say, calculate the opportunity cost in kalos of charms. So the opportunity cost in kalos of charms. So when kalos decides to produce 10 charms, they're trading off 20 berries. Or another way of thinking about it, it costs them 20 berries to produce 10 charms. So we could say it costs 20 berries for 10 charms, which is equal to two berries, two berries per charm in kalos. So there you have it. The opportunity cost, they trade off two berries per charm."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Or another way of thinking about it, it costs them 20 berries to produce 10 charms. So we could say it costs 20 berries for 10 charms, which is equal to two berries, two berries per charm in kalos. So there you have it. The opportunity cost, they trade off two berries per charm. And actually, let me make a little column here. The opportunity cost. This is two berries per charm."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "The opportunity cost, they trade off two berries per charm. And actually, let me make a little column here. The opportunity cost. This is two berries per charm. And I have a feeling, and if you're taking an exam, say an AP exam, it's not a bad idea to just fill this thing out. So what is the opportunity cost of, they haven't asked us that yet, but I'm just gonna do it really fast. What is the opportunity cost of charms in johto?"}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "This is two berries per charm. And I have a feeling, and if you're taking an exam, say an AP exam, it's not a bad idea to just fill this thing out. So what is the opportunity cost of, they haven't asked us that yet, but I'm just gonna do it really fast. What is the opportunity cost of charms in johto? Well, they are trading off, to produce 25 charms, they trade off 75 berries. So this would be 75 divided by 25. This would be three berries per charm."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "What is the opportunity cost of charms in johto? Well, they are trading off, to produce 25 charms, they trade off 75 berries. So this would be 75 divided by 25. This would be three berries per charm. 75 berries for 25 charms is three berries per charm. And if you wanna know the opportunity cost of berries, well, you could just take the reciprocal of each of these. So in kalos, the opportunity cost is 1 1 2 charms, charms per berry."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "This would be three berries per charm. 75 berries for 25 charms is three berries per charm. And if you wanna know the opportunity cost of berries, well, you could just take the reciprocal of each of these. So in kalos, the opportunity cost is 1 1 2 charms, charms per berry. And then in johto, it is 1 3rd charms per berry. That if they wanted to produce 25 berries, if they wanted to produce 75 berries, they would trade off 25 charms. So it would cost them 25 charms to produce 75 berries, or 1 3rd of a charm per berry."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So in kalos, the opportunity cost is 1 1 2 charms, charms per berry. And then in johto, it is 1 3rd charms per berry. That if they wanted to produce 25 berries, if they wanted to produce 75 berries, they would trade off 25 charms. So it would cost them 25 charms to produce 75 berries, or 1 3rd of a charm per berry. So I'm just doing a little bit of extra. But then it's gonna be useful, because in the next question, they actually are asking us, who, let me scroll up a little bit, they're saying, who has the comparative advantage in berries, explain. So berries, whoever has the lower opportunity cost has the comparative advantage."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So it would cost them 25 charms to produce 75 berries, or 1 3rd of a charm per berry. So I'm just doing a little bit of extra. But then it's gonna be useful, because in the next question, they actually are asking us, who, let me scroll up a little bit, they're saying, who has the comparative advantage in berries, explain. So berries, whoever has the lower opportunity cost has the comparative advantage. So we see here that johto has the lower opportunity cost in berries, 1 3rd is lower than 1 1 2. It's a lower opportunity cost of producing a berry. So johto has 1 3rd charms per berry opportunity cost, opportunity cost, which is lower than kalos's, lower than kalos's, kalos's 1 1 2 charms per berry opportunity cost."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So berries, whoever has the lower opportunity cost has the comparative advantage. So we see here that johto has the lower opportunity cost in berries, 1 3rd is lower than 1 1 2. It's a lower opportunity cost of producing a berry. So johto has 1 3rd charms per berry opportunity cost, opportunity cost, which is lower than kalos's, lower than kalos's, kalos's 1 1 2 charms per berry opportunity cost. So johto has comparative advantage. So johto has comparative, comparative advantage in berries. And I apologize a little bit for my penmanship, I'm trying to save time by writing a little bit fast, but hopefully me saying it out loud at the same time is making it somewhat legible."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So johto has 1 3rd charms per berry opportunity cost, opportunity cost, which is lower than kalos's, lower than kalos's, kalos's 1 1 2 charms per berry opportunity cost. So johto has comparative advantage. So johto has comparative, comparative advantage in berries. And I apologize a little bit for my penmanship, I'm trying to save time by writing a little bit fast, but hopefully me saying it out loud at the same time is making it somewhat legible. Alright, so the next question. If these countries were to specialize in trade, who would produce which good, explain. Well whoever has the comparative advantage in each will produce that one."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And I apologize a little bit for my penmanship, I'm trying to save time by writing a little bit fast, but hopefully me saying it out loud at the same time is making it somewhat legible. Alright, so the next question. If these countries were to specialize in trade, who would produce which good, explain. Well whoever has the comparative advantage in each will produce that one. So kalos has comparative advantage, kalos has lower opportunity cost in, and let's see, they have the lower opportunity cost when you compare them to, oh let me say, let me put it this way, for charms, let me write it this way, kalos has a lower opportunity cost for charms. So kalos has advantage in charms, and then we already said, johto has advantage in berries. And so kalos, or kalos, I keep saying it weird, kalos produces charms, johto produces berries, produces berries."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Well whoever has the comparative advantage in each will produce that one. So kalos has comparative advantage, kalos has lower opportunity cost in, and let's see, they have the lower opportunity cost when you compare them to, oh let me say, let me put it this way, for charms, let me write it this way, kalos has a lower opportunity cost for charms. So kalos has advantage in charms, and then we already said, johto has advantage in berries. And so kalos, or kalos, I keep saying it weird, kalos produces charms, johto produces berries, produces berries. And once again, this goes back to something we touched on at the beginning of the video. Even though johto has the absolute advantage, in fact they have the absolute advantage in either, johto is not, even though they can produce charms way more efficiently than kalos, johto is actually, in this, if you buy all the arguments of comparative advantages, johto should actually produce the berries, while kalos should produce the charms, because they have a lower opportunity cost in terms of berries. Now let's answer this last question right over here."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And so kalos, or kalos, I keep saying it weird, kalos produces charms, johto produces berries, produces berries. And once again, this goes back to something we touched on at the beginning of the video. Even though johto has the absolute advantage, in fact they have the absolute advantage in either, johto is not, even though they can produce charms way more efficiently than kalos, johto is actually, in this, if you buy all the arguments of comparative advantages, johto should actually produce the berries, while kalos should produce the charms, because they have a lower opportunity cost in terms of berries. Now let's answer this last question right over here. What would be a trading price that johto and kalos would agree on to trade charms for? Now you might be saying, well what's a price, I'm used to saying that in terms of just, you know, maybe dollars or some type of currency, how do I answer a price right over here? Well the key is, is that we can give a price in terms of opportunity cost."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Now let's answer this last question right over here. What would be a trading price that johto and kalos would agree on to trade charms for? Now you might be saying, well what's a price, I'm used to saying that in terms of just, you know, maybe dollars or some type of currency, how do I answer a price right over here? Well the key is, is that we can give a price in terms of opportunity cost. So they want a price of charms, so it really could be in terms of berries. So let's see, let's look at each of their cost of charms. So kalos' opportunity cost of a charm is two berries per charm, johto's is three berries per charm."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Well the key is, is that we can give a price in terms of opportunity cost. So they want a price of charms, so it really could be in terms of berries. So let's see, let's look at each of their cost of charms. So kalos' opportunity cost of a charm is two berries per charm, johto's is three berries per charm. So let me rewrite that over here. So, kalos, kalos' opportunity cost of charms is two berries per charm, and then johto, opportunity cost of charms, is three berries per charm. And here we're going to appreciate why comparative advantage works."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So kalos' opportunity cost of a charm is two berries per charm, johto's is three berries per charm. So let me rewrite that over here. So, kalos, kalos' opportunity cost of charms is two berries per charm, and then johto, opportunity cost of charms, is three berries per charm. And here we're going to appreciate why comparative advantage works. We said that kalos would be the one that would focus on the charms. And so notice, if they can sell the charms to johto for something that is higher than their opportunity cost and lower than johto's opportunity cost, then they both benefit. And so a good price, let's say you could go halfway between the two, but it really could be anything in between the two."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And here we're going to appreciate why comparative advantage works. We said that kalos would be the one that would focus on the charms. And so notice, if they can sell the charms to johto for something that is higher than their opportunity cost and lower than johto's opportunity cost, then they both benefit. And so a good price, let's say you could go halfway between the two, but it really could be anything in between the two. Let's say 2.5 berries per charm, they both benefit. So they would trade at this, trade at 2.5 berries per charm. Why does this make sense for johto, even though they have the absolute advantage?"}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And so a good price, let's say you could go halfway between the two, but it really could be anything in between the two. Let's say 2.5 berries per charm, they both benefit. So they would trade at this, trade at 2.5 berries per charm. Why does this make sense for johto, even though they have the absolute advantage? Well, if they produce nothing but charms, it would cost them three berries per, or no matter what they do, it'll cost them three berries per charm. But now they figured out a way through trade to get charms at 2.5 berries per charm. And so this will be a better deal for johto."}, {"video_title": "Comparative advantage worked example Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Why does this make sense for johto, even though they have the absolute advantage? Well, if they produce nothing but charms, it would cost them three berries per, or no matter what they do, it'll cost them three berries per charm. But now they figured out a way through trade to get charms at 2.5 berries per charm. And so this will be a better deal for johto. And so one thing to appreciate when we talk about comparative advantage, some people think that it's about one country benefiting more than the other. But if we assume all the assumptions about comparative advantage in our models, then it's actually about both countries that are trading benefit. They will both be better off."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "Let's say I'm making $20 a month. So my income is $20 per month. Let's say per month, the price of chocolate is $1 per bar. And the price of fruit is $2 per pound. And we've already done this before, but I'll just redraw a budget line. So this axis, let's say this is the quantity of chocolate. I could have picked it either way."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "And the price of fruit is $2 per pound. And we've already done this before, but I'll just redraw a budget line. So this axis, let's say this is the quantity of chocolate. I could have picked it either way. And that is the quantity of fruit. Not quantity of four. The quantity of fruit."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "I could have picked it either way. And that is the quantity of fruit. Not quantity of four. The quantity of fruit. If I spent all my money on chocolate, I could buy 20 bars of chocolate a month. So that is 20. This is 10 right over here."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "The quantity of fruit. If I spent all my money on chocolate, I could buy 20 bars of chocolate a month. So that is 20. This is 10 right over here. At these prices, if I spent all of my money on fruit, I could buy 10 pounds per month. So this is 10. So that's 10 pounds per month."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "This is 10 right over here. At these prices, if I spent all of my money on fruit, I could buy 10 pounds per month. So this is 10. So that's 10 pounds per month. That would be 20. And so I have a budget line that looks like this. And the equation of this budget line is going to be, well, I could write it like this."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So that's 10 pounds per month. That would be 20. And so I have a budget line that looks like this. And the equation of this budget line is going to be, well, I could write it like this. My budget, 20, is going to be equal to the price of chocolate, which is 1 times the quantity of chocolate. So this is 1 times the quantity of chocolate. Plus the price of fruit, which is 2, times the quantity of fruit."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "And the equation of this budget line is going to be, well, I could write it like this. My budget, 20, is going to be equal to the price of chocolate, which is 1 times the quantity of chocolate. So this is 1 times the quantity of chocolate. Plus the price of fruit, which is 2, times the quantity of fruit. And if I want to write this explicitly in terms of my quantity of chocolate, since I put that on my vertical axis and that tends to be the more dependent axis, I can just subtract 2 times the quantity of fruit from both sides. And I could flip them. And I get my quantity of chocolate is equal to 20 minus 2 times my quantity of fruit."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "Plus the price of fruit, which is 2, times the quantity of fruit. And if I want to write this explicitly in terms of my quantity of chocolate, since I put that on my vertical axis and that tends to be the more dependent axis, I can just subtract 2 times the quantity of fruit from both sides. And I could flip them. And I get my quantity of chocolate is equal to 20 minus 2 times my quantity of fruit. And I get this budget line right over there. Well, we've also looked at the idea of an indifference curve. So for example, let's say I'm sitting at some point on my budget line where I have, let's say, I am consuming 18 bars of chocolate and 1 pound of fruit."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "And I get my quantity of chocolate is equal to 20 minus 2 times my quantity of fruit. And I get this budget line right over there. Well, we've also looked at the idea of an indifference curve. So for example, let's say I'm sitting at some point on my budget line where I have, let's say, I am consuming 18 bars of chocolate and 1 pound of fruit. And you can verify that makes sense. It's going to be $18 plus 2, which is 20. So let's say I'm at this point on my budget line."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So for example, let's say I'm sitting at some point on my budget line where I have, let's say, I am consuming 18 bars of chocolate and 1 pound of fruit. And you can verify that makes sense. It's going to be $18 plus 2, which is 20. So let's say I'm at this point on my budget line. 18 pounds, sorry, 18 bars of chocolate, so this is in bars, and 1 pound of fruit per month. So that is 1, and this is in pounds. And this is chocolate, and this is fruit right over here."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So let's say I'm at this point on my budget line. 18 pounds, sorry, 18 bars of chocolate, so this is in bars, and 1 pound of fruit per month. So that is 1, and this is in pounds. And this is chocolate, and this is fruit right over here. Well, we know we have this idea of an indifference curve. There's different combinations of chocolate and fruit to which we are indifferent, to which we will get the same exact total utility. And so we can plot all of those points."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "And this is chocolate, and this is fruit right over here. Well, we know we have this idea of an indifference curve. There's different combinations of chocolate and fruit to which we are indifferent, to which we will get the same exact total utility. And so we can plot all of those points. I'll do it in white. It could look something like this. I'll do it as a dotted line."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "And so we can plot all of those points. I'll do it in white. It could look something like this. I'll do it as a dotted line. It makes it a little bit easier. Actually, let me draw it like this. So let's say I'm indifferent between any of these points, any of those points right over there."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "I'll do it as a dotted line. It makes it a little bit easier. Actually, let me draw it like this. So let's say I'm indifferent between any of these points, any of those points right over there. Let me draw it a little bit better. So between any of these points right over there. So for example, I could have 18 bars of chocolate and 1 pound of fruit, or I could have, let's say that is 4 bars of chocolate and roughly 8 pounds of fruit."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So let's say I'm indifferent between any of these points, any of those points right over there. Let me draw it a little bit better. So between any of these points right over there. So for example, I could have 18 bars of chocolate and 1 pound of fruit, or I could have, let's say that is 4 bars of chocolate and roughly 8 pounds of fruit. I'm indifferent. I get the same exact total utility. Now, am I maximizing my total utility at either of those points?"}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So for example, I could have 18 bars of chocolate and 1 pound of fruit, or I could have, let's say that is 4 bars of chocolate and roughly 8 pounds of fruit. I'm indifferent. I get the same exact total utility. Now, am I maximizing my total utility at either of those points? Well, we've already seen that anything to the top right of our indifference curve, of this white curve right over here, let me label this. This is our indifference curve. Everything to the top right of our indifference curve is preferable."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "Now, am I maximizing my total utility at either of those points? Well, we've already seen that anything to the top right of our indifference curve, of this white curve right over here, let me label this. This is our indifference curve. Everything to the top right of our indifference curve is preferable. We're going to get more total utility. So let me color that in. So everything to the top right of our indifference curve is going to be preferable."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "Everything to the top right of our indifference curve is preferable. We're going to get more total utility. So let me color that in. So everything to the top right of our indifference curve is going to be preferable. So all of these other points on our budget line, even a few points below our budget line where we would actually save money, are preferable. So either of these points are not going to maximize our total utility. We can maximize our total utility at all of these other points in between along our budget line."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So everything to the top right of our indifference curve is going to be preferable. So all of these other points on our budget line, even a few points below our budget line where we would actually save money, are preferable. So either of these points are not going to maximize our total utility. We can maximize our total utility at all of these other points in between along our budget line. So to actually maximize our total utility, what we want to do is find a point on our budget line that is just tangent, that is exactly touches at exactly one point one of our indifference curves. We can have an infinite number of indifference curves. There could be an indifference curve that looks like that."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "We can maximize our total utility at all of these other points in between along our budget line. So to actually maximize our total utility, what we want to do is find a point on our budget line that is just tangent, that is exactly touches at exactly one point one of our indifference curves. We can have an infinite number of indifference curves. There could be an indifference curve that looks like that. There could be another indifference curve that looks like that. All that says is that we are indifferent between any points on this curve. And so there is an indifference curve that touches exactly this budget line or exactly touches the line at one point."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "There could be an indifference curve that looks like that. There could be another indifference curve that looks like that. All that says is that we are indifferent between any points on this curve. And so there is an indifference curve that touches exactly this budget line or exactly touches the line at one point. And so I might have an indifference curve that looks like this. We do this in a vibrant color, in magenta. So I could have an indifference curve that looks like this."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "And so there is an indifference curve that touches exactly this budget line or exactly touches the line at one point. And so I might have an indifference curve that looks like this. We do this in a vibrant color, in magenta. So I could have an indifference curve that looks like this. And because it's tangent, it touches in exactly one point. And also the slope of my indifference curve, which we've learned was the marginal rate of substitution, is the exact same as the slope of our budget line right over there, which we learned earlier was the relative price. So this right here is the optimal allocation on our budget line."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So I could have an indifference curve that looks like this. And because it's tangent, it touches in exactly one point. And also the slope of my indifference curve, which we've learned was the marginal rate of substitution, is the exact same as the slope of our budget line right over there, which we learned earlier was the relative price. So this right here is the optimal allocation on our budget line. That right here is optimal. And how do we know it is optimal? Well, there is no other point on the budget line that is to the top right."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So this right here is the optimal allocation on our budget line. That right here is optimal. And how do we know it is optimal? Well, there is no other point on the budget line that is to the top right. In fact, every other point on our budget line is to the bottom left of this indifference curve. So every other point on our budget line is not preferable. Remember, everything below an indifference curve, so all of the shaded area."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "Well, there is no other point on the budget line that is to the top right. In fact, every other point on our budget line is to the bottom left of this indifference curve. So every other point on our budget line is not preferable. Remember, everything below an indifference curve, so all of the shaded area. Let me actually do it in another color. Because the indifference curve, we are indifferent. But everything below an indifference curve, so all of this area in green, is not preferable."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "Remember, everything below an indifference curve, so all of the shaded area. Let me actually do it in another color. Because the indifference curve, we are indifferent. But everything below an indifference curve, so all of this area in green, is not preferable. And every other point on the budget line is not preferable to that point right over there. Because that's the only point, or I guess you could say every other point on our budget line is not preferable to the points on the indifference curve. So they're also not preferable to that point right over there, which actually is on the indifference curve."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "But everything below an indifference curve, so all of this area in green, is not preferable. And every other point on the budget line is not preferable to that point right over there. Because that's the only point, or I guess you could say every other point on our budget line is not preferable to the points on the indifference curve. So they're also not preferable to that point right over there, which actually is on the indifference curve. Now, let's think about what happens if the price of fruit were to go down. So the price of fruit were to go from $2 to $1 per pound. So if the price of fruit went from $2 to $1, then our actual budget line will look different."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So they're also not preferable to that point right over there, which actually is on the indifference curve. Now, let's think about what happens if the price of fruit were to go down. So the price of fruit were to go from $2 to $1 per pound. So if the price of fruit went from $2 to $1, then our actual budget line will look different. Our new budget line, I'll do it in blue, would look like this. If we spent all our money on chocolate, we could buy 20 bars. If we spent all of our money on fruit at the new price, we could buy 20 pounds of fruit."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So if the price of fruit went from $2 to $1, then our actual budget line will look different. Our new budget line, I'll do it in blue, would look like this. If we spent all our money on chocolate, we could buy 20 bars. If we spent all of our money on fruit at the new price, we could buy 20 pounds of fruit. So our new budget line would look something like that. So now what would be the optimal allocation of our dollars, or the best combination that we would buy? Well, we would do the exact same exercise."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "If we spent all of our money on fruit at the new price, we could buy 20 pounds of fruit. So our new budget line would look something like that. So now what would be the optimal allocation of our dollars, or the best combination that we would buy? Well, we would do the exact same exercise. Assuming that we had data on all of these indifference curves, we would find the indifference curve that is exactly tangent to our new budget line. So let's say that this point right over here is exactly tangent to another indifference curve. So just like that."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "Well, we would do the exact same exercise. Assuming that we had data on all of these indifference curves, we would find the indifference curve that is exactly tangent to our new budget line. So let's say that this point right over here is exactly tangent to another indifference curve. So just like that. So there's another indifference curve that looks like that. Let me draw it a little bit neater. So it looks something like that."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So just like that. So there's another indifference curve that looks like that. Let me draw it a little bit neater. So it looks something like that. And so based on how the price, if we assume we have access to these many, many, many, many indifference curves, we can now see, based on all else equal, how a change in the price of fruit changed the quantity of fruit we demanded. Because now our optimal spend is this point on our new budget line, which looks like it's about, well, give or take, about 10 pounds of fruit. So all of a sudden, when we were, so let's think about just the fruit."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So it looks something like that. And so based on how the price, if we assume we have access to these many, many, many, many indifference curves, we can now see, based on all else equal, how a change in the price of fruit changed the quantity of fruit we demanded. Because now our optimal spend is this point on our new budget line, which looks like it's about, well, give or take, about 10 pounds of fruit. So all of a sudden, when we were, so let's think about just the fruit. Everything else we're holding equal. So just the fruit, let's do when the price was 2, the quantity demanded was 8 pounds. And now when the price is 1, the quantity demanded is 10 pounds."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So all of a sudden, when we were, so let's think about just the fruit. Everything else we're holding equal. So just the fruit, let's do when the price was 2, the quantity demanded was 8 pounds. And now when the price is 1, the quantity demanded is 10 pounds. And so what we're actually doing, and once again, we're kind of looking at the exact same ideas from different directions. Before, we looked at it in terms of marginal utility per dollar. And we thought about how you maximize it."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "And now when the price is 1, the quantity demanded is 10 pounds. And so what we're actually doing, and once again, we're kind of looking at the exact same ideas from different directions. Before, we looked at it in terms of marginal utility per dollar. And we thought about how you maximize it. And we were able to change the prices and then figure out and derive a demand curve from that. Here, we're just looking at it from a slightly different lens. But they really are all of the same ideas."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "And we thought about how you maximize it. And we were able to change the prices and then figure out and derive a demand curve from that. Here, we're just looking at it from a slightly different lens. But they really are all of the same ideas. But by assuming we had access to a bunch of indifference curves, we can see how a change in price changes our budget line and how that would change the optimal quantity we would want of a given product. So for example, we could keep doing this. And we could plot our new demand curve."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "But they really are all of the same ideas. But by assuming we had access to a bunch of indifference curves, we can see how a change in price changes our budget line and how that would change the optimal quantity we would want of a given product. So for example, we could keep doing this. And we could plot our new demand curve. So I could do a demand curve now for fruit. So at least I have 2 points on that demand curve. So if this is the price of fruit and this is the quantity demanded of fruit, when the price is 2, quantity is 8."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "And we could plot our new demand curve. So I could do a demand curve now for fruit. So at least I have 2 points on that demand curve. So if this is the price of fruit and this is the quantity demanded of fruit, when the price is 2, quantity is 8. When the price is 2, the quantity demanded is 8. And when the price is, actually, let me do it a little bit different. When the price is 2, and these aren't to scale, the quantity demanded is 8."}, {"video_title": "Optimal point on budget line Microeconomics Khan Academy.mp3", "Sentence": "So if this is the price of fruit and this is the quantity demanded of fruit, when the price is 2, quantity is 8. When the price is 2, the quantity demanded is 8. And when the price is, actually, let me do it a little bit different. When the price is 2, and these aren't to scale, the quantity demanded is 8. And then here is 8, and these aren't to scale. But when the price is 1, the quantity demanded is 10. So 2, 8 quantity demanded is 10."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In previous videos, we introduced the idea of a production function that takes in a bunch of inputs. Let's call this input one, input two, input three, and that based on how much of these various inputs you have, your production function can give you your output. In this video, we're going to constrain all of the inputs but one to really take it down to how does our output vary as a function of one input? And as we do that, we're going to be able to understand these ideas of total product, marginal product, and average product. So to give you a tangible example, let's say that we are running an ice cream factory and we care about how much our ice cream production per day varies as a function of the number of people working in the factory. So let me write this down. So per day, ice cream, ice cream production, production."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And as we do that, we're going to be able to understand these ideas of total product, marginal product, and average product. So to give you a tangible example, let's say that we are running an ice cream factory and we care about how much our ice cream production per day varies as a function of the number of people working in the factory. So let me write this down. So per day, ice cream, ice cream production, production. And so let me make a table here. So in our first column, I am going to put our labor, which is you could use the input that we're going to see how does that drive output. So I will put labor."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So per day, ice cream, ice cream production, production. And so let me make a table here. So in our first column, I am going to put our labor, which is you could use the input that we're going to see how does that drive output. So I will put labor. So you could view this as workers per day, workers. And we're going to see how our output varies whether we have zero workers, one worker per day, two workers per day, or three workers per day. Now our next column would just be our output."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So I will put labor. So you could view this as workers per day, workers. And we're going to see how our output varies whether we have zero workers, one worker per day, two workers per day, or three workers per day. Now our next column would just be our output. And we'll say that's our total product as a function of labor, TP standing for total product. And let's say that we know if we have zero people working in our ice cream factory, well then we're going to produce zero gallons of ice cream. And let's just assume that this is, our output is in gallons and it's gallons per day."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now our next column would just be our output. And we'll say that's our total product as a function of labor, TP standing for total product. And let's say that we know if we have zero people working in our ice cream factory, well then we're going to produce zero gallons of ice cream. And let's just assume that this is, our output is in gallons and it's gallons per day. If we have one worker at our factory, well then we're going to be able to produce 10 gallons a day. If we have two workers at our factory, we're going to produce 18 gallons a day. And if we have three workers at our factory, let's say we can produce 24 gallons a day."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And let's just assume that this is, our output is in gallons and it's gallons per day. If we have one worker at our factory, well then we're going to be able to produce 10 gallons a day. If we have two workers at our factory, we're going to produce 18 gallons a day. And if we have three workers at our factory, let's say we can produce 24 gallons a day. Fair enough. Now I'm going to introduce an idea, and you have seen this word marginal perhaps at other times in your life. I'm going to introduce marginal product of labor."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And if we have three workers at our factory, let's say we can produce 24 gallons a day. Fair enough. Now I'm going to introduce an idea, and you have seen this word marginal perhaps at other times in your life. I'm going to introduce marginal product of labor. And the way to think about marginal, that's how much for every increment of one thing, how much more of the other thing do you get? So here, our marginal product of labor says for each incremental unit of labor, for each incremental person working there per day, how much more, how many more gallons of ice cream am I producing? So my marginal product of labor, when I go from zero to one workers, I'm able to produce 10 more gallons from that first worker."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "I'm going to introduce marginal product of labor. And the way to think about marginal, that's how much for every increment of one thing, how much more of the other thing do you get? So here, our marginal product of labor says for each incremental unit of labor, for each incremental person working there per day, how much more, how many more gallons of ice cream am I producing? So my marginal product of labor, when I go from zero to one workers, I'm able to produce 10 more gallons from that first worker. Now what about when I go from one worker to two workers? Well then, I go from 10 to 18 gallons, so that second person gets me an incremental eight gallons per day. And then as I go from two people working there to three people working there, well, my total product goes up by six."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So my marginal product of labor, when I go from zero to one workers, I'm able to produce 10 more gallons from that first worker. Now what about when I go from one worker to two workers? Well then, I go from 10 to 18 gallons, so that second person gets me an incremental eight gallons per day. And then as I go from two people working there to three people working there, well, my total product goes up by six. So my marginal product of labor for that third worker is going to be six. Now there's something interesting that you're immediately seeing here. And this is actually pretty typical, is that your marginal product of labor will oftentimes go down the more and more people that you add."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then as I go from two people working there to three people working there, well, my total product goes up by six. So my marginal product of labor for that third worker is going to be six. Now there's something interesting that you're immediately seeing here. And this is actually pretty typical, is that your marginal product of labor will oftentimes go down the more and more people that you add. And you might say, why is that the case? Well, they're just not going to be quite as productive. That second person might be waiting while the first person is using the mixer, and that third person's going to be waiting while the first person and the second person, maybe they're using the restroom or something, and the third person has to go."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And this is actually pretty typical, is that your marginal product of labor will oftentimes go down the more and more people that you add. And you might say, why is that the case? Well, they're just not going to be quite as productive. That second person might be waiting while the first person is using the mixer, and that third person's going to be waiting while the first person and the second person, maybe they're using the restroom or something, and the third person has to go. And you can imagine, you add four or five, six, at some point, you're not even going to be able to fit people into the factory. And so you're going to have what's known as a diminishing marginal return. And you see that right over here."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "That second person might be waiting while the first person is using the mixer, and that third person's going to be waiting while the first person and the second person, maybe they're using the restroom or something, and the third person has to go. And you can imagine, you add four or five, six, at some point, you're not even going to be able to fit people into the factory. And so you're going to have what's known as a diminishing marginal return. And you see that right over here. As you're adding more and more labor, your marginal return is getting smaller and smaller. So this is a diminishing marginal return. Now the last concept I'm going to introduce you to in this video is that of average product."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And you see that right over here. As you're adding more and more labor, your marginal return is getting smaller and smaller. So this is a diminishing marginal return. Now the last concept I'm going to introduce you to in this video is that of average product. And this is average product as a function of labor. So AP for average product. And all that is is our total product divided by our labor."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now the last concept I'm going to introduce you to in this video is that of average product. And this is average product as a function of labor. So AP for average product. And all that is is our total product divided by our labor. So over here, when we have one worker, our total product is 10 gallons, and we're going to divide that by one worker. So our average product per worker is going to be 10 gallons. Now when we have two people working per day, and we're producing 18 gallons per day, our average product as a function of labor is going to be 18 divided by two, which is going to be nine gallons per worker per day on average."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And all that is is our total product divided by our labor. So over here, when we have one worker, our total product is 10 gallons, and we're going to divide that by one worker. So our average product per worker is going to be 10 gallons. Now when we have two people working per day, and we're producing 18 gallons per day, our average product as a function of labor is going to be 18 divided by two, which is going to be nine gallons per worker per day on average. And then in this last situation, it's going to be 24 divided by three, which is eight gallons per worker per day on average. And you can see this visually as well. I could draw this on a curve."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now when we have two people working per day, and we're producing 18 gallons per day, our average product as a function of labor is going to be 18 divided by two, which is going to be nine gallons per worker per day on average. And then in this last situation, it's going to be 24 divided by three, which is eight gallons per worker per day on average. And you can see this visually as well. I could draw this on a curve. Let me do that. So if on our horizontal axis, I have our labor units, which is workers per day. So one, two, and three."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "I could draw this on a curve. Let me do that. So if on our horizontal axis, I have our labor units, which is workers per day. So one, two, and three. So this is labor right over here. And our vertical axis, I'll have our total output. So total product, I could say."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So one, two, and three. So this is labor right over here. And our vertical axis, I'll have our total output. So total product, I could say. So let's say that's 10, 20, and let's say that is 30 right over there. Well, this first one right over here, when we have one person working in the factory, we produce 10 gallons per day. And this is total product right over here."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So total product, I could say. So let's say that's 10, 20, and let's say that is 30 right over there. Well, this first one right over here, when we have one person working in the factory, we produce 10 gallons per day. And this is total product right over here. When we have two people working in our factory, we produce 18 gallons a day. So it's gonna be just like that. And notice, the slope has gone down a little bit."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And this is total product right over here. When we have two people working in our factory, we produce 18 gallons a day. So it's gonna be just like that. And notice, the slope has gone down a little bit. We have a certain slope here, but it's a little less deep there. And that steepness of that line or of that curve, that tells you about the marginal product. So it's a little bit less deep, so our marginal product of labor has gone down a little bit."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And notice, the slope has gone down a little bit. We have a certain slope here, but it's a little less deep there. And that steepness of that line or of that curve, that tells you about the marginal product. So it's a little bit less deep, so our marginal product of labor has gone down a little bit. We're having diminishing marginal returns. And then last but not least, when we have three people working, we're able to produce 24. So three and 24 might be right over there."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So it's a little bit less deep, so our marginal product of labor has gone down a little bit. We're having diminishing marginal returns. And then last but not least, when we have three people working, we're able to produce 24. So three and 24 might be right over there. And once again, we can see our diminishing returns. It gets even a little bit flatter. We go from zero to one."}, {"video_title": "Total product, marginal product and average product AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So three and 24 might be right over there. And once again, we can see our diminishing returns. It gets even a little bit flatter. We go from zero to one. We added plus 10. And you can see that there in the marginal product of labor. And then as we add one more person, it goes plus eight."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "In the last video, we introduced ourselves to the law of supply. And it was a fairly common sense idea that if we hold all else equal, that if the price of something goes up, there's more incentive for more producers to produce it, or a given producer to produce more of it. And we saw that. As the price goes up, we moved along the supply curve, and the quantity produced went up. Now, what I want to talk about in this video is all of the things we held equal in the last video. And the first of these, I'll call this the price of inputs. Or another way to think about it is the cost of production."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "As the price goes up, we moved along the supply curve, and the quantity produced went up. Now, what I want to talk about in this video is all of the things we held equal in the last video. And the first of these, I'll call this the price of inputs. Or another way to think about it is the cost of production. So if the price of inputs may be the price of labor, the people who would have to pick the grapes, or our fuel that we need to transport the grapes, or the land, if any of that increased, then at a given price point, we would make less money. There's less incentive for us to do it, especially if this is true only for grapes. Maybe we'll say, OK, if it's now more expensive to get grape seeds, maybe I'll start planting something else, because I'm not getting as much profit per pound of grape."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Or another way to think about it is the cost of production. So if the price of inputs may be the price of labor, the people who would have to pick the grapes, or our fuel that we need to transport the grapes, or the land, if any of that increased, then at a given price point, we would make less money. There's less incentive for us to do it, especially if this is true only for grapes. Maybe we'll say, OK, if it's now more expensive to get grape seeds, maybe I'll start planting something else, because I'm not getting as much profit per pound of grape. So if the price of my inputs, or if the size of my costs go up, at any given price point, I'd want to produce less. So if the price of inputs go up, the supply would go down. So if this becomes at this price point, I'd make less money, so I would produce less."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Maybe we'll say, OK, if it's now more expensive to get grape seeds, maybe I'll start planting something else, because I'm not getting as much profit per pound of grape. So if the price of my inputs, or if the size of my costs go up, at any given price point, I'd want to produce less. So if the price of inputs go up, the supply would go down. So if this becomes at this price point, I'd make less money, so I would produce less. Or maybe I would produce other things. So the whole supply curve would shift to the left. And also, even the minimum price I would need to supply any of it would also go up when you shift the curve to the left, because now all of a sudden, it costs me more to produce even that first unit."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So if this becomes at this price point, I'd make less money, so I would produce less. Or maybe I would produce other things. So the whole supply curve would shift to the left. And also, even the minimum price I would need to supply any of it would also go up when you shift the curve to the left, because now all of a sudden, it costs me more to produce even that first unit. And likewise, if my price of my inputs went down, now all of a sudden, at any given price point, producing grapes would become more profitable, and I would have more incentive to maybe produce grapes relative to other things, and use more land for grapes than other things. And then you would have the whole curve shift to the right. Now let's think about related goods."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And also, even the minimum price I would need to supply any of it would also go up when you shift the curve to the left, because now all of a sudden, it costs me more to produce even that first unit. And likewise, if my price of my inputs went down, now all of a sudden, at any given price point, producing grapes would become more profitable, and I would have more incentive to maybe produce grapes relative to other things, and use more land for grapes than other things. And then you would have the whole curve shift to the right. Now let's think about related goods. So what happens with the price of related goods? And when we think about this, we don't want to think of it from a demand point of view, because we're talking about supply. You want to think about it from the producer's point of view."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now let's think about related goods. So what happens with the price of related goods? And when we think about this, we don't want to think of it from a demand point of view, because we're talking about supply. You want to think about it from the producer's point of view. So when we think about related goods here, we want to think about substitutes for production. So maybe I'm a farmer, and I know very little bit about farming, so I don't know if this is possible. But maybe on my land, I'm saying, well, some of my land is going to be for grapes, and some of it is going to be for blueberries."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "You want to think about it from the producer's point of view. So when we think about related goods here, we want to think about substitutes for production. So maybe I'm a farmer, and I know very little bit about farming, so I don't know if this is possible. But maybe on my land, I'm saying, well, some of my land is going to be for grapes, and some of it is going to be for blueberries. And so what would happen if the price of a related good, in particular, blueberries, what would happen if the price of blueberries went up? Well, if the price of blueberries went up, then I would say, wow, maybe I can do better with blueberries, and I would allocate more of my land to blueberries than to grapes. And so once again, if the price of related goods, well, it depends which related goods, but if the price of productive substitutes, so price of other things I could produce, if the price of other things I can produce goes up, then my supply of grapes, once again, would go down."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "But maybe on my land, I'm saying, well, some of my land is going to be for grapes, and some of it is going to be for blueberries. And so what would happen if the price of a related good, in particular, blueberries, what would happen if the price of blueberries went up? Well, if the price of blueberries went up, then I would say, wow, maybe I can do better with blueberries, and I would allocate more of my land to blueberries than to grapes. And so once again, if the price of related goods, well, it depends which related goods, but if the price of productive substitutes, so price of other things I could produce, if the price of other things I can produce goes up, then my supply of grapes, once again, would go down. And the important thing is, in any of these circumstances, literally just think it through. Do not just look at what I'm writing here and just try to memorize it in some form, way, shape, or form. This is really just a way to think about things."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so once again, if the price of related goods, well, it depends which related goods, but if the price of productive substitutes, so price of other things I could produce, if the price of other things I can produce goes up, then my supply of grapes, once again, would go down. And the important thing is, in any of these circumstances, literally just think it through. Do not just look at what I'm writing here and just try to memorize it in some form, way, shape, or form. This is really just a way to think about things. Hey, obviously, if I can make more money off of blueberries, now all of a sudden, I'm going to allocate more of my land to blueberries than to grapes, supply of grapes will go down. Now let's think about what happens with the number of suppliers. And this one is pretty common sense."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "This is really just a way to think about things. Hey, obviously, if I can make more money off of blueberries, now all of a sudden, I'm going to allocate more of my land to blueberries than to grapes, supply of grapes will go down. Now let's think about what happens with the number of suppliers. And this one is pretty common sense. The more people they are supplying, the higher the supply would be. So if the number of suppliers goes up, and now you wouldn't imagine this is a curve maybe for the aggregate supply. So if the number of suppliers go up, then the aggregate supply would go up at any given price point."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And this one is pretty common sense. The more people they are supplying, the higher the supply would be. So if the number of suppliers goes up, and now you wouldn't imagine this is a curve maybe for the aggregate supply. So if the number of suppliers go up, then the aggregate supply would go up at any given price point. If the number of suppliers were to go down, then the aggregate supply would go down at any given price point. So this one, hopefully, is somewhat obvious. Then we could think about things like technology."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So if the number of suppliers go up, then the aggregate supply would go up at any given price point. If the number of suppliers were to go down, then the aggregate supply would go down at any given price point. So this one, hopefully, is somewhat obvious. Then we could think about things like technology. And so this is just maybe there's some innovation, some new type of seed that with the same amount of work, the same amount of land, can produce that many more grapes. So if you have technological improvements, I'm assuming we're not going to go into some type of dark ages. If we have technological improvements, then that will also make the supply go up."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Then we could think about things like technology. And so this is just maybe there's some innovation, some new type of seed that with the same amount of work, the same amount of land, can produce that many more grapes. So if you have technological improvements, I'm assuming we're not going to go into some type of dark ages. If we have technological improvements, then that will also make the supply go up. You can also think of it as it might make it cheaper to produce. So it's kind of the same thing here. The price of inputs might go down."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If we have technological improvements, then that will also make the supply go up. You can also think of it as it might make it cheaper to produce. So it's kind of the same thing here. The price of inputs might go down. So that would make your supply go up. Or you could just say, hey, look, there's just going to be more grapes popping off of these new types of vines that we got. So we're just going to produce more grapes."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "The price of inputs might go down. So that would make your supply go up. Or you could just say, hey, look, there's just going to be more grapes popping off of these new types of vines that we got. So we're just going to produce more grapes. And then the last one I'll cover, and it's a little bit strange in the grape analogy, is the expected future prices. Price expectations. And let's go away from the grapes because grapes are perishable goods."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So we're just going to produce more grapes. And then the last one I'll cover, and it's a little bit strange in the grape analogy, is the expected future prices. Price expectations. And let's go away from the grapes because grapes are perishable goods. They go bad. It's not like you can save goods to use them later. But if, let's say, you are an oil producer, and oil is something that you can store and you can use it later."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And let's go away from the grapes because grapes are perishable goods. They go bad. It's not like you can save goods to use them later. But if, let's say, you are an oil producer, and oil is something that you can store and you can use it later. If you expected oil prices to be neutral today, and then tomorrow, all of a sudden, you are sure that oil prices are going to go up in the future, you're sure that a year from now, oil prices are just going to go through the roof, what's your incentive? Well, you should hoard all of your oil. Do not sell it today and wait to sell it in the future if you're sure that's what's going to happen."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "But if, let's say, you are an oil producer, and oil is something that you can store and you can use it later. If you expected oil prices to be neutral today, and then tomorrow, all of a sudden, you are sure that oil prices are going to go up in the future, you're sure that a year from now, oil prices are just going to go through the roof, what's your incentive? Well, you should hoard all of your oil. Do not sell it today and wait to sell it in the future if you're sure that's what's going to happen. So if there's a change in expected future prices, so if you go from neutral to expecting prices go up in the future, then you're going to hoard your goods. You can't hoard grapes because the grapes will just go bad. You might be able to turn them into wine or something."}, {"video_title": "Factors affecting supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Do not sell it today and wait to sell it in the future if you're sure that's what's going to happen. So if there's a change in expected future prices, so if you go from neutral to expecting prices go up in the future, then you're going to hoard your goods. You can't hoard grapes because the grapes will just go bad. You might be able to turn them into wine or something. But if we're talking about something like oil, you would say, hey, why should I pump all of the fixed amount of oil in the ground today to sell it at today's lower prices? I'm going to lower the supply today so I can sell it in the future. So if the expected future prices go from neutral to you expect future prices to go up dramatically, then current supply, and I'm just going to emphasize by writing the word current, current supply will go down so you can hoard it to sell it in the future."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "And as we see in many economic models, this is a, I would argue, oversimplified model, but it helps us get some insights, where in each country, workers can only produce some combination of sneakers and basketballs. And to help us understand this and to appreciate that you can see this information in multiple ways, let's present this also as an output table. Output table, which you will sometimes see, and from either the production possibility curves or from the output table, we can calculate the opportunity cost of shoes and the opportunity cost of basketballs and then try to deduce some things about comparative advantage. So in an output table, we would look at country A and we would look at country B, and we would think about, well, what is the max, and I'll just draw it, what is the max basketballs, and this is all per worker per day, and we would also think, what is the max shoes? Shoes, those look like socks, but you get the idea. Once again, per worker per day, and so let me draw a little chart here so we can do that. And so what I'd like you to do is pause this video and see if you can fill in this chart."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "So in an output table, we would look at country A and we would look at country B, and we would think about, well, what is the max, and I'll just draw it, what is the max basketballs, and this is all per worker per day, and we would also think, what is the max shoes? Shoes, those look like socks, but you get the idea. Once again, per worker per day, and so let me draw a little chart here so we can do that. And so what I'd like you to do is pause this video and see if you can fill in this chart. What is the maximum basketballs per worker per day in country A, then in country B, and then do the same thing for shoes. All right, now let's work this together. So first in country A, what is the maximum number of basketballs?"}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "And so what I'd like you to do is pause this video and see if you can fill in this chart. What is the maximum basketballs per worker per day in country A, then in country B, and then do the same thing for shoes. All right, now let's work this together. So first in country A, what is the maximum number of basketballs? Well, if in country A they put all of their energy into basketballs, we are right over here on the production possibilities curve. They can produce eight basketballs. And if on the other end of the curve they put all of their energy into shoes, they would produce no basketballs and six pairs of shoes."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "So first in country A, what is the maximum number of basketballs? Well, if in country A they put all of their energy into basketballs, we are right over here on the production possibilities curve. They can produce eight basketballs. And if on the other end of the curve they put all of their energy into shoes, they would produce no basketballs and six pairs of shoes. We're assuming that these are pairs of shoes that we're talking about, six pairs of shoes. And similarly, if we go to country B, I keep saying company instead of country, if we go to country B, if we say what's the maximum number of basketballs? Well, if they put all their energy into basketballs, we get four basketballs and no pairs of shoes."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "And if on the other end of the curve they put all of their energy into shoes, they would produce no basketballs and six pairs of shoes. We're assuming that these are pairs of shoes that we're talking about, six pairs of shoes. And similarly, if we go to country B, I keep saying company instead of country, if we go to country B, if we say what's the maximum number of basketballs? Well, if they put all their energy into basketballs, we get four basketballs and no pairs of shoes. So that's four basketballs. But then if they put all of the energy into pairs of shoes, they produce no basketballs. They could produce four pairs of shoes."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "Well, if they put all their energy into basketballs, we get four basketballs and no pairs of shoes. So that's four basketballs. But then if they put all of the energy into pairs of shoes, they produce no basketballs. They could produce four pairs of shoes. And so it's as simple as that. This output table is just showing the extremes from the production possibility curves for these countries. Now with the information in both the output table and these production possibility curves, let's calculate the opportunity cost."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "They could produce four pairs of shoes. And so it's as simple as that. This output table is just showing the extremes from the production possibility curves for these countries. Now with the information in both the output table and these production possibility curves, let's calculate the opportunity cost. So let me set up another table. And let me just say this is going to be our opportunity cost table, OC, not Orange County, opportunity costs. And once again, it's going to be for country A and country B."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "Now with the information in both the output table and these production possibility curves, let's calculate the opportunity cost. So let me set up another table. And let me just say this is going to be our opportunity cost table, OC, not Orange County, opportunity costs. And once again, it's going to be for country A and country B. And we're gonna think about the opportunity costs of producing basketballs. And that's going to be in terms of pairs of shoes. And then the opportunity costs for producing pairs of shoes."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "And once again, it's going to be for country A and country B. And we're gonna think about the opportunity costs of producing basketballs. And that's going to be in terms of pairs of shoes. And then the opportunity costs for producing pairs of shoes. And that's going to be in terms of basketballs. And so let me set up another table. And so I encourage you, once again, pause this video and see if you can fill in this table."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "And then the opportunity costs for producing pairs of shoes. And that's going to be in terms of basketballs. And so let me set up another table. And so I encourage you, once again, pause this video and see if you can fill in this table. What is the opportunity cost? We'll start with what's the opportunity cost for producing basketballs in terms of shoes in country A? All right, well, there's a couple of ways to think about it."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "And so I encourage you, once again, pause this video and see if you can fill in this table. What is the opportunity cost? We'll start with what's the opportunity cost for producing basketballs in terms of shoes in country A? All right, well, there's a couple of ways to think about it. Imagine a world in country A where you're producing no basketballs, and you're producing six pairs of shoes. But then if you were to increase the number of basketballs you produce by eight, so if you add eight basketballs, well, you're gonna give up six pairs of shoes. You see that right over here."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "All right, well, there's a couple of ways to think about it. Imagine a world in country A where you're producing no basketballs, and you're producing six pairs of shoes. But then if you were to increase the number of basketballs you produce by eight, so if you add eight basketballs, well, you're gonna give up six pairs of shoes. You see that right over here. You give up six pairs of shoes. And so in country A, eight basketballs cost six shoes. Let me write that down."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "You see that right over here. You give up six pairs of shoes. And so in country A, eight basketballs cost six shoes. Let me write that down. So in country A, eight basketballs, and I'll just say B for short, cost six, six S. S is shoes for short. Or another way to think about it, if you divide both of these by eight, one basketball costs six over eight shoes. All I did is eight basketballs cost six shoes, and one basketball is gonna cost six divided by eight pairs of shoes."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "Let me write that down. So in country A, eight basketballs, and I'll just say B for short, cost six, six S. S is shoes for short. Or another way to think about it, if you divide both of these by eight, one basketball costs six over eight shoes. All I did is eight basketballs cost six shoes, and one basketball is gonna cost six divided by eight pairs of shoes. And so what is that going to be? Well, six over eight is the same thing as 3 4ths, or 3 4ths of a pair of shoes. So one basketball costs 3 4ths of a pair of shoes, or we could say that is 0.75 S, where S is a pair of shoes."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "All I did is eight basketballs cost six shoes, and one basketball is gonna cost six divided by eight pairs of shoes. And so what is that going to be? Well, six over eight is the same thing as 3 4ths, or 3 4ths of a pair of shoes. So one basketball costs 3 4ths of a pair of shoes, or we could say that is 0.75 S, where S is a pair of shoes. This is my simplified notation. And what about in country B? Well, in country B, if I go from no basketballs to four basketballs, then I would have given up four pairs of shoes."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "So one basketball costs 3 4ths of a pair of shoes, or we could say that is 0.75 S, where S is a pair of shoes. This is my simplified notation. And what about in country B? Well, in country B, if I go from no basketballs to four basketballs, then I would have given up four pairs of shoes. I would have given up four pairs of shoes. So in country B, so in B, four basketballs cost four pairs of shoes, four pairs of shoes, or divide both by four, you could have a basketball, one basketball costs one pair of shoes. So a basketball here in country B costs one pair of shoes."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "Well, in country B, if I go from no basketballs to four basketballs, then I would have given up four pairs of shoes. I would have given up four pairs of shoes. So in country B, so in B, four basketballs cost four pairs of shoes, four pairs of shoes, or divide both by four, you could have a basketball, one basketball costs one pair of shoes. So a basketball here in country B costs one pair of shoes. So one pair of shoes. S, once again, is a pair of shoes. And you could have also gotten it from this information here."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "So a basketball here in country B costs one pair of shoes. So one pair of shoes. S, once again, is a pair of shoes. And you could have also gotten it from this information here. You could set up an equation. You could say, look, if I put all of, in country A, if I put, so let's look at this part right over here, you could say in country A, if I put all of my energy into basketballs, I could produce eight basketballs. But if I put that same energy into shoes, I could produce six pairs of shoes."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "And you could have also gotten it from this information here. You could set up an equation. You could say, look, if I put all of, in country A, if I put, so let's look at this part right over here, you could say in country A, if I put all of my energy into basketballs, I could produce eight basketballs. But if I put that same energy into shoes, I could produce six pairs of shoes. So with the same energy, I could produce either one of these. And then if I want the opportunity cost for basketballs, I divide both by eight, and that's essentially what I did over here. And I get a basketball."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "But if I put that same energy into shoes, I could produce six pairs of shoes. So with the same energy, I could produce either one of these. And then if I want the opportunity cost for basketballs, I divide both by eight, and that's essentially what I did over here. And I get a basketball. It costs 6 8ths of a pair of shoes, or 3 4ths of a pair of shoes, which is exactly what I have over here. Now let's do the opportunity cost for a pair of shoes in either country. Well, there's a couple of ways to think about it."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "And I get a basketball. It costs 6 8ths of a pair of shoes, or 3 4ths of a pair of shoes, which is exactly what I have over here. Now let's do the opportunity cost for a pair of shoes in either country. Well, there's a couple of ways to think about it. You could just view it as the reciprocal, or you could even go back to this equation right over here. If we are in country A, we would say six shoes. If we put all our energy in shoes, we could produce six of them, or six pairs of shoes, I should say."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "Well, there's a couple of ways to think about it. You could just view it as the reciprocal, or you could even go back to this equation right over here. If we are in country A, we would say six shoes. If we put all our energy in shoes, we could produce six of them, or six pairs of shoes, I should say. And if we put all of our energy into basketballs, we could produce eight basketballs. But if you divide by six, you get per pair of shoes. And so per each pair of shoes, the energy to produce one pair of shoes is equivalent to the energy to produce 8 6ths of a basketball."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "If we put all our energy in shoes, we could produce six of them, or six pairs of shoes, I should say. And if we put all of our energy into basketballs, we could produce eight basketballs. But if you divide by six, you get per pair of shoes. And so per each pair of shoes, the energy to produce one pair of shoes is equivalent to the energy to produce 8 6ths of a basketball. And 8 6ths is the same thing as 4 3rds of a basketball. And if we wanted to write it as a decimal, just for simplicity, or maybe to make it easier to compare, we would say that this is approximately 1.33. Obviously the threes just keep going on, it repeats forever."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "And so per each pair of shoes, the energy to produce one pair of shoes is equivalent to the energy to produce 8 6ths of a basketball. And 8 6ths is the same thing as 4 3rds of a basketball. And if we wanted to write it as a decimal, just for simplicity, or maybe to make it easier to compare, we would say that this is approximately 1.33. Obviously the threes just keep going on, it repeats forever. But approximately 1.33 basketballs is the cost of producing a shoe, and the opportunity cost of producing a shoe in country A. 1.33 basketballs. And what about in country B?"}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "Obviously the threes just keep going on, it repeats forever. But approximately 1.33 basketballs is the cost of producing a shoe, and the opportunity cost of producing a shoe in country A. 1.33 basketballs. And what about in country B? Well, in country B, we could set up a similar type of equation, where the same energy for four shoes, I could produce four basketballs, and that's essentially what we set up right over here on the left. You divide both sides by four, the energy of a shoe is equal to the energy of a basketball. Or I should say the energy of a pair of shoes is equal to the energy of making a basketball."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "And what about in country B? Well, in country B, we could set up a similar type of equation, where the same energy for four shoes, I could produce four basketballs, and that's essentially what we set up right over here on the left. You divide both sides by four, the energy of a shoe is equal to the energy of a basketball. Or I should say the energy of a pair of shoes is equal to the energy of making a basketball. So the opportunity cost of making a pair of shoes is equal to one basketball. So now we're ready to draw the connection. Given the opportunity cost that we have calculated, what country has the comparative advantage in basketballs?"}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "Or I should say the energy of a pair of shoes is equal to the energy of making a basketball. So the opportunity cost of making a pair of shoes is equal to one basketball. So now we're ready to draw the connection. Given the opportunity cost that we have calculated, what country has the comparative advantage in basketballs? Pause this video and try to figure it out. So now let's look at the opportunity cost of producing a basketball in either country. In country A, it's each basketball costs a worker 3 4ths of a pair of shoes, while in country B, it costs them a whole pair of shoes."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "Given the opportunity cost that we have calculated, what country has the comparative advantage in basketballs? Pause this video and try to figure it out. So now let's look at the opportunity cost of producing a basketball in either country. In country A, it's each basketball costs a worker 3 4ths of a pair of shoes, while in country B, it costs them a whole pair of shoes. So country A actually has a lower opportunity cost of producing basketballs. And so it has the comparative advantage here. Comparative, comparative advantage."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "In country A, it's each basketball costs a worker 3 4ths of a pair of shoes, while in country B, it costs them a whole pair of shoes. So country A actually has a lower opportunity cost of producing basketballs. And so it has the comparative advantage here. Comparative, comparative advantage. And then if we look at shoes, it goes the other way around. Country A has an opportunity cost of 1 1 3rd basketballs for every pair of shoes, while country B has an opportunity cost of only one basketball per pair of shoes. So it has a lower opportunity cost."}, {"video_title": "Opportunity cost and comparative advantage using an output table AP Macroeconomics Khan Academy.mp3", "Sentence": "Comparative, comparative advantage. And then if we look at shoes, it goes the other way around. Country A has an opportunity cost of 1 1 3rd basketballs for every pair of shoes, while country B has an opportunity cost of only one basketball per pair of shoes. So it has a lower opportunity cost. And this one actually might be a little bit counterintuitive because if you look on the shoe axis right over here, country A has the absolute advantage in producing shoes. A worker per day in country A can produce six pairs of shoes while a worker in country B can only produce four pairs of shoes. But even though country A has the absolute advantage, it would actually make sense for country A to focus on basketballs while country B focuses on shoes."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "And this is what we got right over here. It was aligned with a slope twice as steep as the slope of the demand curve. And we'll see that that's actually generalizable. There's an optional video that I'll do very shortly where I prove it with a little bit of calculus. But it's very important to realize that this marginal revenue curve looks very different than the marginal revenue curve if we were dealing with perfect competition. If we were dealing with perfect competition, there would be some equilibrium price in the market. And all of the competitors would essentially just have to take that price."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "There's an optional video that I'll do very shortly where I prove it with a little bit of calculus. But it's very important to realize that this marginal revenue curve looks very different than the marginal revenue curve if we were dealing with perfect competition. If we were dealing with perfect competition, there would be some equilibrium price in the market. And all of the competitors would essentially just have to take that price. So let's say that that equilibrium price was $3 per pound. Then our marginal revenue curve would look like this. If we were not a monopolist, if we were one of the many perfect competitors, I guess you could view it that way, because we would just have to take that price."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "And all of the competitors would essentially just have to take that price. So let's say that that equilibrium price was $3 per pound. Then our marginal revenue curve would look like this. If we were not a monopolist, if we were one of the many perfect competitors, I guess you could view it that way, because we would just have to take that price. If we wanted to sell 1,000 pounds, each of those pounds, we would get $3 per pound. And then if we want to sell 1,001, we'll just get $3 per pound for the next one. It doesn't change."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "If we were not a monopolist, if we were one of the many perfect competitors, I guess you could view it that way, because we would just have to take that price. If we wanted to sell 1,000 pounds, each of those pounds, we would get $3 per pound. And then if we want to sell 1,001, we'll just get $3 per pound for the next one. It doesn't change. We're just taking that price. With a monopolist, things do change, because we are the only producer in the market. The price at which we can get changes depending on what we produce, because we are the entire supply for the market."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "It doesn't change. We're just taking that price. With a monopolist, things do change, because we are the only producer in the market. The price at which we can get changes depending on what we produce, because we are the entire supply for the market. And we have this downward sloping marginal revenue curve. Now, with that out of the way, let's think about what will be the optimal quantity for us to produce if we wanted to maximize profit. And if we think in pure economic terms, that's what firms try to do."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "The price at which we can get changes depending on what we produce, because we are the entire supply for the market. And we have this downward sloping marginal revenue curve. Now, with that out of the way, let's think about what will be the optimal quantity for us to produce if we wanted to maximize profit. And if we think in pure economic terms, that's what firms try to do. They exist to maximize profit. And to do that, we're going to have to think about, and remember, it's not to maximize revenue. To maximize revenue, we would have said, oh, well, they should just produce 3,000 pounds."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "And if we think in pure economic terms, that's what firms try to do. They exist to maximize profit. And to do that, we're going to have to think about, and remember, it's not to maximize revenue. To maximize revenue, we would have said, oh, well, they should just produce 3,000 pounds. But it's not about maximizing revenue. It's about maximizing profit. We have to take the cost into consideration."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "To maximize revenue, we would have said, oh, well, they should just produce 3,000 pounds. But it's not about maximizing revenue. It's about maximizing profit. We have to take the cost into consideration. And to do that, we'll have to draw a marginal cost curve. And so let's say I did the research. Let's say we're the owners of this firm."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "We have to take the cost into consideration. And to do that, we'll have to draw a marginal cost curve. And so let's say I did the research. Let's say we're the owners of this firm. And we have a marginal cost curve that looks something like this. Let's say our marginal cost curve looks like this. It's important to realize we are the market."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "Let's say we're the owners of this firm. And we have a marginal cost curve that looks something like this. Let's say our marginal cost curve looks like this. It's important to realize we are the market. We are the only producers here. So this isn't just our marginal cost curve. This is a marginal cost curve for the market."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "It's important to realize we are the market. We are the only producers here. So this isn't just our marginal cost curve. This is a marginal cost curve for the market. Or another way to think about it, this is the supply curve for the market. It tells you at any given price how much the market is willing to supply. You could view it as a marginal cost, or you could view it as a supply curve."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "This is a marginal cost curve for the market. Or another way to think about it, this is the supply curve for the market. It tells you at any given price how much the market is willing to supply. You could view it as a marginal cost, or you could view it as a supply curve. And we've talked about it before. We could view a supply curve as a marginal cost curve. If you want the market to produce one extra pound, what's the minimum price you would have to give?"}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "You could view it as a marginal cost, or you could view it as a supply curve. And we've talked about it before. We could view a supply curve as a marginal cost curve. If you want the market to produce one extra pound, what's the minimum price you would have to give? That is the marginal cost. Now, with this out of the way, let's think about what you would produce. Well, you would definitely want to produce something."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "If you want the market to produce one extra pound, what's the minimum price you would have to give? That is the marginal cost. Now, with this out of the way, let's think about what you would produce. Well, you would definitely want to produce something. You'd definitely start to produce a few pounds right over here, because the marginal revenue you're getting is way above your marginal cost. Each incremental pound you're producing right over here, you're getting much more revenue. You're getting $5 or $6 of revenue, and it's only costing you a little over $1."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "Well, you would definitely want to produce something. You'd definitely start to produce a few pounds right over here, because the marginal revenue you're getting is way above your marginal cost. Each incremental pound you're producing right over here, you're getting much more revenue. You're getting $5 or $6 of revenue, and it's only costing you a little over $1. So you're saying, OK, I'm going to keep producing. I'm going to keep producing. Over here, each incremental unit you're getting, you're still getting more revenue than the cost of that incremental unit."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "You're getting $5 or $6 of revenue, and it's only costing you a little over $1. So you're saying, OK, I'm going to keep producing. I'm going to keep producing. Over here, each incremental unit you're getting, you're still getting more revenue than the cost of that incremental unit. And that keeps being true all the way until you get to 2,000 pounds right over here. At this point right over here, you don't want to produce an incremental unit, because if you produce one more unit, if you produce that 2,001st pound right over here, then for that 2,001st pound, your cost is going to be slightly higher than the revenue you get in. So you will actually take a slight loss on that."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "Over here, each incremental unit you're getting, you're still getting more revenue than the cost of that incremental unit. And that keeps being true all the way until you get to 2,000 pounds right over here. At this point right over here, you don't want to produce an incremental unit, because if you produce one more unit, if you produce that 2,001st pound right over here, then for that 2,001st pound, your cost is going to be slightly higher than the revenue you get in. So you will actually take a slight loss on that. So your total profit will start to go down. And you don't want to produce less than this, because you'll be leaving a little money on the table. You'll be leaving that little incremental pound where the marginal revenue on that incremental pound was just slightly higher than your marginal cost on that incremental pound."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "So you will actually take a slight loss on that. So your total profit will start to go down. And you don't want to produce less than this, because you'll be leaving a little money on the table. You'll be leaving that little incremental pound where the marginal revenue on that incremental pound was just slightly higher than your marginal cost on that incremental pound. So you will produce right over there. Now, this is interesting, because this is a different equilibrium, or I guess we say this is a different price, or this is a different price and quantity than we would get if we were dealing with perfect competition. If we were dealing with perfect competition, our equilibrium price and quantity would be where our supply and demand curves intersect."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "You'll be leaving that little incremental pound where the marginal revenue on that incremental pound was just slightly higher than your marginal cost on that incremental pound. So you will produce right over there. Now, this is interesting, because this is a different equilibrium, or I guess we say this is a different price, or this is a different price and quantity than we would get if we were dealing with perfect competition. If we were dealing with perfect competition, our equilibrium price and quantity would be where our supply and demand curves intersect. It would be right over here. It would be a price of $3 per pound and a quantity of 3,000 pounds. Now, in order to maximize profit, we are intersecting between the marginal revenue curve and our quantity that we want to produce as a monopolist is the intersection between our marginal revenue curve and our marginal cost curve, which is right over here."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "If we were dealing with perfect competition, our equilibrium price and quantity would be where our supply and demand curves intersect. It would be right over here. It would be a price of $3 per pound and a quantity of 3,000 pounds. Now, in order to maximize profit, we are intersecting between the marginal revenue curve and our quantity that we want to produce as a monopolist is the intersection between our marginal revenue curve and our marginal cost curve, which is right over here. And so we can see that there is a deadweight loss. There is a deadweight loss by being a monopoly, although it's good for us. It's good for the monopolist."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "Now, in order to maximize profit, we are intersecting between the marginal revenue curve and our quantity that we want to produce as a monopolist is the intersection between our marginal revenue curve and our marginal cost curve, which is right over here. And so we can see that there is a deadweight loss. There is a deadweight loss by being a monopoly, although it's good for us. It's good for the monopolist. It's not good for society, at least in this example. And there's very few where I can imagine it being good. But I guess there are a few if you're trying to protect a national industry or something like that."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "It's good for the monopolist. It's not good for society, at least in this example. And there's very few where I can imagine it being good. But I guess there are a few if you're trying to protect a national industry or something like that. Over here, this is the quantity that we are deciding to produce. The consumer surplus is the area above the price and below the demand curve. So this right over here is the consumer surplus."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "But I guess there are a few if you're trying to protect a national industry or something like that. Over here, this is the quantity that we are deciding to produce. The consumer surplus is the area above the price and below the demand curve. So this right over here is the consumer surplus. The producer surplus is looking pretty good. And this is essentially what we're trying to optimize. Our producer surplus is this whole area right over here."}, {"video_title": "Monopolist optimizing price Dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is the consumer surplus. The producer surplus is looking pretty good. And this is essentially what we're trying to optimize. Our producer surplus is this whole area right over here. But we have a deadweight cost. There's a total surplus that society would have gotten if we were dealing with perfect competition right over here that's now being lost. But as we lose that, we were able to increase the producer surplus and decrease the consumer surplus."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "Let's say that I am a producer of wine. And in this axis, vertical axis, this is dollars per bottle. So 10, 20, 30, 40 dollars per bottle. And on this axis right over here, I'll have quantity of bottles I produce per week. So let's say that this is 100, this is 200, 300, and then 400. This is quantity of bottles per week, and this is dollars per bottle. So let's think about the demand curve here."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "And on this axis right over here, I'll have quantity of bottles I produce per week. So let's say that this is 100, this is 200, 300, and then 400. This is quantity of bottles per week, and this is dollars per bottle. So let's think about the demand curve here. The demand curve for my type of wine, we're going to assume this is highly differentiated wine. The demand curve looks something like that. I'm doing it as a straight line for simplicity."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "So let's think about the demand curve here. The demand curve for my type of wine, we're going to assume this is highly differentiated wine. The demand curve looks something like that. I'm doing it as a straight line for simplicity. The demand curve looks like that. And since I said differentiated, this is not going to be perfect competition. I have a monopoly in my type of wine."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "I'm doing it as a straight line for simplicity. The demand curve looks like that. And since I said differentiated, this is not going to be perfect competition. I have a monopoly in my type of wine. So this isn't the market for wine generally, this is a market for my wine. My wine has won some taste tests, it has this unique flavor and whatever else. And so you can view me as a monopolistic competitor."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "I have a monopoly in my type of wine. So this isn't the market for wine generally, this is a market for my wine. My wine has won some taste tests, it has this unique flavor and whatever else. And so you can view me as a monopolistic competitor. There's obviously competition from other wine labels, from other wine producers, but my wine is differentiated, and I have a monopoly in my particular type of wine. And we've done this multiple times. If I have a monopoly in my type of wine, we're talking about the market in my wine, then my marginal revenue curve will have twice the slope of this."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "And so you can view me as a monopolistic competitor. There's obviously competition from other wine labels, from other wine producers, but my wine is differentiated, and I have a monopoly in my particular type of wine. And we've done this multiple times. If I have a monopoly in my type of wine, we're talking about the market in my wine, then my marginal revenue curve will have twice the slope of this. So it will look something like that. And I'll actually keep going negative after that. So that is my marginal revenue curve."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "If I have a monopoly in my type of wine, we're talking about the market in my wine, then my marginal revenue curve will have twice the slope of this. So it will look something like that. And I'll actually keep going negative after that. So that is my marginal revenue curve. And then we can think about the cost side. The cost side of things, my marginal cost might look something like this. Marginal cost, or you could even view that as a supply curve for my wine."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "So that is my marginal revenue curve. And then we can think about the cost side. The cost side of things, my marginal cost might look something like this. Marginal cost, or you could even view that as a supply curve for my wine. And then we can also do average total cost. So the average total cost starts off high, we have a fixed cost divided by a small quantity. But the marginal costs are lower than the average, so the average keeps going down and down and down and down."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "Marginal cost, or you could even view that as a supply curve for my wine. And then we can also do average total cost. So the average total cost starts off high, we have a fixed cost divided by a small quantity. But the marginal costs are lower than the average, so the average keeps going down and down and down and down. Then they're equal, now each incremental unit is bringing up the average in cost. So then the average total cost might look something like that. Average total cost."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "But the marginal costs are lower than the average, so the average keeps going down and down and down and down. Then they're equal, now each incremental unit is bringing up the average in cost. So then the average total cost might look something like that. Average total cost. And we've seen this show multiple times. If in the near term, I do have a monopoly here, so I will just produce the quantity where my marginal revenue is equal to my marginal cost. Before that quantity, for every unit, I'm getting economic profit, economic profit, economic profit."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "Average total cost. And we've seen this show multiple times. If in the near term, I do have a monopoly here, so I will just produce the quantity where my marginal revenue is equal to my marginal cost. Before that quantity, for every unit, I'm getting economic profit, economic profit, economic profit. If I produce more than that, I'm not getting any economic profit anymore. So I'm going to produce this quantity, which looks like about 160 units. And I'm going to sell it for, let me be careful here, the price I'm going to be able to sell it."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "Before that quantity, for every unit, I'm getting economic profit, economic profit, economic profit. If I produce more than that, I'm not getting any economic profit anymore. So I'm going to produce this quantity, which looks like about 160 units. And I'm going to sell it for, let me be careful here, the price I'm going to be able to sell it. So this is the quantity that I'm going to be able to sell, the price I'm going to sell it at. Go up to the demand curve, that point of the demand curve, and it looks like I'll be able to sell it for about, I don't know, $33 a bottle. And if we want to think about economic profit, this is the average revenue per bottle, this is the average cost per bottle, so this is the average economic profit per bottle."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "And I'm going to sell it for, let me be careful here, the price I'm going to be able to sell it. So this is the quantity that I'm going to be able to sell, the price I'm going to sell it at. Go up to the demand curve, that point of the demand curve, and it looks like I'll be able to sell it for about, I don't know, $33 a bottle. And if we want to think about economic profit, this is the average revenue per bottle, this is the average cost per bottle, so this is the average economic profit per bottle. And I multiply that times the total number of bottles, and I'm going to get my economic profit. So this area right over here is my total economic profit. And we can think about how much are the consumers benefiting from it, how much benefit are they getting excess of what they're paying for it."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "And if we want to think about economic profit, this is the average revenue per bottle, this is the average cost per bottle, so this is the average economic profit per bottle. And I multiply that times the total number of bottles, and I'm going to get my economic profit. So this area right over here is my total economic profit. And we can think about how much are the consumers benefiting from it, how much benefit are they getting excess of what they're paying for it. And that would be this area right over here. That is the consumer surplus. Now let's say I'm just not happy with this."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "And we can think about how much are the consumers benefiting from it, how much benefit are they getting excess of what they're paying for it. And that would be this area right over here. That is the consumer surplus. Now let's say I'm just not happy with this. I see that there's an opportunity here to get even more economic profit, because after all, and we've been talking about this from the beginning, there are people here who are getting over $40 of benefit from my wine, but I'm selling it to them for only $33. Everything we've assumed so far is that all of the consumers are buying something at the exact same price. But I'm a crafty wine producer, and I say, well, let me call that into question."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "Now let's say I'm just not happy with this. I see that there's an opportunity here to get even more economic profit, because after all, and we've been talking about this from the beginning, there are people here who are getting over $40 of benefit from my wine, but I'm selling it to them for only $33. Everything we've assumed so far is that all of the consumers are buying something at the exact same price. But I'm a crafty wine producer, and I say, well, let me call that into question. Why can't I just put a different label on my exact same wine and sell it to these people for a different price? And so I do that exact thing. I still produce this exact same quantity, but the first 100 units of my quantity, I put a different label on it."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "But I'm a crafty wine producer, and I say, well, let me call that into question. Why can't I just put a different label on my exact same wine and sell it to these people for a different price? And so I do that exact thing. I still produce this exact same quantity, but the first 100 units of my quantity, I put a different label on it. This label says Super Fancy Wine, Super Fancy Premium, the best wine you ever drank. Super Fancy Premium Wine. It has all of the awards, all of the fancy people who like it."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "I still produce this exact same quantity, but the first 100 units of my quantity, I put a different label on it. This label says Super Fancy Wine, Super Fancy Premium, the best wine you ever drank. Super Fancy Premium Wine. It has all of the awards, all of the fancy people who like it. I put it in the best wine boutiques and the best restaurants with that label, all this exact same stuff in the bottle, and I sell that one at $40 a bottle. So the first 100 units I sell at $40 a bottle. So now my economic profit on those units, remember, I'm producing 150, so my average total cost is down here."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "It has all of the awards, all of the fancy people who like it. I put it in the best wine boutiques and the best restaurants with that label, all this exact same stuff in the bottle, and I sell that one at $40 a bottle. So the first 100 units I sell at $40 a bottle. So now my economic profit on those units, remember, I'm producing 150, so my average total cost is down here. My average total cost is this line right over here. So on those bottles, I'm getting this much economic profit per bottle times these 100 units. I've now increased my economic profit."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "So now my economic profit on those units, remember, I'm producing 150, so my average total cost is down here. My average total cost is this line right over here. So on those bottles, I'm getting this much economic profit per bottle times these 100 units. I've now increased my economic profit. I've eaten into the consumer surplus. I've taken some of that for myself and turned it into economic profit. And then the other, I don't know, this looks like about 60 or 70 bottles, I just have with the traditional label, and I maybe sell it at the supermarket."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "I've now increased my economic profit. I've eaten into the consumer surplus. I've taken some of that for myself and turned it into economic profit. And then the other, I don't know, this looks like about 60 or 70 bottles, I just have with the traditional label, and I maybe sell it at the supermarket. Traditional label, and I just sell it at the supermarket. I call it just Pretty Good Wine, just so in case someone who bought it at the fancy place doesn't see that the Pretty Good Wine is the exact same thing. And what I've just done here is I've discriminated amongst consumers."}, {"video_title": "Price discrimination Microeconomics Khan Academy.mp3", "Sentence": "And then the other, I don't know, this looks like about 60 or 70 bottles, I just have with the traditional label, and I maybe sell it at the supermarket. Traditional label, and I just sell it at the supermarket. I call it just Pretty Good Wine, just so in case someone who bought it at the fancy place doesn't see that the Pretty Good Wine is the exact same thing. And what I've just done here is I've discriminated amongst consumers. Depending on consumers' willingness to pay, I've essentially charged them different prices and also, I guess to some degree, based on where they shop and their gullibility, I am charging them two completely different prices. And this right over here is called price discrimination. And it's a way that a supplier can essentially take some of the consumer surplus for themselves, eat into some of that excess marginal benefit that they're essentially giving to the consumer and turning it into economic profit."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "This is price. This is quantity. That is demand right over there. And I'm going to show that the marginal revenue curve has twice the slope. It is twice as steep as this, and it's really twice the negative slope. So let me just write price as a function of quantity. We know we get price."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "And I'm going to show that the marginal revenue curve has twice the slope. It is twice as steep as this, and it's really twice the negative slope. So let me just write price as a function of quantity. We know we get price. Since this is a line, we can essentially write it in our traditional slope-y-intercept form. In algebra class, you would write if this was y and this was x, you would write y is equal to mx plus b, where m is the slope and b is the y-intercept. I'll do something very similar, but instead of y and x, we have p and q."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "We know we get price. Since this is a line, we can essentially write it in our traditional slope-y-intercept form. In algebra class, you would write if this was y and this was x, you would write y is equal to mx plus b, where m is the slope and b is the y-intercept. I'll do something very similar, but instead of y and x, we have p and q. So if p is equal to m times q, where m is the slope, plus the p-intercept, plus b. So this right over here is b. If you were to take your change in p and divide it by your change in q, you would get m. That is your slope."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "I'll do something very similar, but instead of y and x, we have p and q. So if p is equal to m times q, where m is the slope, plus the p-intercept, plus b. So this right over here is b. If you were to take your change in p and divide it by your change in q, you would get m. That is your slope. Change in p divided by change in q. Now what is going to be our total revenue? We're just kind of almost doing what we've done in the last few videos, but we're doing it in general terms."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "If you were to take your change in p and divide it by your change in q, you would get m. That is your slope. Change in p divided by change in q. Now what is going to be our total revenue? We're just kind of almost doing what we've done in the last few videos, but we're doing it in general terms. So this is total revenue as a function of quantity. Well, total revenue is just price times quantity. We've already written price as a function of quantity right over here, so we could take that and substitute it in right over there."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "We're just kind of almost doing what we've done in the last few videos, but we're doing it in general terms. So this is total revenue as a function of quantity. Well, total revenue is just price times quantity. We've already written price as a function of quantity right over here, so we could take that and substitute it in right over there. So we get total revenue is equal to, and I'll write it all in blue, we have mq plus b, and then we're going to multiply that times q. Or we get total revenue is equal to mq squared plus b times q. This is a parabola, and it's actually going to be a downward-sloping parabola because m is going to be negative."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "We've already written price as a function of quantity right over here, so we could take that and substitute it in right over there. So we get total revenue is equal to, and I'll write it all in blue, we have mq plus b, and then we're going to multiply that times q. Or we get total revenue is equal to mq squared plus b times q. This is a parabola, and it's actually going to be a downward-sloping parabola because m is going to be negative. This is downward-sloping. m has a negative slope, so m is negative. So we know that m is less than 0 over here."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "This is a parabola, and it's actually going to be a downward-sloping parabola because m is going to be negative. This is downward-sloping. m has a negative slope, so m is negative. So we know that m is less than 0 over here. That's one of the assumptions we'll make. If m is less than 0, this is going to be a downward-opening parabola. Total revenue will look something like that."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "So we know that m is less than 0 over here. That's one of the assumptions we'll make. If m is less than 0, this is going to be a downward-opening parabola. Total revenue will look something like that. That is our total revenue. Now, the marginal revenue as a function of quantity is just the derivative, and this is the calculus part. It's the slope of the tangent line at any given point, and that is what the derivative is."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "Total revenue will look something like that. That is our total revenue. Now, the marginal revenue as a function of quantity is just the derivative, and this is the calculus part. It's the slope of the tangent line at any given point, and that is what the derivative is. It's the slope of the tangent line at any point as a function of quantity. So you give me a quantity, I will tell you what the slope of the tangent line of the total revenue function is at that point. So we essentially just have to take the derivative of this with respect to q."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "It's the slope of the tangent line at any given point, and that is what the derivative is. It's the slope of the tangent line at any point as a function of quantity. So you give me a quantity, I will tell you what the slope of the tangent line of the total revenue function is at that point. So we essentially just have to take the derivative of this with respect to q. So we get d total revenue over dq. So how much does total revenue change with a very, very small change in quantity, an infinitely small, infinitesimal change in quantity? And this comes straight out of calculus."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "So we essentially just have to take the derivative of this with respect to q. So we get d total revenue over dq. So how much does total revenue change with a very, very small change in quantity, an infinitely small, infinitesimal change in quantity? And this comes straight out of calculus. m is a constant. q squared, the derivative of q squared with respect to q, is 2q. So it's going to be 2q times the constant, so it's going to be 2mq."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "And this comes straight out of calculus. m is a constant. q squared, the derivative of q squared with respect to q, is 2q. So it's going to be 2q times the constant, so it's going to be 2mq. And then b is a constant. We're assuming it's given. b is a constant."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "So it's going to be 2q times the constant, so it's going to be 2mq. And then b is a constant. We're assuming it's given. b is a constant. So the derivative of bq with respect to q is just going to be b. And so right over here, this is our marginal revenue curve, or I should say our marginal revenue line. It is 2mq plus b."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "b is a constant. So the derivative of bq with respect to q is just going to be b. And so right over here, this is our marginal revenue curve, or I should say our marginal revenue line. It is 2mq plus b. So notice it has the same y-intercept as our demand curve, so it definitely starts right over there, but it has twice the slope. The slope of our demand curve is m. The slope of our marginal revenue curve is 2m. And this is a negative slope, so this will be twice as negative."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "It is 2mq plus b. So notice it has the same y-intercept as our demand curve, so it definitely starts right over there, but it has twice the slope. The slope of our demand curve is m. The slope of our marginal revenue curve is 2m. And this is a negative slope, so this will be twice as negative. So it will look something like this. It will look something like this, just like that. So no matter what your demand curve is, if you assume it's a line like this, the marginal revenue curve will be a line with twice the slope, and in this case, it's twice the negative slope, which is kind of what's going to be generally true."}, {"video_title": "Optional calculus proof to show that MR has twice slope of demand Khan Academy.mp3", "Sentence": "And this is a negative slope, so this will be twice as negative. So it will look something like this. It will look something like this, just like that. So no matter what your demand curve is, if you assume it's a line like this, the marginal revenue curve will be a line with twice the slope, and in this case, it's twice the negative slope, which is kind of what's going to be generally true. Anyway, if you understood that, great. You now feel good that this is always the case for a linear demand curve like this. If you did not understand it, don't worry."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "Let's say you're some type of a hunter-gatherer and you're trying to figure out how much of your time to spend hunting and how much of your time to spend gathering. So let's think about the different scenarios here and the trade-offs that they involve. And just for simplicity, we're gonna assume that when you're talking about hunting, the only animal around you to hunt for are these little rabbits. And when we talk about gathering, the only thing that you can gather are some type of berries. That'll keep our conversation a little bit simpler. So let's think about all of the scenarios. So first, let's call this first scenario, Scenario A."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "And when we talk about gathering, the only thing that you can gather are some type of berries. That'll keep our conversation a little bit simpler. So let's think about all of the scenarios. So first, let's call this first scenario, Scenario A. And let's say, so let's call this the number of rabbits, the number of rabbits you can get. And then let's call this the number of berries. Let's do this column is the number of berries that you can get."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So first, let's call this first scenario, Scenario A. And let's say, so let's call this the number of rabbits, the number of rabbits you can get. And then let's call this the number of berries. Let's do this column is the number of berries that you can get. So if you were to spend your entire day going after rabbits, all your free time, out, you know, making sure you have time to sleep and get dressed and all of those type of things, let's say that you can actually get five rabbits on average in a given day. But if you spend all your time getting rabbits, you're not going to have any time to get berries. So you're going to be able to get zero berries."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "Let's do this column is the number of berries that you can get. So if you were to spend your entire day going after rabbits, all your free time, out, you know, making sure you have time to sleep and get dressed and all of those type of things, let's say that you can actually get five rabbits on average in a given day. But if you spend all your time getting rabbits, you're not going to have any time to get berries. So you're going to be able to get zero berries. Now let's say that you were to only try to, let's say you were to allocate a little bit more time to get berries and a little bit less time to get rabbits. So we'll call that Scenario B. We'll call Scenario B the reality where you have enough time to get four rabbits on average."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So you're going to be able to get zero berries. Now let's say that you were to only try to, let's say you were to allocate a little bit more time to get berries and a little bit less time to get rabbits. So we'll call that Scenario B. We'll call Scenario B the reality where you have enough time to get four rabbits on average. And when you do that, all of a sudden, you're able to get 100 berries. And when we do these different scenarios, we're assuming that everything else is equal. You're not changing the amount of time you have either hunting or gathering."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "We'll call Scenario B the reality where you have enough time to get four rabbits on average. And when you do that, all of a sudden, you're able to get 100 berries. And when we do these different scenarios, we're assuming that everything else is equal. You're not changing the amount of time you have either hunting or gathering. You're not changing the amount of sleep. You're not changing your techniques for hunting rabbits or hunting berries, or you're not somehow looking to do other things with your time. So all other things are equal."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "You're not changing the amount of time you have either hunting or gathering. You're not changing the amount of sleep. You're not changing your techniques for hunting rabbits or hunting berries, or you're not somehow looking to do other things with your time. So all other things are equal. And the general term for this, and it sounds very fancy if you were to say it in a conversation, is Ceteris Paribus. Ceteris Paribus. Which literally means, so anytime someone says, oh, and Ceteris Paribus, we assume this variable changes or whatever else, they're saying we're assuming everything else is being held equal."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So all other things are equal. And the general term for this, and it sounds very fancy if you were to say it in a conversation, is Ceteris Paribus. Ceteris Paribus. Which literally means, so anytime someone says, oh, and Ceteris Paribus, we assume this variable changes or whatever else, they're saying we're assuming everything else is being held equal. So Ceteris means all other things. You're probably familiar with et cetera. It's the same word, essentially."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "Which literally means, so anytime someone says, oh, and Ceteris Paribus, we assume this variable changes or whatever else, they're saying we're assuming everything else is being held equal. So Ceteris means all other things. You're probably familiar with et cetera. It's the same word, essentially. Other things and Paribus, other things equal. So you're not, when you're going from scenario A to scenario B, you're not changing the amount of time you're sleeping, you're not changing somehow the geography where you are in a dramatic way. You're not changing the tools you use or the technology."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "It's the same word, essentially. Other things and Paribus, other things equal. So you're not, when you're going from scenario A to scenario B, you're not changing the amount of time you're sleeping, you're not changing somehow the geography where you are in a dramatic way. You're not changing the tools you use or the technology. Everything else is equal. The only variable you're changing is how much time you allocate to finding rabbits versus finding berries. So let's do some more scenarios assuming Ceteris Paribus."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "You're not changing the tools you use or the technology. Everything else is equal. The only variable you're changing is how much time you allocate to finding rabbits versus finding berries. So let's do some more scenarios assuming Ceteris Paribus. So let me do scenario C. You could, on average, have enough time to get three rabbits but if you get three rabbits, then all of a sudden, you will only be able to get, or you will be able to get, or if you're only getting three rabbits, you're not only gonna get 180 berries. And let's do a couple more. I'm gonna do two more scenarios."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So let's do some more scenarios assuming Ceteris Paribus. So let me do scenario C. You could, on average, have enough time to get three rabbits but if you get three rabbits, then all of a sudden, you will only be able to get, or you will be able to get, or if you're only getting three rabbits, you're not only gonna get 180 berries. And let's do a couple more. I'm gonna do two more scenarios. So let's say scenario D. If you reduce the amount of time you spend getting rabbits, so you get two rabbits, now all of a sudden, you have enough time, on average, to get 240 berries. And then, let's say you spend even less time, let's say you spend even less time getting, hunting for rabbits, on average, then you have even more time for berries and so you're able to get 280 berries. And then I'll do one more scenario here."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "I'm gonna do two more scenarios. So let's say scenario D. If you reduce the amount of time you spend getting rabbits, so you get two rabbits, now all of a sudden, you have enough time, on average, to get 240 berries. And then, let's say you spend even less time, let's say you spend even less time getting, hunting for rabbits, on average, then you have even more time for berries and so you're able to get 280 berries. And then I'll do one more scenario here. So let's say scenario F. And let's call these the scenarios. Scenarios. Scenario A through F. So scenario F is you spend all your time looking for berries, in which case, on average, you're going to be able to get 300 berries a day."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "And then I'll do one more scenario here. So let's say scenario F. And let's call these the scenarios. Scenarios. Scenario A through F. So scenario F is you spend all your time looking for berries, in which case, on average, you're going to be able to get 300 berries a day. But since you have no time for rabbits, you aren't going to get any rabbits. So what I wanna do is plot these. And on one axis, I'll have the number of rabbits."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "Scenario A through F. So scenario F is you spend all your time looking for berries, in which case, on average, you're going to be able to get 300 berries a day. But since you have no time for rabbits, you aren't going to get any rabbits. So what I wanna do is plot these. And on one axis, I'll have the number of rabbits. And on the other axis, I'll have the number of berries. So let me do it right over here. So this axis, I will call this my rabbit axis."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "And on one axis, I'll have the number of rabbits. And on the other axis, I'll have the number of berries. So let me do it right over here. So this axis, I will call this my rabbit axis. Rabbits, and we'll start, that'll be zero. And then this will be one, two, three, four, and then that will be five rabbits. And then in this axis, this axis, I will do the berries."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So this axis, I will call this my rabbit axis. Rabbits, and we'll start, that'll be zero. And then this will be one, two, three, four, and then that will be five rabbits. And then in this axis, this axis, I will do the berries. I will do the berries. So this right over here, let's make this 100 berries. This is 200 berries."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "And then in this axis, this axis, I will do the berries. I will do the berries. So this right over here, let's make this 100 berries. This is 200 berries. 200 berries, and then this is 300 berries. And so this is my berries, my berries axis. Now let's plot these points, these different scenarios."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "This is 200 berries. 200 berries, and then this is 300 berries. And so this is my berries, my berries axis. Now let's plot these points, these different scenarios. So first we have scenario A. Scenario A, maybe I should have done all of these colors in that scenario A color. Scenario A, five rabbits, zero berries."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "Now let's plot these points, these different scenarios. So first we have scenario A. Scenario A, maybe I should have done all of these colors in that scenario A color. Scenario A, five rabbits, zero berries. Five rabbits, zero berries. We are right over there. That is scenario A."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "Scenario A, five rabbits, zero berries. Five rabbits, zero berries. We are right over there. That is scenario A. Scenario B, four rabbits, 100 berries. Four rabbits, 100 berries. That's right over there, that's 100 berries."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "That is scenario A. Scenario B, four rabbits, 100 berries. Four rabbits, 100 berries. That's right over there, that's 100 berries. So that is scenario B. Scenario C, three rabbits, 180 berries. Three rabbits, 180."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "That's right over there, that's 100 berries. So that is scenario B. Scenario C, three rabbits, 180 berries. Three rabbits, 180. Let's see, this would be 150. 180 will be like right over there. So if you have time for three rabbits, you have time for about 180 berries on average."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "Three rabbits, 180. Let's see, this would be 150. 180 will be like right over there. So if you have time for three rabbits, you have time for about 180 berries on average. So this is scenario C. And then scenario D we have in white. If you have time for two rabbits, you have time for 240 berries. So that is right around there."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So if you have time for three rabbits, you have time for about 180 berries on average. So this is scenario C. And then scenario D we have in white. If you have time for two rabbits, you have time for 240 berries. So that is right around there. So this is scenario D, because this is, actually it'll be a little bit lower. So this would be 250. So 240 is a little bit lower than that."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So that is right around there. So this is scenario D, because this is, actually it'll be a little bit lower. So this would be 250. So 240 is a little bit lower than that. So it'll be like right over there. That is scenario D. Scenario E, if you have time for one rabbit, you have time for 280 berries. So that gets us right about there."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So 240 is a little bit lower than that. So it'll be like right over there. That is scenario D. Scenario E, if you have time for one rabbit, you have time for 280 berries. So that gets us right about there. That is scenario E. And then finally scenario F, you are spending all of your time looking for berries. You have no time for rabbits. So all of your time for berries, no time for rabbits."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So that gets us right about there. That is scenario E. And then finally scenario F, you are spending all of your time looking for berries. You have no time for rabbits. So all of your time for berries, no time for rabbits. Zero rabbits, 300 berries. That's right over there. So this is scenario F. So what all of these points represent, these are all points, and now this is going to be a fancy word, but it's a very simple idea."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So all of your time for berries, no time for rabbits. Zero rabbits, 300 berries. That's right over there. So this is scenario F. So what all of these points represent, these are all points, and now this is going to be a fancy word, but it's a very simple idea. These are all points on you as a hunter-gatherer on your production possibilities frontier. Because if we draw a line, I just arbitrarily picked these scenarios, although I guess you could on average get four and a half rabbits on average, on average get three and a half rabbits, and then you'd have a different number of berries. So these are all points on the different combinations between the trade-offs of rabbits and berries."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So this is scenario F. So what all of these points represent, these are all points, and now this is going to be a fancy word, but it's a very simple idea. These are all points on you as a hunter-gatherer on your production possibilities frontier. Because if we draw a line, I just arbitrarily picked these scenarios, although I guess you could on average get four and a half rabbits on average, on average get three and a half rabbits, and then you'd have a different number of berries. So these are all points on the different combinations between the trade-offs of rabbits and berries. So let me connect all of these. Let me connect them in a color that I haven't used yet. So let me connect them."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So these are all points on the different combinations between the trade-offs of rabbits and berries. So let me connect all of these. Let me connect them in a color that I haven't used yet. So let me connect them. And what you see should just be one curve. So I'll do it as a dotted line. It's easier for me to draw a dotted curve than a straight curve."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So let me connect them. And what you see should just be one curve. So I'll do it as a dotted line. It's easier for me to draw a dotted curve than a straight curve. So this right over here, this curve right over here represents all the possibilities of combinations of rabbits and berries. I've only picked certain of them, but you could have a scenario right over here. Maybe we could call that scenario G, where on average, the amount of time you've allocated, on average you would get four and a half rabbits, so some days you'd get four rabbits, and every other day you'd get five rabbits, so maybe it averages out to four and a half rabbits, and then maybe it looks like you would get about 50 berries in that situation."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "It's easier for me to draw a dotted curve than a straight curve. So this right over here, this curve right over here represents all the possibilities of combinations of rabbits and berries. I've only picked certain of them, but you could have a scenario right over here. Maybe we could call that scenario G, where on average, the amount of time you've allocated, on average you would get four and a half rabbits, so some days you'd get four rabbits, and every other day you'd get five rabbits, so maybe it averages out to four and a half rabbits, and then maybe it looks like you would get about 50 berries in that situation. So all of these are possibilities. You don't have to just jump from four rabbits to five rabbits or maybe you're spending, maybe in this scenario you're spending seven hours, and in this scenario you spend eight hours, but you could spend seven hours in a minute or seven hours in a second. So anything in between is possible, and all of those possibilities, all of those possibilities are on this curve."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "Maybe we could call that scenario G, where on average, the amount of time you've allocated, on average you would get four and a half rabbits, so some days you'd get four rabbits, and every other day you'd get five rabbits, so maybe it averages out to four and a half rabbits, and then maybe it looks like you would get about 50 berries in that situation. So all of these are possibilities. You don't have to just jump from four rabbits to five rabbits or maybe you're spending, maybe in this scenario you're spending seven hours, and in this scenario you spend eight hours, but you could spend seven hours in a minute or seven hours in a second. So anything in between is possible, and all of those possibilities, all of those possibilities are on this curve. So these five scenarios, actually these six scenarios that we've talked about so far, these are just scenarios on this curve, and that curve we call, once again, fancy term, simple idea, are production possibilities, possibilities, I put two I's in there by accident, possibilities, possibilities frontier, because it shows all of the different possibilities we can do, we can get. Three rabbits and 180 berries, two rabbits and 240 berries. What we cannot do is something that's beyond this."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So anything in between is possible, and all of those possibilities, all of those possibilities are on this curve. So these five scenarios, actually these six scenarios that we've talked about so far, these are just scenarios on this curve, and that curve we call, once again, fancy term, simple idea, are production possibilities, possibilities, I put two I's in there by accident, possibilities, possibilities frontier, because it shows all of the different possibilities we can do, we can get. Three rabbits and 180 berries, two rabbits and 240 berries. What we cannot do is something that's beyond this. So for example, we can't get a scenario like this. So this right over here would be impossible, impossible. Let me scroll over to the right a little bit."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "What we cannot do is something that's beyond this. So for example, we can't get a scenario like this. So this right over here would be impossible, impossible. Let me scroll over to the right a little bit. Let me scroll, see my scrolling thing, okay. So this right over here is impossible, this point right over here, where I'm getting five rabbits and 200 berries. If I'm getting five rabbits, I'm spending all my time on rabbits, I have no time for berries, or another way to think of it, if I'm getting 200 berries, I don't have enough time to get five rabbits."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "Let me scroll over to the right a little bit. Let me scroll, see my scrolling thing, okay. So this right over here is impossible, this point right over here, where I'm getting five rabbits and 200 berries. If I'm getting five rabbits, I'm spending all my time on rabbits, I have no time for berries, or another way to think of it, if I'm getting 200 berries, I don't have enough time to get five rabbits. So this point is impossible, this point would be impossible, any point that's on this side of the curve is impossible. Now, any point that's on this side of the curve, you can kind of view it as inside the curve, or below the curve, or to the left of the curve, all of these points right over here are possible. All of these points right over here are, these points, for example, it is very easy for me to get one rabbit and 200 berries."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "If I'm getting five rabbits, I'm spending all my time on rabbits, I have no time for berries, or another way to think of it, if I'm getting 200 berries, I don't have enough time to get five rabbits. So this point is impossible, this point would be impossible, any point that's on this side of the curve is impossible. Now, any point that's on this side of the curve, you can kind of view it as inside the curve, or below the curve, or to the left of the curve, all of these points right over here are possible. All of these points right over here are, these points, for example, it is very easy for me to get one rabbit and 200 berries. So that right over there is possible. Now, is that optimal? No, because if I were to really work properly, I could get many more berries, or I could get more rabbits."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "All of these points right over here are, these points, for example, it is very easy for me to get one rabbit and 200 berries. So that right over there is possible. Now, is that optimal? No, because if I were to really work properly, I could get many more berries, or I could get more rabbits. If I have 200 berries, I could get more rabbits, or if I'm concerned, if I only want one rabbit, I can get more berries. So this is possible, all of the points down here are possible, but they aren't optimal, they are not efficient. So the points in here, the points in here will say that they are not efficient."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "No, because if I were to really work properly, I could get many more berries, or I could get more rabbits. If I have 200 berries, I could get more rabbits, or if I'm concerned, if I only want one rabbit, I can get more berries. So this is possible, all of the points down here are possible, but they aren't optimal, they are not efficient. So the points in here, the points in here will say that they are not efficient. Maybe somehow I'm not using my resources optimally to do this type of thing when I'm over here, maybe I'm just not being optimally focused, or whatever it might be. If you're talking about a factory setting, when you're talking about maybe deciding to make one thing or another, then maybe you just aren't using the resources in an optimal way. Now, all the points on the frontier, these are efficient."}, {"video_title": "Production possibilities frontier Microeconomics Khan Academy.mp3", "Sentence": "So the points in here, the points in here will say that they are not efficient. Maybe somehow I'm not using my resources optimally to do this type of thing when I'm over here, maybe I'm just not being optimally focused, or whatever it might be. If you're talking about a factory setting, when you're talking about maybe deciding to make one thing or another, then maybe you just aren't using the resources in an optimal way. Now, all the points on the frontier, these are efficient. You're doing the most you can do. Right now, we're not making any judgment between whether any of these possibilities are better than any other possibility. All we are saying is that you are doing the most that you can do."}, {"video_title": "Monopolies vs. perfect competition Microeconomics Khan Academy.mp3", "Sentence": "And so to help us appreciate that, let's think about the spectrum on which firms can be. So this is going to be my spectrum right over here. Now at the left end, we can imagine this idealized perfect competition. Perfect competition. And we've talked about that in other videos, but just as a review, this is where you have many firms. This is where they are selling an undifferentiated product or service, undifferentiated product. The firms over here, well, they have no barriers to entry or exit."}, {"video_title": "Monopolies vs. perfect competition Microeconomics Khan Academy.mp3", "Sentence": "Perfect competition. And we've talked about that in other videos, but just as a review, this is where you have many firms. This is where they are selling an undifferentiated product or service, undifferentiated product. The firms over here, well, they have no barriers to entry or exit. So no barriers to entry or exit. These firms that we've talked about in other videos, they need to be price takers. Why do they need to be price takers?"}, {"video_title": "Monopolies vs. perfect competition Microeconomics Khan Academy.mp3", "Sentence": "The firms over here, well, they have no barriers to entry or exit. So no barriers to entry or exit. These firms that we've talked about in other videos, they need to be price takers. Why do they need to be price takers? Well, whatever the market price is, since no one cares which of these firms, which of these many firms they get the product from, none of those firms can really set their own price. If they were to go above the market price, well, then no one will buy from them. And so they will just be price takers."}, {"video_title": "Monopolies vs. perfect competition Microeconomics Khan Academy.mp3", "Sentence": "Why do they need to be price takers? Well, whatever the market price is, since no one cares which of these firms, which of these many firms they get the product from, none of those firms can really set their own price. If they were to go above the market price, well, then no one will buy from them. And so they will just be price takers. And other things that we assume about perfect competition is that all of the actors in the market, both the buyers, the many buyers, and the many sellers, they all know what the transactions are going on for. They know who's selling to whom for what amount. Now, the other extreme, this is where we have the monopoly."}, {"video_title": "Monopolies vs. perfect competition Microeconomics Khan Academy.mp3", "Sentence": "And so they will just be price takers. And other things that we assume about perfect competition is that all of the actors in the market, both the buyers, the many buyers, and the many sellers, they all know what the transactions are going on for. They know who's selling to whom for what amount. Now, the other extreme, this is where we have the monopoly. Monopoly. Here, instead of many firms selling or many firms producing, you have exactly one firm producing. Instead of an undifferentiated product, well, it's differentiated because it's the only firm."}, {"video_title": "Monopolies vs. perfect competition Microeconomics Khan Academy.mp3", "Sentence": "Now, the other extreme, this is where we have the monopoly. Monopoly. Here, instead of many firms selling or many firms producing, you have exactly one firm producing. Instead of an undifferentiated product, well, it's differentiated because it's the only firm. Instead of no barriers to entry or exit, here we're at the exact opposite. So you could say insurmountable. Insurmountable."}, {"video_title": "Monopolies vs. perfect competition Microeconomics Khan Academy.mp3", "Sentence": "Instead of an undifferentiated product, well, it's differentiated because it's the only firm. Instead of no barriers to entry or exit, here we're at the exact opposite. So you could say insurmountable. Insurmountable. Mountable, I'll just abbreviate it, barriers, especially to enter. And instead of being a price taker, you are a price setter. Price setter."}, {"video_title": "Monopolies vs. perfect competition Microeconomics Khan Academy.mp3", "Sentence": "Insurmountable. Mountable, I'll just abbreviate it, barriers, especially to enter. And instead of being a price taker, you are a price setter. Price setter. You're the only player, you're the only actor who is selling anything, so you can decide what price to sell it at. Now, perfect competition, as I talked about, it's a bit of a theoretical idea. It's hard to say any market that is absolutely perfect, but we can imagine markets that are on this spectrum, some closer to perfect competition, some closer to a monopoly."}, {"video_title": "Monopolies vs. perfect competition Microeconomics Khan Academy.mp3", "Sentence": "Price setter. You're the only player, you're the only actor who is selling anything, so you can decide what price to sell it at. Now, perfect competition, as I talked about, it's a bit of a theoretical idea. It's hard to say any market that is absolutely perfect, but we can imagine markets that are on this spectrum, some closer to perfect competition, some closer to a monopoly. Things that I can imagine that are closer to perfect competition might be, let's say, agriculture or a certain type of agriculture. Let's say you're buying pistachios, and you might be, most people are indifferent as to where their pistachios come from, although some people might beg to differ that certain types of pistachios are better than others, but for the most part, that'd be closer to perfect competition. There will be just a price in the market for pistachios."}, {"video_title": "Monopolies vs. perfect competition Microeconomics Khan Academy.mp3", "Sentence": "It's hard to say any market that is absolutely perfect, but we can imagine markets that are on this spectrum, some closer to perfect competition, some closer to a monopoly. Things that I can imagine that are closer to perfect competition might be, let's say, agriculture or a certain type of agriculture. Let's say you're buying pistachios, and you might be, most people are indifferent as to where their pistachios come from, although some people might beg to differ that certain types of pistachios are better than others, but for the most part, that'd be closer to perfect competition. There will be just a price in the market for pistachios. If someone wants to grow pistachios, I'm not familiar with what it takes to grow pistachios, and I apologize to any offense to any pistachio growers out there, but maybe they can just get enough land, and there's very close to low barriers to entry, and they can start producing pistachios. As I mentioned, many would perceive it as undifferentiated, and there might be many firms in, say, the pistachio market. I actually don't know if that's the case, but let's just assume if that were the case, it would be closer to perfect competition."}, {"video_title": "Monopolies vs. perfect competition Microeconomics Khan Academy.mp3", "Sentence": "There will be just a price in the market for pistachios. If someone wants to grow pistachios, I'm not familiar with what it takes to grow pistachios, and I apologize to any offense to any pistachio growers out there, but maybe they can just get enough land, and there's very close to low barriers to entry, and they can start producing pistachios. As I mentioned, many would perceive it as undifferentiated, and there might be many firms in, say, the pistachio market. I actually don't know if that's the case, but let's just assume if that were the case, it would be closer to perfect competition. Now, a monopoly, you can imagine things like, things that take a lot of infrastructure in order to do that service. So I can imagine things like, over here close to monopoly or at monopoly, you can imagine things like utilities providers, utilities, where it's hard for multiple people to run power lines to the various houses. You can imagine things like this telecom, telecom providers might be close, although in most geographies, you have more than one telecom providers, although in some parts of the world, you're getting pretty close to one, because once again, there's very, very, very high barriers to entry in either one of those."}, {"video_title": "Monopolies vs. perfect competition Microeconomics Khan Academy.mp3", "Sentence": "I actually don't know if that's the case, but let's just assume if that were the case, it would be closer to perfect competition. Now, a monopoly, you can imagine things like, things that take a lot of infrastructure in order to do that service. So I can imagine things like, over here close to monopoly or at monopoly, you can imagine things like utilities providers, utilities, where it's hard for multiple people to run power lines to the various houses. You can imagine things like this telecom, telecom providers might be close, although in most geographies, you have more than one telecom providers, although in some parts of the world, you're getting pretty close to one, because once again, there's very, very, very high barriers to entry in either one of those. You gotta launch satellites, and put cable under the ground, and dig up roads, and whatever, and so you could get closer and closer to this notion of maybe there's one firm. If you're in a situation like telecom in a lot of the places where you have only a handful of firms, that's known as an oligopoly. But let's just think about the extreme, when you're in a monopoly situation."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And we're going to make sure we understand what both of these ideas are. So first of all, minimum efficient scale, you can view it as the smallest scale at which we stop getting economies of scale. Or another way of thinking about it is the minimum scale at which we are no longer our long run average total cost curve is declining. So in this example, let's see, when we talk about our taco trucks, when we were at about 80 units, we're not at minimum efficient scale yet because our long run average total cost curve is still declining as we add more and more and more units. We're getting economies of scale all the way until, at least in this example, it looks like our long run average total cost curve stops declining around 200 units. So in this example, that would be our minimum efficient scale, which is sometimes abbreviated as MES. And one way to think about it is, this is the minimum scale at which an operation needs to run at in order to be very competitive, in order to be truly efficient out there in the market."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So in this example, let's see, when we talk about our taco trucks, when we were at about 80 units, we're not at minimum efficient scale yet because our long run average total cost curve is still declining as we add more and more and more units. We're getting economies of scale all the way until, at least in this example, it looks like our long run average total cost curve stops declining around 200 units. So in this example, that would be our minimum efficient scale, which is sometimes abbreviated as MES. And one way to think about it is, this is the minimum scale at which an operation needs to run at in order to be very competitive, in order to be truly efficient out there in the market. Because you can imagine if some operators are able to achieve minimum efficient scale of let's say getting to the 200 tacos a day, while others are not, let's say they're only able to stay at 100 tacos per day, and if the market were to get very competitive and the price of a taco were to go down to say 55 cents per taco, the people who are at minimum efficient scale could still operate and still make money, while the people who are not at minimum efficient scale, well, they're not going to be able to participate in the market. And most well-functioning markets, it gets quite competitive. And so economists like to think about what the minimum efficient scale is and compare that to the entire market size."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And one way to think about it is, this is the minimum scale at which an operation needs to run at in order to be very competitive, in order to be truly efficient out there in the market. Because you can imagine if some operators are able to achieve minimum efficient scale of let's say getting to the 200 tacos a day, while others are not, let's say they're only able to stay at 100 tacos per day, and if the market were to get very competitive and the price of a taco were to go down to say 55 cents per taco, the people who are at minimum efficient scale could still operate and still make money, while the people who are not at minimum efficient scale, well, they're not going to be able to participate in the market. And most well-functioning markets, it gets quite competitive. And so economists like to think about what the minimum efficient scale is and compare that to the entire market size. Now what do we mean by market size? Well, it depends on how you are defining the market. In our example of our taco trucks, it might be the market for tacos, market for tacos in our city."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so economists like to think about what the minimum efficient scale is and compare that to the entire market size. Now what do we mean by market size? Well, it depends on how you are defining the market. In our example of our taco trucks, it might be the market for tacos, market for tacos in our city. And of course, you can define different markets. You could define it as the market for food trucks in our city. You could define it as the market for tacos in our state or our country."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In our example of our taco trucks, it might be the market for tacos, market for tacos in our city. And of course, you can define different markets. You could define it as the market for food trucks in our city. You could define it as the market for tacos in our state or our country. But let's say if we were to say the market for tacos in our city, and let's say that that market is 10,000, 10,000 tacos per day. Well, in this reality, our minimum efficient scale is 200 tacos per day, and it's a very small fraction of the total market. And so that means that you could have many different competitors, each at that minimum efficient scale."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "You could define it as the market for tacos in our state or our country. But let's say if we were to say the market for tacos in our city, and let's say that that market is 10,000, 10,000 tacos per day. Well, in this reality, our minimum efficient scale is 200 tacos per day, and it's a very small fraction of the total market. And so that means that you could have many different competitors, each at that minimum efficient scale. So they're able to produce tacos at that 50 cents per taco. And because of that, you are likely to have many competitors. So when this, when our minimum efficient scale is a small fraction of the total market, that is going to lead to fragmentation."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so that means that you could have many different competitors, each at that minimum efficient scale. So they're able to produce tacos at that 50 cents per taco. And because of that, you are likely to have many competitors. So when this, when our minimum efficient scale is a small fraction of the total market, that is going to lead to fragmentation. So here we're going to have a fragmented, fragmented market. So if this circle were to represent the 10,000 tacos that are sold per day, if you're able to have a lot of competitors, each operating at minimum efficient scale, in fact, there's no real advantage to operating above minimum efficient scale, because then you start getting diseconomies to scale. Well, then you're going to have maybe 50 competitors who are splitting this market."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So when this, when our minimum efficient scale is a small fraction of the total market, that is going to lead to fragmentation. So here we're going to have a fragmented, fragmented market. So if this circle were to represent the 10,000 tacos that are sold per day, if you're able to have a lot of competitors, each operating at minimum efficient scale, in fact, there's no real advantage to operating above minimum efficient scale, because then you start getting diseconomies to scale. Well, then you're going to have maybe 50 competitors who are splitting this market. So I won't take the trouble of making this into 50 different chunks. So one competitor has that part of the market, another competitor has that part of the market, another competitor has that part of the market. And you can imagine we're going to have this market fragmented into maybe 50 different players."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, then you're going to have maybe 50 competitors who are splitting this market. So I won't take the trouble of making this into 50 different chunks. So one competitor has that part of the market, another competitor has that part of the market, another competitor has that part of the market. And you can imagine we're going to have this market fragmented into maybe 50 different players. And so that's why it's called a very fragmented market. But let's say that the minimum efficient scale was pretty close to the market size. So let's say instead of a market for 10,000 tacos per day, let's say that the market in our city is for 400, 400 tacos per day."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And you can imagine we're going to have this market fragmented into maybe 50 different players. And so that's why it's called a very fragmented market. But let's say that the minimum efficient scale was pretty close to the market size. So let's say instead of a market for 10,000 tacos per day, let's say that the market in our city is for 400, 400 tacos per day. Well, then the market is going to be smaller like this. And so then it makes sense for, if someone's able to get to the minimum efficient scale, they can take up a lot of the market. In fact, they could take up half of the market."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So let's say instead of a market for 10,000 tacos per day, let's say that the market in our city is for 400, 400 tacos per day. Well, then the market is going to be smaller like this. And so then it makes sense for, if someone's able to get to the minimum efficient scale, they can take up a lot of the market. In fact, they could take up half of the market. So this type of market might only be able to really support two players in this market. So this is considered to be a far more concentrated, concentrated market. And you could go to a reality where your minimum efficient scale is at the market size or is even larger than the market size."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In fact, they could take up half of the market. So this type of market might only be able to really support two players in this market. So this is considered to be a far more concentrated, concentrated market. And you could go to a reality where your minimum efficient scale is at the market size or is even larger than the market size. So let's say that the market size is not 400 tacos per day, but let's say we had a market, let's say we had a market of 195 tacos per day, per day. Well, in that world, whoever can get to 195 tacos is going to produce most efficiently. They're not even getting to the minimum efficient scale, but the more, the closer that you can get to that number, you're going to have the lowest average total long run, average total cost of production."}, {"video_title": "Minimum efficient scale and market concentration AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And you could go to a reality where your minimum efficient scale is at the market size or is even larger than the market size. So let's say that the market size is not 400 tacos per day, but let's say we had a market, let's say we had a market of 195 tacos per day, per day. Well, in that world, whoever can get to 195 tacos is going to produce most efficiently. They're not even getting to the minimum efficient scale, but the more, the closer that you can get to that number, you're going to have the lowest average total long run, average total cost of production. And so it's going to be very hard for anyone else to compete with you, especially if you're taking up most of the market, no one else is going to be able to get to scale. So they're going to be operating out here on the long run average total cost curve. And so in that world, you might only have one player."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "We've talked a little bit about the law of demand, which tells us all else equal, if we raise the price of a product, then the quantity demanded for that product will go down, common sense. If we lower the price, then the quantity demanded will go up and we'll see a few special cases for this. But what I wanna do in this video is focus on these other things that we've been holding equal, the things that allow us to make this statement, that allow us to move along this curve, and think about if we were to change one of those things that we were otherwise considering equal, how does that change the actual curve? How does that actually change the whole quantity demanded price relationship? And so the first of these that I will focus on, the first is the price of competing products. The price of competing products. So if you assume that the price of, actually I shouldn't say competing products, I'll say the price of related products, because we'll see that they're not all competing."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "How does that actually change the whole quantity demanded price relationship? And so the first of these that I will focus on, the first is the price of competing products. The price of competing products. So if you assume that the price of, actually I shouldn't say competing products, I'll say the price of related products, because we'll see that they're not all competing. The price of related products is one of the things that we're assuming is constant when we, it's being held equal when we show this relationship. We're assuming that these other things aren't changing. Now, what would happen if these things changed?"}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "So if you assume that the price of, actually I shouldn't say competing products, I'll say the price of related products, because we'll see that they're not all competing. The price of related products is one of the things that we're assuming is constant when we, it's being held equal when we show this relationship. We're assuming that these other things aren't changing. Now, what would happen if these things changed? Well, imagine we have other, say other eBooks, other eBooks' price, price goes up. The price of other eBooks go up. So what will that do to our price quantity demanded relationship?"}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "Now, what would happen if these things changed? Well, imagine we have other, say other eBooks, other eBooks' price, price goes up. The price of other eBooks go up. So what will that do to our price quantity demanded relationship? If other eBooks' prices go up, now all of a sudden my eBook, regardless of what price point we're at, at any of the price points, my eBook is going to look more desirable. At $2, it's more likely that people will want it, more people will want it because the other stuff's more expensive. At $4, more people will want it."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "So what will that do to our price quantity demanded relationship? If other eBooks' prices go up, now all of a sudden my eBook, regardless of what price point we're at, at any of the price points, my eBook is going to look more desirable. At $2, it's more likely that people will want it, more people will want it because the other stuff's more expensive. At $4, more people will want it. At $6, more people will want it. $8, more people will want it. $10, more people will want it."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "At $4, more people will want it. At $6, more people will want it. $8, more people will want it. $10, more people will want it. So if this were to happen, that would actually shift the entire demand curve to the right. So it would start to look something like this. It would look something like that."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "$10, more people will want it. So if this were to happen, that would actually shift the entire demand curve to the right. So it would start to look something like this. It would look something like that. We'll call that scenario, that is scenario one. And these other eBooks, we can call them substitutes for my product. So this right over here, these other eBooks, these are substitutes."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "It would look something like that. We'll call that scenario, that is scenario one. And these other eBooks, we can call them substitutes for my product. So this right over here, these other eBooks, these are substitutes. Substitutes. Substitutes. If people might say, oh, you know, that other book looks kind of comparable."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "So this right over here, these other eBooks, these are substitutes. Substitutes. Substitutes. If people might say, oh, you know, that other book looks kind of comparable. If one is more expensive, if one is cheaper, maybe I'll read one or the other. So in order to make this statement, in order to stay along this curve, we have to assume that this thing is constant. If this thing changes, this is going to move the curve."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "If people might say, oh, you know, that other book looks kind of comparable. If one is more expensive, if one is cheaper, maybe I'll read one or the other. So in order to make this statement, in order to stay along this curve, we have to assume that this thing is constant. If this thing changes, this is going to move the curve. If other eBooks' prices go up, it'll probably shift our curve to the right. If other eBooks' prices go down, that will shift our entire curve to the left. So this is actually changing our demand."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "If this thing changes, this is going to move the curve. If other eBooks' prices go up, it'll probably shift our curve to the right. If other eBooks' prices go down, that will shift our entire curve to the left. So this is actually changing our demand. It's changing our whole relationship. So it's shifting demand to the right. So let me write that."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "So this is actually changing our demand. It's changing our whole relationship. So it's shifting demand to the right. So let me write that. So this is going to shift demand. Demand. So the entire relationship, demand to the right."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "So let me write that. So this is going to shift demand. Demand. So the entire relationship, demand to the right. I really wanna make sure you have this point clear. When we hold everything else equal, we're moving along a given demand curve. We're essentially saying the price-quantity-demanded relationship is held constant, and we can pick a price and we'll get a certain quantity demanded."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "So the entire relationship, demand to the right. I really wanna make sure you have this point clear. When we hold everything else equal, we're moving along a given demand curve. We're essentially saying the price-quantity-demanded relationship is held constant, and we can pick a price and we'll get a certain quantity demanded. We're moving along the curve. If we change one of those things, we might actually shift the curve. We'll actually change this demand schedule, or change this curve."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "We're essentially saying the price-quantity-demanded relationship is held constant, and we can pick a price and we'll get a certain quantity demanded. We're moving along the curve. If we change one of those things, we might actually shift the curve. We'll actually change this demand schedule, or change this curve. Now, there are other related products. They don't just have to be substitutes. So for example, let's think about scenario two, where maybe the price of a Kindle goes up."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "We'll actually change this demand schedule, or change this curve. Now, there are other related products. They don't just have to be substitutes. So for example, let's think about scenario two, where maybe the price of a Kindle goes up. So the price of a Kindle, the price Kindles, let me write this this way, Kindles price, Kindles price goes up. Now, the Kindle is not a substitute. People don't either buy an e-book or, they won't either buy my e-book or buy a Kindle."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "So for example, let's think about scenario two, where maybe the price of a Kindle goes up. So the price of a Kindle, the price Kindles, let me write this this way, Kindles price, Kindles price goes up. Now, the Kindle is not a substitute. People don't either buy an e-book or, they won't either buy my e-book or buy a Kindle. Kindle is a complement. You actually need a Kindle or an iPad or something like it in order to consume my e-book. So this right over here, this right over here is a complement."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "People don't either buy an e-book or, they won't either buy my e-book or buy a Kindle. Kindle is a complement. You actually need a Kindle or an iPad or something like it in order to consume my e-book. So this right over here, this right over here is a complement. It is a complement. So if a complement's price becomes more expensive, and this is something that's one of the things people might use to buy my book, then it would actually, for any given price, lower the quantity demanded. So in this situation, if my book is $2, since fewer people are going to have Kindles, or maybe they've used some of their money already to buy the Kindle, they're going to have less to buy my book, or they'll just, fewer people will have the Kindle, for any given price, it's going to lower the quantity demanded."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "So this right over here, this right over here is a complement. It is a complement. So if a complement's price becomes more expensive, and this is something that's one of the things people might use to buy my book, then it would actually, for any given price, lower the quantity demanded. So in this situation, if my book is $2, since fewer people are going to have Kindles, or maybe they've used some of their money already to buy the Kindle, they're going to have less to buy my book, or they'll just, fewer people will have the Kindle, for any given price, it's going to lower the quantity demanded. For any given price. And so it essentially will shift, it'll change the entire demand curve. It'll shift the demand curve to the left."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "So in this situation, if my book is $2, since fewer people are going to have Kindles, or maybe they've used some of their money already to buy the Kindle, they're going to have less to buy my book, or they'll just, fewer people will have the Kindle, for any given price, it's going to lower the quantity demanded. For any given price. And so it essentially will shift, it'll change the entire demand curve. It'll shift the demand curve to the left. So this right over here is scenario two. And you can imagine the other way. If the Kindle's price went down, then that would shift my demand curve to the right."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "It'll shift the demand curve to the left. So this right over here is scenario two. And you can imagine the other way. If the Kindle's price went down, then that would shift my demand curve to the right. If the price of substitutes went down, then that would shift my entire curve to the left. So you can think about all the scenarios. And actually, I encourage you to."}, {"video_title": "Price of related products and demand Microeconomics Khan Academy.mp3", "Sentence": "If the Kindle's price went down, then that would shift my demand curve to the right. If the price of substitutes went down, then that would shift my entire curve to the left. So you can think about all the scenarios. And actually, I encourage you to. Think about, draw them yourself. Think about, for products, it could be an e-book, or it could be some other type of product. And think about what would happen, well, one, think about what the related products are, the substitutes and potentially complements."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "We've already talked about the notion of a monopsony employer in other videos, but now we're going to review it a little bit and we're gonna introduce a twist. And the twist is what happens when they have to deal with a minimum wage? And as we'll see, it's kind of counterintuitive. So first of all, just as a review, a monopsony is a situation where you have one buyer and you have many sellers of something. And when we're talking about a monopsony employer, the buyer is the buyer of labor. We're talking about the buyer in the labor factor markets and the seller are the workers, the people who would sell their labor for a wage. And we have already studied monopsony employers' situations before, but I will redo it."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "So first of all, just as a review, a monopsony is a situation where you have one buyer and you have many sellers of something. And when we're talking about a monopsony employer, the buyer is the buyer of labor. We're talking about the buyer in the labor factor markets and the seller are the workers, the people who would sell their labor for a wage. And we have already studied monopsony employers' situations before, but I will redo it. It never hurts to get the practice. In the vertical axis, you have the wage, which is really the price of this factor of labor that we're studying right now. And in the horizontal axis, you have the quantity of the factor that we care about, and this is quantity of labor."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "And we have already studied monopsony employers' situations before, but I will redo it. It never hurts to get the practice. In the vertical axis, you have the wage, which is really the price of this factor of labor that we're studying right now. And in the horizontal axis, you have the quantity of the factor that we care about, and this is quantity of labor. Now, we have seen this show many times before. You're going to have, or you typically have, a downward-sloping marginal revenue product curve, and that describes a situation where every incremental unit of labor you bring on, the marginal revenue, the incremental revenue you get, goes lower and lower and lower because of arguably diminishing returns in some way. So this is marginal revenue product of labor."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "And in the horizontal axis, you have the quantity of the factor that we care about, and this is quantity of labor. Now, we have seen this show many times before. You're going to have, or you typically have, a downward-sloping marginal revenue product curve, and that describes a situation where every incremental unit of labor you bring on, the marginal revenue, the incremental revenue you get, goes lower and lower and lower because of arguably diminishing returns in some way. So this is marginal revenue product of labor. You could also have marginal revenue product of capital or of land, other factors. And then we could think about the supply of labor, or actually, really what we're trying to get at is what is the marginal factor cost curve? And if this employer were not a monopsony employer, if they were just operating in a perfectly competitive labor market, the marginal factor cost curve would just be the market wage, so it might look something like that."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "So this is marginal revenue product of labor. You could also have marginal revenue product of capital or of land, other factors. And then we could think about the supply of labor, or actually, really what we're trying to get at is what is the marginal factor cost curve? And if this employer were not a monopsony employer, if they were just operating in a perfectly competitive labor market, the marginal factor cost curve would just be the market wage, so it might look something like that. But we are dealing with a monopsony employer, and so they don't just take the market wage. They have, you could view it as a supply curve for labor that's specific to them, because remember, they're the only showing down. They are the big employer, maybe in this small town, and so you have this supply curve."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "And if this employer were not a monopsony employer, if they were just operating in a perfectly competitive labor market, the marginal factor cost curve would just be the market wage, so it might look something like that. But we are dealing with a monopsony employer, and so they don't just take the market wage. They have, you could view it as a supply curve for labor that's specific to them, because remember, they're the only showing down. They are the big employer, maybe in this small town, and so you have this supply curve. This is supply of labor, but this is not the marginal factor cost curve, and we've explained this before, but that's because as you bring on higher and higher quantities of labor, you need to pay more to that incremental person, but what typically happens is if you need to pay one person more, you need to pay everyone the same wage. So as you bring on that incremental labor, not only do you have to pay more for that incremental unit, but you have to raise the wage for everyone, so the marginal factor cost goes up twice as fast as the supply of labor curve. So the marginal factor cost curve might look something like this, and then what's rational is a firm would keep bringing on that factor, in this case labor, would keep hiring folks as long as the incremental revenue that it gets from hiring that next unit is higher than the marginal or the incremental cost, and so they will keep bringing people on as long as the MRP is higher than the MFC, and so we would get to that point right there, and so it'd be rational for this firm to hire this quantity of labor, let's call that Q sub one, and then what wage are they paying?"}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "They are the big employer, maybe in this small town, and so you have this supply curve. This is supply of labor, but this is not the marginal factor cost curve, and we've explained this before, but that's because as you bring on higher and higher quantities of labor, you need to pay more to that incremental person, but what typically happens is if you need to pay one person more, you need to pay everyone the same wage. So as you bring on that incremental labor, not only do you have to pay more for that incremental unit, but you have to raise the wage for everyone, so the marginal factor cost goes up twice as fast as the supply of labor curve. So the marginal factor cost curve might look something like this, and then what's rational is a firm would keep bringing on that factor, in this case labor, would keep hiring folks as long as the incremental revenue that it gets from hiring that next unit is higher than the marginal or the incremental cost, and so they will keep bringing people on as long as the MRP is higher than the MFC, and so we would get to that point right there, and so it'd be rational for this firm to hire this quantity of labor, let's call that Q sub one, and then what wage are they paying? Pause this video and think about that because this is always a little bit tricky. Well, you might be tempted to draw a line here, but remember, this doesn't describe the actual wage. The wage of that quantity is described by the supply of labor, so this would be the wage that the firm would pay."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "So the marginal factor cost curve might look something like this, and then what's rational is a firm would keep bringing on that factor, in this case labor, would keep hiring folks as long as the incremental revenue that it gets from hiring that next unit is higher than the marginal or the incremental cost, and so they will keep bringing people on as long as the MRP is higher than the MFC, and so we would get to that point right there, and so it'd be rational for this firm to hire this quantity of labor, let's call that Q sub one, and then what wage are they paying? Pause this video and think about that because this is always a little bit tricky. Well, you might be tempted to draw a line here, but remember, this doesn't describe the actual wage. The wage of that quantity is described by the supply of labor, so this would be the wage that the firm would pay. So now let's introduce our twist. Let's think about what happens if a minimum wage is employed in this region, that for whatever reason the city council says, hey, that employer needs to be paying more money, and let's say they institute a minimum wage at, I will do this in a bold color. Let's say they institute a minimum wage right over here."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "The wage of that quantity is described by the supply of labor, so this would be the wage that the firm would pay. So now let's introduce our twist. Let's think about what happens if a minimum wage is employed in this region, that for whatever reason the city council says, hey, that employer needs to be paying more money, and let's say they institute a minimum wage at, I will do this in a bold color. Let's say they institute a minimum wage right over here. Let's call this wage sub M. Pause the video and think about what would then happen. What would the marginal factor cost curve look like, and then what would be the rational quantity for the firm to hire? All right, so now that the town has instituted a minimum wage and it's higher than the rational wage that the firm would have otherwise paid for labor, what it does is it, at least at a certain range of quantities of labor being employed, it essentially makes this monopsony employer, have to think a little bit like an employer in a competitive labor market where you just have to accept a wage."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "Let's say they institute a minimum wage right over here. Let's call this wage sub M. Pause the video and think about what would then happen. What would the marginal factor cost curve look like, and then what would be the rational quantity for the firm to hire? All right, so now that the town has instituted a minimum wage and it's higher than the rational wage that the firm would have otherwise paid for labor, what it does is it, at least at a certain range of quantities of labor being employed, it essentially makes this monopsony employer, have to think a little bit like an employer in a competitive labor market where you just have to accept a wage. Now this wage isn't being set by some market. It's being set by a government. So as long as this wage is higher than the supply of labor, well then this is going to be, or higher than our old supply curve, well this is going to be, from the firm's point of view, the new supply curve."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "All right, so now that the town has instituted a minimum wage and it's higher than the rational wage that the firm would have otherwise paid for labor, what it does is it, at least at a certain range of quantities of labor being employed, it essentially makes this monopsony employer, have to think a little bit like an employer in a competitive labor market where you just have to accept a wage. Now this wage isn't being set by some market. It's being set by a government. So as long as this wage is higher than the supply of labor, well then this is going to be, or higher than our old supply curve, well this is going to be, from the firm's point of view, the new supply curve. So it's going to look something like this. But then when the supply curve, when the wages that the supply curve describes go higher than that minimum wage, well then it will track that. So this is our new supply curve right over here."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "So as long as this wage is higher than the supply of labor, well then this is going to be, or higher than our old supply curve, well this is going to be, from the firm's point of view, the new supply curve. So it's going to look something like this. But then when the supply curve, when the wages that the supply curve describes go higher than that minimum wage, well then it will track that. So this is our new supply curve right over here. So new supply curve, and we're talking about supply of labor, and it's this whole red thing. And what would be our new marginal factor cost curve? Well, we said that it has twice the slope, but when the slope is just flat here, I'm gonna do this in a new color, so the marginal factor cost curve, it's going to track this horizontal line right over here."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "So this is our new supply curve right over here. So new supply curve, and we're talking about supply of labor, and it's this whole red thing. And what would be our new marginal factor cost curve? Well, we said that it has twice the slope, but when the slope is just flat here, I'm gonna do this in a new color, so the marginal factor cost curve, it's going to track this horizontal line right over here. And then all of a sudden when the supply curve starts to go up, well then it's going to jump back to the old marginal factor cost curve. So it's going to look something like this. So MFC, I'll call it two, that's in blue."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "Well, we said that it has twice the slope, but when the slope is just flat here, I'm gonna do this in a new color, so the marginal factor cost curve, it's going to track this horizontal line right over here. And then all of a sudden when the supply curve starts to go up, well then it's going to jump back to the old marginal factor cost curve. So it's going to look something like this. So MFC, I'll call it two, that's in blue. So it tracks the supply curve here when it's horizontal, and it is really just analogous to when we just have to accept a wage, and then it jumps, we have a bit of a discontinuity, and then you get up there. But what's rational as always is a firm to keep hiring as long as the marginal revenue product is higher than the marginal factor cost. So it's going to keep hiring, it's as long as this yellow line is above the blue line, it would keep hiring, keep hiring, all the way until this point right over here."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "So MFC, I'll call it two, that's in blue. So it tracks the supply curve here when it's horizontal, and it is really just analogous to when we just have to accept a wage, and then it jumps, we have a bit of a discontinuity, and then you get up there. But what's rational as always is a firm to keep hiring as long as the marginal revenue product is higher than the marginal factor cost. So it's going to keep hiring, it's as long as this yellow line is above the blue line, it would keep hiring, keep hiring, all the way until this point right over here. So notice what just happened. It is now rational for the firm to hire more people. And that is counterintuitive."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "So it's going to keep hiring, it's as long as this yellow line is above the blue line, it would keep hiring, keep hiring, all the way until this point right over here. So notice what just happened. It is now rational for the firm to hire more people. And that is counterintuitive. An everyday thought, if I thought I was running some type of a business, if I was running a burger joint, and all of a sudden if there was a higher minimum wage, then it feels like, hey, I might not have enough money to hire people, I might lower the number of people I hired. But we just showed, at least with some, with a very simplified economics model, that theoretically when you're dealing with a monopsony employer, it actually might get them to hire more people. So an interesting question is why did this counterintuitive thing happen?"}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "And that is counterintuitive. An everyday thought, if I thought I was running some type of a business, if I was running a burger joint, and all of a sudden if there was a higher minimum wage, then it feels like, hey, I might not have enough money to hire people, I might lower the number of people I hired. But we just showed, at least with some, with a very simplified economics model, that theoretically when you're dealing with a monopsony employer, it actually might get them to hire more people. So an interesting question is why did this counterintuitive thing happen? And one hand-wavy argument, but I encourage you to ponder it, is to realize that in the old world, every time they brought on an incremental person, they had to raise the salary of everyone, and that's what made the marginal factor cost go up so quickly. But now, since you have this whole flat part of your supply curve, because regardless of how many people you hire in this range right over here, you're paying the same amount, that incremental person does not increase the wage for everyone else. So that is what made it rational for the firm to go and keep hiring."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "So an interesting question is why did this counterintuitive thing happen? And one hand-wavy argument, but I encourage you to ponder it, is to realize that in the old world, every time they brought on an incremental person, they had to raise the salary of everyone, and that's what made the marginal factor cost go up so quickly. But now, since you have this whole flat part of your supply curve, because regardless of how many people you hire in this range right over here, you're paying the same amount, that incremental person does not increase the wage for everyone else. So that is what made it rational for the firm to go and keep hiring. Now the community, the government, the city council, would have to be very careful about what this minimum wage is, because it's very possible that they could overshoot, and actually end up in a situation where the firm hires less. So for example, if they made this the minimum wage, right over here, let's call that W2, or W3, well, now all of a sudden, you would have a marginal factor cost curve that is going like this for at least a good bit. We can think about it a little bit later as what happens as you go further and further to the right."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "So that is what made it rational for the firm to go and keep hiring. Now the community, the government, the city council, would have to be very careful about what this minimum wage is, because it's very possible that they could overshoot, and actually end up in a situation where the firm hires less. So for example, if they made this the minimum wage, right over here, let's call that W2, or W3, well, now all of a sudden, you would have a marginal factor cost curve that is going like this for at least a good bit. We can think about it a little bit later as what happens as you go further and further to the right. But then it would only be rational for the firm to hire that much. And so then you would have a decrease in employment. But if we go back to the original situation, another thing that you might be thinking about, well, hey, this seems too good to be true."}, {"video_title": "Monopsony employers and minimum wages.mp3", "Sentence": "We can think about it a little bit later as what happens as you go further and further to the right. But then it would only be rational for the firm to hire that much. And so then you would have a decrease in employment. But if we go back to the original situation, another thing that you might be thinking about, well, hey, this seems too good to be true. It's now rational for the firm to hire more folks, and those folks are getting more income. Surely someone must be losing. And it is the case that the firm is now going to lose more of, I guess you could say, the surplus that it was having in the old world."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "If we were talking about price elasticity of demand, it would be the percent change in quantity demanded over the percent change in price, and if we're talking about price elasticity of supply, it would be our percent change in quantity supplied over percent change in price, and as we talked about in many videos, this is a way of measuring how sensitive is quantity demanded or supplied to a change in price. What we're going to see in this video is that this is not the only type of elasticity that economists will look at. There are many types of elasticity where they want to see how sensitive is one thing to another. For example, you could look at the percent change, percent change in labor supply, so you could say quantity of labor, that'd be our labor supply, divided by our percent change in wages. I'll just write it out, wages, and you could view that as our percent change in the price of labor. So you might say, hey, this is just a price elasticity of supply being particular to the labor market, but you can even see things, and we'll have a whole video about this, probably my next video that I will make, where you could have the percent change in, let's say, quantity demanded of one good divided by, so let me call it good one, divided by the percent change in price of not that good, not that good, then we would have price elasticity, but of good two. And so this is actually thinking about how good one is a substitute for the other, and we'll go into a lot more depth there."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "For example, you could look at the percent change, percent change in labor supply, so you could say quantity of labor, that'd be our labor supply, divided by our percent change in wages. I'll just write it out, wages, and you could view that as our percent change in the price of labor. So you might say, hey, this is just a price elasticity of supply being particular to the labor market, but you can even see things, and we'll have a whole video about this, probably my next video that I will make, where you could have the percent change in, let's say, quantity demanded of one good divided by, so let me call it good one, divided by the percent change in price of not that good, not that good, then we would have price elasticity, but of good two. And so this is actually thinking about how good one is a substitute for the other, and we'll go into a lot more depth there. But the focus of this video, as you can imagine, because it was already written down in a clean font right over here, is income elasticity. And here, we're gonna think about the income elasticity of demand. And you could imagine what that would be."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so this is actually thinking about how good one is a substitute for the other, and we'll go into a lot more depth there. But the focus of this video, as you can imagine, because it was already written down in a clean font right over here, is income elasticity. And here, we're gonna think about the income elasticity of demand. And you could imagine what that would be. This is going to be our percent change in quantity demanded, demanded, divided by, instead of thinking about the percent change in price of that good or the service, we're gonna think about the percent change, change in income of the people who might be in the market for that good. So normally, you would expect that when our percent change in income goes up, that the same thing would happen to our percent change in quantity demanded. For example, let's say we're talking about the market for vacations."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And you could imagine what that would be. This is going to be our percent change in quantity demanded, demanded, divided by, instead of thinking about the percent change in price of that good or the service, we're gonna think about the percent change, change in income of the people who might be in the market for that good. So normally, you would expect that when our percent change in income goes up, that the same thing would happen to our percent change in quantity demanded. For example, let's say we're talking about the market for vacations. Well, as my income goes up, as most people's income goes up, they might be able to afford larger or better vacations. And that would be a normal good. So this is a situation of a normal good, normal good, just as what you would expect."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "For example, let's say we're talking about the market for vacations. Well, as my income goes up, as most people's income goes up, they might be able to afford larger or better vacations. And that would be a normal good. So this is a situation of a normal good, normal good, just as what you would expect. But you could actually have the other way around. You could imagine a situation where even though you have an increase in your percent change in income, that does not lead to an increase in your percent change in quantity demanded. In fact, it could lead to a decrease in the percent change in quantity demanded, or another way of thinking about it, your quantity demanded could actually go down."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this is a situation of a normal good, normal good, just as what you would expect. But you could actually have the other way around. You could imagine a situation where even though you have an increase in your percent change in income, that does not lead to an increase in your percent change in quantity demanded. In fact, it could lead to a decrease in the percent change in quantity demanded, or another way of thinking about it, your quantity demanded could actually go down. So you would have a negative, a negative percent change right over here. Now, can you imagine any situations like that? Well, imagine if we're talking about the market for car mechanic services."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In fact, it could lead to a decrease in the percent change in quantity demanded, or another way of thinking about it, your quantity demanded could actually go down. So you would have a negative, a negative percent change right over here. Now, can you imagine any situations like that? Well, imagine if we're talking about the market for car mechanic services. As people have more income, they might be able to afford better cars that are more reliable, that break down less, and then they would have to go to the car mechanic less. And so that situation where our demand would actually go down when our income goes up, or our percent change will become negative when we have a positive percent change in income, that would be, that is known as an inferior good. Inferior good."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, imagine if we're talking about the market for car mechanic services. As people have more income, they might be able to afford better cars that are more reliable, that break down less, and then they would have to go to the car mechanic less. And so that situation where our demand would actually go down when our income goes up, or our percent change will become negative when we have a positive percent change in income, that would be, that is known as an inferior good. Inferior good. So there's two big things to take away. One, you don't just have to think about price elasticity of supply or demand. There are other types of elasticities."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Inferior good. So there's two big things to take away. One, you don't just have to think about price elasticity of supply or demand. There are other types of elasticities. But just to hit the point home on income elasticity, let's look at a few examples. So we're told, suppose that when people's income increases by 20%, they buy 10% less fast food. In this situation, what type of good would fast food be?"}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "There are other types of elasticities. But just to hit the point home on income elasticity, let's look at a few examples. So we're told, suppose that when people's income increases by 20%, they buy 10% less fast food. In this situation, what type of good would fast food be? Pause this video and think about it. Well, their income is increasing, but their demand is decreasing. So that's the situation we just talked about."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In this situation, what type of good would fast food be? Pause this video and think about it. Well, their income is increasing, but their demand is decreasing. So that's the situation we just talked about. This is an inferior good. Inferior good. And for kicks, what is the income elasticity of demand right over here?"}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that's the situation we just talked about. This is an inferior good. Inferior good. And for kicks, what is the income elasticity of demand right over here? Calculate that. So just remember, our income elasticity of demand is just going to be our percent change in quantity demanded divided by our percent change, instead of price, we're gonna say in income. I'll just write percent change of income, which is going to be what?"}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And for kicks, what is the income elasticity of demand right over here? Calculate that. So just remember, our income elasticity of demand is just going to be our percent change in quantity demanded divided by our percent change, instead of price, we're gonna say in income. I'll just write percent change of income, which is going to be what? Well, we know our percent change in income, it went up by 20% in this example. And what happened to our quantity demanded? Well, it went down by 10%, so negative 10%."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "I'll just write percent change of income, which is going to be what? Well, we know our percent change in income, it went up by 20% in this example. And what happened to our quantity demanded? Well, it went down by 10%, so negative 10%. And so here, you have an income elasticity of demand of negative 1 1\u20442 or negative 0.5. Let's do another example. Suppose we knew that when people's income increased by 5% in a country, the demand for healthcare increased by 10%."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, it went down by 10%, so negative 10%. And so here, you have an income elasticity of demand of negative 1 1\u20442 or negative 0.5. Let's do another example. Suppose we knew that when people's income increased by 5% in a country, the demand for healthcare increased by 10%. What kind of good do people consider healthcare? Normal or inferior? So first, calculate the income elasticity of demand for this example, and then answer these questions."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Suppose we knew that when people's income increased by 5% in a country, the demand for healthcare increased by 10%. What kind of good do people consider healthcare? Normal or inferior? So first, calculate the income elasticity of demand for this example, and then answer these questions. All right, so first, we are, our income elasticity of demand. Let's see, when our income increases by 5%, so we have a 5% increase in income, our demand for healthcare increases by 10%. Our demand for healthcare increases by 10%."}, {"video_title": "Income elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So first, calculate the income elasticity of demand for this example, and then answer these questions. All right, so first, we are, our income elasticity of demand. Let's see, when our income increases by 5%, so we have a 5% increase in income, our demand for healthcare increases by 10%. Our demand for healthcare increases by 10%. So we get a positive income elasticity of demand. And so in general, if this thing is positive, you're dealing with a normal good. As income goes up, then you similarly see quantity demanded going up."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "And we kind of view them as polar opposites. Over here, you have exactly one player. Here you have many players. In a monopoly, you get to set the price and the quantity. Here you have to be a price taker. In a monopoly, there's huge barriers to entry. In perfect competition, there's no barriers to entry."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "In a monopoly, you get to set the price and the quantity. Here you have to be a price taker. In a monopoly, there's huge barriers to entry. In perfect competition, there's no barriers to entry. What I want to think about in this video is, are there other situations, or especially, are there terms for other situations that are in between? And to think about that, I'm going to draw a spectrum. I'm going to do a two-dimensional spectrum."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "In perfect competition, there's no barriers to entry. What I want to think about in this video is, are there other situations, or especially, are there terms for other situations that are in between? And to think about that, I'm going to draw a spectrum. I'm going to do a two-dimensional spectrum. I could probably think of more variables where there's nuance between these terms, but these are the two big ones. So in one dimension, I'm going to think about the number of competitors there are. So this is the number of competitors."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "I'm going to do a two-dimensional spectrum. I could probably think of more variables where there's nuance between these terms, but these are the two big ones. So in one dimension, I'm going to think about the number of competitors there are. So this is the number of competitors. Competitors. Number of competitors. And obviously, a monopoly is one competitor."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "So this is the number of competitors. Competitors. Number of competitors. And obviously, a monopoly is one competitor. In perfect competition, you've got a bunch. You've got a bunch of competitors. So I'll put one right over here, and a bunch of competitors."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "And obviously, a monopoly is one competitor. In perfect competition, you've got a bunch. You've got a bunch of competitors. So I'll put one right over here, and a bunch of competitors. If this was zero, then there wouldn't even be a market to speak of. No one is participating there. In this axis, in the vertical axis, I want to think about how differentiated the competitors in the market are."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "So I'll put one right over here, and a bunch of competitors. If this was zero, then there wouldn't even be a market to speak of. No one is participating there. In this axis, in the vertical axis, I want to think about how differentiated the competitors in the market are. How different are their products or their brands? Differentiation. In the market, and this was low differentiation, and this is high."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "In this axis, in the vertical axis, I want to think about how differentiated the competitors in the market are. How different are their products or their brands? Differentiation. In the market, and this was low differentiation, and this is high. This is high differentiation. So let's think of a bunch of industries and think about where they sit here, and then I'll introduce you to two new words other than just a monopoly or perfect competition. So let's just say that we live in a world where there's 50 producers of screws, and all of those screws are completely identical."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "In the market, and this was low differentiation, and this is high. This is high differentiation. So let's think of a bunch of industries and think about where they sit here, and then I'll introduce you to two new words other than just a monopoly or perfect competition. So let's just say that we live in a world where there's 50 producers of screws, and all of those screws are completely identical. And so if one producer charges even a penny more, no one's going to want to go to them because they can get the exact same thing from one of the other of the many producers. So that would be a case right over here. Low differentiation, all the screws are the same, and there's a bunch of competitors."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "So let's just say that we live in a world where there's 50 producers of screws, and all of those screws are completely identical. And so if one producer charges even a penny more, no one's going to want to go to them because they can get the exact same thing from one of the other of the many producers. So that would be a case right over here. Low differentiation, all the screws are the same, and there's a bunch of competitors. So that's about as perfect as perfect competition can get in the real world. So a bunch of identical screw manufacturers. I'm not sure if the actual screw market has a bunch of competitors, but let's just assume if it did, then you would be sitting right over here pretty close in the world of perfect competition."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "Low differentiation, all the screws are the same, and there's a bunch of competitors. So that's about as perfect as perfect competition can get in the real world. So a bunch of identical screw manufacturers. I'm not sure if the actual screw market has a bunch of competitors, but let's just assume if it did, then you would be sitting right over here pretty close in the world of perfect competition. In the other spectrum, you imagine your utilities. In most places, especially in the US, but probably the world, there's only one utility. There's only one entity that's managing the power lines a lot of times because of that."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "I'm not sure if the actual screw market has a bunch of competitors, but let's just assume if it did, then you would be sitting right over here pretty close in the world of perfect competition. In the other spectrum, you imagine your utilities. In most places, especially in the US, but probably the world, there's only one utility. There's only one entity that's managing the power lines a lot of times because of that. It's actually run by the government. But in most of the US, it's a regulated private company. And so here you have one player, and you can debate whether it's low differentiation or so high differentiation that it's the only player."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "There's only one entity that's managing the power lines a lot of times because of that. It's actually run by the government. But in most of the US, it's a regulated private company. And so here you have one player, and you can debate whether it's low differentiation or so high differentiation that it's the only player. But let's just stick it right over there, low differentiation. This right over here might be a utility. And that's about as close to a monopoly, or that actually is a monopoly."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "And so here you have one player, and you can debate whether it's low differentiation or so high differentiation that it's the only player. But let's just stick it right over there, low differentiation. This right over here might be a utility. And that's about as close to a monopoly, or that actually is a monopoly. They are the only player there. Mono comes from one. Poly comes from seller."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "And that's about as close to a monopoly, or that actually is a monopoly. They are the only player there. Mono comes from one. Poly comes from seller. One seller, that would be a utility. Now there are things that are in between. So for example, if you thought about your, let's say the telephone providers in your area, there normally are a few people who can provide phone service, especially with the age of internet telephony."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "Poly comes from seller. One seller, that would be a utility. Now there are things that are in between. So for example, if you thought about your, let's say the telephone providers in your area, there normally are a few people who can provide phone service, especially with the age of internet telephony. Now the cable companies are starting to provide phone service, and the telephone companies are starting to provide internet and cable service. So we could think of that market. So let's put this market right over here."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "So for example, if you thought about your, let's say the telephone providers in your area, there normally are a few people who can provide phone service, especially with the age of internet telephony. Now the cable companies are starting to provide phone service, and the telephone companies are starting to provide internet and cable service. So we could think of that market. So let's put this market right over here. So the number of competitors is low, so it's going to be here. And they are somewhat differentiated. They might give you a different cable box or might offer you slightly different levels of bandwidth or whatever else."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "So let's put this market right over here. So the number of competitors is low, so it's going to be here. And they are somewhat differentiated. They might give you a different cable box or might offer you slightly different levels of bandwidth or whatever else. So they're somewhat differentiated right over here. So I'll call that the cable internet telephone providers. Then you can think of markets where there's a bunch of competitors, but they are somewhat differentiated."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "They might give you a different cable box or might offer you slightly different levels of bandwidth or whatever else. So they're somewhat differentiated right over here. So I'll call that the cable internet telephone providers. Then you can think of markets where there's a bunch of competitors, but they are somewhat differentiated. And I can think of fine dining. So let's say here there's a bunch of restaurants in any place that sells nice food, that they really define themselves by the quality of the food that they produce. So they're highly differentiated."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "Then you can think of markets where there's a bunch of competitors, but they are somewhat differentiated. And I can think of fine dining. So let's say here there's a bunch of restaurants in any place that sells nice food, that they really define themselves by the quality of the food that they produce. So they're highly differentiated. Each restaurant is unique. The chefs have specialties and all the rest, but there's a bunch of them. So right over here I will put fine dining."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "So they're highly differentiated. Each restaurant is unique. The chefs have specialties and all the rest, but there's a bunch of them. So right over here I will put fine dining. You could also imagine name brand clothing. They're very differentiated, certain design or certain materials, all of those type of things, but there's a bunch of them. So name brand clothing."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "So right over here I will put fine dining. You could also imagine name brand clothing. They're very differentiated, certain design or certain materials, all of those type of things, but there's a bunch of them. So name brand clothing. It's not quite perfect competition. It's very competitive. There's a bunch of players there, but they're not selling the same product."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "So name brand clothing. It's not quite perfect competition. It's very competitive. There's a bunch of players there, but they're not selling the same product. They are very, very differentiated. To some degree, you almost feel like even though there's all this competition, they have a monopoly on their own product. Another one could be you could imagine something like high-end laptops or high-end computers or nice computers."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "There's a bunch of players there, but they're not selling the same product. They are very, very differentiated. To some degree, you almost feel like even though there's all this competition, they have a monopoly on their own product. Another one could be you could imagine something like high-end laptops or high-end computers or nice computers. Or maybe I'll just say computers in general. Some people might want to go for an Apple. That's what they've associated with."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "Another one could be you could imagine something like high-end laptops or high-end computers or nice computers. Or maybe I'll just say computers in general. Some people might want to go for an Apple. That's what they've associated with. And some people might want to go for a Sony. So maybe I'll put branded computers up here. Branded computers up here."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "That's what they've associated with. And some people might want to go for a Sony. So maybe I'll put branded computers up here. Branded computers up here. But then you could also have something like the unbranded PC market. And that might be something closer to here where you might have these random manufacturers. You don't even care."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "Branded computers up here. But then you could also have something like the unbranded PC market. And that might be something closer to here where you might have these random manufacturers. You don't even care. Some manufacturer from overseas, you don't even care, but they're saying they're using the same processor, the same memory chip. They're saying using all the same things. So they're much less differentiated."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "You don't even care. Some manufacturer from overseas, you don't even care, but they're saying they're using the same processor, the same memory chip. They're saying using all the same things. So they're much less differentiated. So this might be right over here, unbranded. And that tends to happen with the personal computer industry. You're like, well, they're using the same Intel chip, they're using the same memory, they're all running Windows, whatever else."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "So they're much less differentiated. So this might be right over here, unbranded. And that tends to happen with the personal computer industry. You're like, well, they're using the same Intel chip, they're using the same memory, they're all running Windows, whatever else. There's not a lot of difference between them. So those actually start getting closer to this perfect competition. So the whole reason that I've introduced these ideas to you is that there are names for these things that aren't quite perfect competition because they're highly differentiated."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "You're like, well, they're using the same Intel chip, they're using the same memory, they're all running Windows, whatever else. There's not a lot of difference between them. So those actually start getting closer to this perfect competition. So the whole reason that I've introduced these ideas to you is that there are names for these things that aren't quite perfect competition because they're highly differentiated. And there are names for these things that aren't quite monopolies because they have a few providers. These right over here, so we could put other things around here, so I'll circle this general area. We would call these oligopolies."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "So the whole reason that I've introduced these ideas to you is that there are names for these things that aren't quite perfect competition because they're highly differentiated. And there are names for these things that aren't quite monopolies because they have a few providers. These right over here, so we could put other things around here, so I'll circle this general area. We would call these oligopolies. This comes from this part right over here, and I'm not an expert in Greek. But this comes from few, and obviously the poly, once again, just with monopolies, comes from sellers. So this means few sellers."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "We would call these oligopolies. This comes from this part right over here, and I'm not an expert in Greek. But this comes from few, and obviously the poly, once again, just with monopolies, comes from sellers. So this means few sellers. And oligopolies, and we're going to study this in much more detail, are not quite monopolies. They can't set the price and the quantity. And they can kind of, depending on the oligopoly, depending on the market, they might start acting more like a monopoly."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "So this means few sellers. And oligopolies, and we're going to study this in much more detail, are not quite monopolies. They can't set the price and the quantity. And they can kind of, depending on the oligopoly, depending on the market, they might start acting more like a monopoly. The players could coordinate with each other to their mutual benefit, or they might become fiercely competitive, even if there's only a few providers. So oligopolies can kind of, in their personality characteristics, they can either look more like monopolies or they can look like very competitive industries. And these things up here, where these are quite competitive industries, but they are highly differentiated."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "And they can kind of, depending on the oligopoly, depending on the market, they might start acting more like a monopoly. The players could coordinate with each other to their mutual benefit, or they might become fiercely competitive, even if there's only a few providers. So oligopolies can kind of, in their personality characteristics, they can either look more like monopolies or they can look like very competitive industries. And these things up here, where these are quite competitive industries, but they are highly differentiated. To some degree, you could say that, for example, in branded computers, Apple has a monopoly on selling Apple computers. It doesn't have a monopoly on computers. Obviously, there's many, many people who can provide computers, but they have a brand."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "And these things up here, where these are quite competitive industries, but they are highly differentiated. To some degree, you could say that, for example, in branded computers, Apple has a monopoly on selling Apple computers. It doesn't have a monopoly on computers. Obviously, there's many, many people who can provide computers, but they have a brand. If someone wants an Apple computer, you have to go to Apple. It's a self-evident statement. But it's highly differentiated, highly branded."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "Obviously, there's many, many people who can provide computers, but they have a brand. If someone wants an Apple computer, you have to go to Apple. It's a self-evident statement. But it's highly differentiated, highly branded. And so they have a monopoly on their product, but there are many, many, many other competitors who are out there that won't let them just set price because they can offer products that serve the same purpose, but they're differentiated in some way. And so these players up over here, we would call these markets, these are monopolistic competition. And when you first hear that, it sounds more because the first word you hear is monopolistic, but this is more, at least in my mind, closer to perfect competition than it is to a monopoly, or at least the way I view it in my mind."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "But it's highly differentiated, highly branded. And so they have a monopoly on their product, but there are many, many, many other competitors who are out there that won't let them just set price because they can offer products that serve the same purpose, but they're differentiated in some way. And so these players up over here, we would call these markets, these are monopolistic competition. And when you first hear that, it sounds more because the first word you hear is monopolistic, but this is more, at least in my mind, closer to perfect competition than it is to a monopoly, or at least the way I view it in my mind. Monopoly is completely uncompetitive. While this is still highly competitive, it's still not quite as highly competitive as perfect competition, but it's close. You have a monopoly in just your product, but there are other not too different similar products."}, {"video_title": "Oligopolies and monopolistic competition Forms of competition Microeconomics Khan Academy.mp3", "Sentence": "And when you first hear that, it sounds more because the first word you hear is monopolistic, but this is more, at least in my mind, closer to perfect competition than it is to a monopoly, or at least the way I view it in my mind. Monopoly is completely uncompetitive. While this is still highly competitive, it's still not quite as highly competitive as perfect competition, but it's close. You have a monopoly in just your product, but there are other not too different similar products. There are other products on the market whose prices affect your price, or that there are other alternatives, I should say, in the market that will affect people's demand for your product. And the best giveaway between a monopolistic competitor and a perfect competition is that there is some differentiation with the products over here. There is some maybe branding here."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "At one end, you might have perfect competition. Let's write perfect comp. And this is where you have many firms, what they produce is not differentiated, there's no barriers to entry. And in that situation, we have looked at that the market price, the firms just have to take that market price, and that market price is going to describe what their marginal revenue is going to be. No matter how much each of those individual firms produce, they're just going to get that market price. So that marginal revenue will be that market price. But then we looked at a whole sort of what we could call imperfectly competitive firms."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And in that situation, we have looked at that the market price, the firms just have to take that market price, and that market price is going to describe what their marginal revenue is going to be. No matter how much each of those individual firms produce, they're just going to get that market price. So that marginal revenue will be that market price. But then we looked at a whole sort of what we could call imperfectly competitive firms. Imperfectly, imperfect competition. At the extreme, you have the monopoly, where you only have one firm in the market, huge barriers to entry. And so that company or that firm essentially is the market."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But then we looked at a whole sort of what we could call imperfectly competitive firms. Imperfectly, imperfect competition. At the extreme, you have the monopoly, where you only have one firm in the market, huge barriers to entry. And so that company or that firm essentially is the market. And so their demand curve for their product essentially is the market demand curve. But in between, you have things like monopolistic competition, right over there. And in monopolistic competition, you have many firms that are competing, but they're all differentiated in some way."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so that company or that firm essentially is the market. And so their demand curve for their product essentially is the market demand curve. But in between, you have things like monopolistic competition, right over there. And in monopolistic competition, you have many firms that are competing, but they're all differentiated in some way. And there are some barriers to entry. A good example of monopolistic competition or imperfect competition might be the athletic shoe market. In the athletic shoe market, you have many competitors, you have your Nike, Adidas, Reebok, and I could keep listing names, and they are all differentiated in their own way."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And in monopolistic competition, you have many firms that are competing, but they're all differentiated in some way. And there are some barriers to entry. A good example of monopolistic competition or imperfect competition might be the athletic shoe market. In the athletic shoe market, you have many competitors, you have your Nike, Adidas, Reebok, and I could keep listing names, and they are all differentiated in their own way. They all have their own brands, which they've built up over time. They have associations with certain sports figures. Some of their shoes might be perceived as better in certain categories."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In the athletic shoe market, you have many competitors, you have your Nike, Adidas, Reebok, and I could keep listing names, and they are all differentiated in their own way. They all have their own brands, which they've built up over time. They have associations with certain sports figures. Some of their shoes might be perceived as better in certain categories. But they are also competing with each other. So the competition is that they're competing with each other, but you could consider it monopolistic competition, because only Nike can sell, well, Nike shoes. And so you can imagine a demand curve for, say, only Nike shoes."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Some of their shoes might be perceived as better in certain categories. But they are also competing with each other. So the competition is that they're competing with each other, but you could consider it monopolistic competition, because only Nike can sell, well, Nike shoes. And so you can imagine a demand curve for, say, only Nike shoes. So in an imperfect competition, every firm would have their own unique demand curve. And how much they produce actually will affect the price that they get for the product or the service. And what we're going to see in this video is when we're dealing with imperfect competition, the demand curve, the price, isn't exactly what marginal revenue is going to be."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so you can imagine a demand curve for, say, only Nike shoes. So in an imperfect competition, every firm would have their own unique demand curve. And how much they produce actually will affect the price that they get for the product or the service. And what we're going to see in this video is when we're dealing with imperfect competition, the demand curve, the price, isn't exactly what marginal revenue is going to be. And to understand that, let's look at a simple model here. So right over here, I have a very simple model of a demand curve for a firm in an imperfectly competitive market. And you can see here that the more that that firm produces of its goods, the lower pricing can get for that good."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And what we're going to see in this video is when we're dealing with imperfect competition, the demand curve, the price, isn't exactly what marginal revenue is going to be. And to understand that, let's look at a simple model here. So right over here, I have a very simple model of a demand curve for a firm in an imperfectly competitive market. And you can see here that the more that that firm produces of its goods, the lower pricing can get for that good. And we can see very clearly, this is a classic downward-sloping demand curve. But what's going to be really interesting is to think about what is going to be the marginal revenue, especially the marginal revenue in a world where if they sell one unit, they get 32.50. But when they sell two units, it's not like they'll get 32.50 for one of those units and then they'll get 25 for the second unit."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And you can see here that the more that that firm produces of its goods, the lower pricing can get for that good. And we can see very clearly, this is a classic downward-sloping demand curve. But what's going to be really interesting is to think about what is going to be the marginal revenue, especially the marginal revenue in a world where if they sell one unit, they get 32.50. But when they sell two units, it's not like they'll get 32.50 for one of those units and then they'll get 25 for the second unit. If you have a market price out there for $25, you're going to get $25 on all two units. So even though someone was willing to pay 32.50 for one, they're still only going to pay $25. So let's think about what that does to the marginal revenue."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But when they sell two units, it's not like they'll get 32.50 for one of those units and then they'll get 25 for the second unit. If you have a market price out there for $25, you're going to get $25 on all two units. So even though someone was willing to pay 32.50 for one, they're still only going to pay $25. So let's think about what that does to the marginal revenue. I encourage you to pause this video and try to fill out this table yourself before I do it with you. All right, now let's do it together. So our total revenue, obviously when we sell nothing, we have, let me do this in another color, we have zero total revenue."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So let's think about what that does to the marginal revenue. I encourage you to pause this video and try to fill out this table yourself before I do it with you. All right, now let's do it together. So our total revenue, obviously when we sell nothing, we have, let me do this in another color, we have zero total revenue. Now when we sell one unit at 32.50, well then our total revenue is going to be 32.50. No surprise there. Now it's going to get interesting."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So our total revenue, obviously when we sell nothing, we have, let me do this in another color, we have zero total revenue. Now when we sell one unit at 32.50, well then our total revenue is going to be 32.50. No surprise there. Now it's going to get interesting. When we sell two units, what's going to be our total revenue? Well, both of those units are going to be sold at $25. It's not like, as I just said, it's not like that first person's still willing to pay 32.50."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now it's going to get interesting. When we sell two units, what's going to be our total revenue? Well, both of those units are going to be sold at $25. It's not like, as I just said, it's not like that first person's still willing to pay 32.50. It's like, hey, your market price is $25. That's what everyone's going to pay. So now your total revenue is $50, two times $25."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "It's not like, as I just said, it's not like that first person's still willing to pay 32.50. It's like, hey, your market price is $25. That's what everyone's going to pay. So now your total revenue is $50, two times $25. Now when you go to three, the market price that you can get is 17.50. Let's see, that is going to be 52.50. 52.50 of total revenue."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So now your total revenue is $50, two times $25. Now when you go to three, the market price that you can get is 17.50. Let's see, that is going to be 52.50. 52.50 of total revenue. And then if your market price was $10, you could have a quantity of four. If you wanted to sell four, you could do so at a price of $10. You could do it either way, but then your total revenue is going to be $40."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "52.50 of total revenue. And then if your market price was $10, you could have a quantity of four. If you wanted to sell four, you could do so at a price of $10. You could do it either way, but then your total revenue is going to be $40. Now from this, we can think about, well, what's our marginal revenue? Well, our marginal revenue for that first unit is the same as what the price of that first unit is. We went from zero to 32.50 with that first unit, so that's 32.50 right over here."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "You could do it either way, but then your total revenue is going to be $40. Now from this, we can think about, well, what's our marginal revenue? Well, our marginal revenue for that first unit is the same as what the price of that first unit is. We went from zero to 32.50 with that first unit, so that's 32.50 right over here. But what about as we go from that first unit to that second unit? Well, our units go up by one, but our revenue from 32.50 to 50 goes up by 17.50. And so you're already seeing that there's a discrepancy between our marginal revenue and our price."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "We went from zero to 32.50 with that first unit, so that's 32.50 right over here. But what about as we go from that first unit to that second unit? Well, our units go up by one, but our revenue from 32.50 to 50 goes up by 17.50. And so you're already seeing that there's a discrepancy between our marginal revenue and our price. And we can keep going. When we go from two to three units, our revenue only goes up by 2.50. And so that's going to be our marginal revenue."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so you're already seeing that there's a discrepancy between our marginal revenue and our price. And we can keep going. When we go from two to three units, our revenue only goes up by 2.50. And so that's going to be our marginal revenue. And then something very interesting happens. As we go from three units to four units, our total revenue actually goes down. It goes down by 12.50, negative 12.50 right over here."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so that's going to be our marginal revenue. And then something very interesting happens. As we go from three units to four units, our total revenue actually goes down. It goes down by 12.50, negative 12.50 right over here. And that's because when the price gets that low, you are taking a hit on all of the units that you're selling so you actually get a lower total revenue right over here. And if we plot it, we'll see very clearly that the marginal revenue curve departs from the demand curve for that firm that's competing in an imperfectly competitive market. And so we can see here at one unit, our marginal revenue is the same."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "It goes down by 12.50, negative 12.50 right over here. And that's because when the price gets that low, you are taking a hit on all of the units that you're selling so you actually get a lower total revenue right over here. And if we plot it, we'll see very clearly that the marginal revenue curve departs from the demand curve for that firm that's competing in an imperfectly competitive market. And so we can see here at one unit, our marginal revenue is the same. But at two units, our marginal revenue is 17.50. At three units, our marginal revenue is 2.50. And so we have a marginal revenue curve that looks more like this."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so we can see here at one unit, our marginal revenue is the same. But at two units, our marginal revenue is 17.50. At three units, our marginal revenue is 2.50. And so we have a marginal revenue curve that looks more like this. So the big takeaways here are that a firm that's operating in an imperfectly competitive market, it isn't just a price taker. It's not that no matter how much it produces, it's going to get the same price. It's going to have its own unique demand curve because there is some differentiation in the market."}, {"video_title": "Types of competition and marginal revenue AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so we have a marginal revenue curve that looks more like this. So the big takeaways here are that a firm that's operating in an imperfectly competitive market, it isn't just a price taker. It's not that no matter how much it produces, it's going to get the same price. It's going to have its own unique demand curve because there is some differentiation in the market. And so it's going to have a downward-sloping demand curve. And because of that downward-sloping demand curve, you are also going to have a downward-sloping marginal revenue curve. And that marginal revenue curve is actually going to be downward-sloping at a steeper rate."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Let's say that we have three small ponds. So this is pond A, this is pond B, and this is pond C over here. And let's say that this first pond right over here, it's a privately owned pond. It's owned by Al. And this pond over here is owned by Carol. It is owned by Carol. But this middle pond, pond B, I guess we called it to start off with, this is common land, or I guess this is a common pound, or this is open to the public."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "It's owned by Al. And this pond over here is owned by Carol. It is owned by Carol. But this middle pond, pond B, I guess we called it to start off with, this is common land, or I guess this is a common pound, or this is open to the public. Open to the public. Open to the public. And let's say that Al and Carol, they're both fisher, I guess Carol would be a fisher woman."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "But this middle pond, pond B, I guess we called it to start off with, this is common land, or I guess this is a common pound, or this is open to the public. Open to the public. Open to the public. And let's say that Al and Carol, they're both fisher, I guess Carol would be a fisher woman. They both like to fish, that's how they make their living. And Al, in his pond, he has fish in there, and he does some fishing in his pond. But he makes sure not to overfish, because he doesn't want to deplete the stock of fish he has."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And let's say that Al and Carol, they're both fisher, I guess Carol would be a fisher woman. They both like to fish, that's how they make their living. And Al, in his pond, he has fish in there, and he does some fishing in his pond. But he makes sure not to overfish, because he doesn't want to deplete the stock of fish he has. So he fishes just enough that he can pay his bills and whatever else, but not so much that it depletes the fish and essentially makes them extinct in his pond. So he doesn't want to overfish. And Carol does the same thing."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "But he makes sure not to overfish, because he doesn't want to deplete the stock of fish he has. So he fishes just enough that he can pay his bills and whatever else, but not so much that it depletes the fish and essentially makes them extinct in his pond. So he doesn't want to overfish. And Carol does the same thing. She's got fish in her pond, and she uses them to make a living. She gets them out and sells them and eats them and whatever else. But she's careful not to overfish, because if she overfished, then there wouldn't be fish, there wouldn't be a next generation of fish."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And Carol does the same thing. She's got fish in her pond, and she uses them to make a living. She gets them out and sells them and eats them and whatever else. But she's careful not to overfish, because if she overfished, then there wouldn't be fish, there wouldn't be a next generation of fish. But over here in this public pond, there are also fish. There are also fish, I'll draw their fish in orange. There are also fish in this public pond over here."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "But she's careful not to overfish, because if she overfished, then there wouldn't be fish, there wouldn't be a next generation of fish. But over here in this public pond, there are also fish. There are also fish, I'll draw their fish in orange. There are also fish in this public pond over here. They're smiling, maybe they won't be smiling for long. And what is going to happen? Anyone can go and fish in this public pond."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "There are also fish in this public pond over here. They're smiling, maybe they won't be smiling for long. And what is going to happen? Anyone can go and fish in this public pond. So Al might say, and we'll just assume we're in a world of two people, obviously the real world has more than two people. Al will say, okay, I'm gonna be very careful in my own pond. I'm gonna fish just enough that I don't deplete the fish there."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Anyone can go and fish in this public pond. So Al might say, and we'll just assume we're in a world of two people, obviously the real world has more than two people. Al will say, okay, I'm gonna be very careful in my own pond. I'm gonna fish just enough that I don't deplete the fish there. But any extra fish I need, I could go over here to this public pond and fish all I want. And I might be concerned about depletion in the public pond, except for the fact, if I'm concerned about depletion, that's still not going to help the situation, because other people might come and still not be so concerned. And so I won't even get the benefit of the depletion if I hold back and other people come and deplete the pond."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "I'm gonna fish just enough that I don't deplete the fish there. But any extra fish I need, I could go over here to this public pond and fish all I want. And I might be concerned about depletion in the public pond, except for the fact, if I'm concerned about depletion, that's still not going to help the situation, because other people might come and still not be so concerned. And so I won't even get the benefit of the depletion if I hold back and other people come and deplete the pond. And so when you have this pond that is open to the public, all of the surrounding people, whether it's Al or Carol, or I guess you could have other people here, they would say, look, I'm gonna fish here, I'm going to get some benefit. And even if I overfish, the benefit of overfishing I'm going to get. In the near term, I'm going to get all of those fish."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And so I won't even get the benefit of the depletion if I hold back and other people come and deplete the pond. And so when you have this pond that is open to the public, all of the surrounding people, whether it's Al or Carol, or I guess you could have other people here, they would say, look, I'm gonna fish here, I'm going to get some benefit. And even if I overfish, the benefit of overfishing I'm going to get. In the near term, I'm going to get all of those fish. And then the cost of that overfishing, which is in the future, there won't be as many fish or no fish at all, that's going to be spread out amongst everyone else. And so you have the situation where, because there's no one, I guess you could say either owning this land, or there's no one protecting this lake, or however you want to describe it, you have, there's a rational, and I want to be clear, rational does not always mean good, there rational actors might decide to overfish. Decide to overfish."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "In the near term, I'm going to get all of those fish. And then the cost of that overfishing, which is in the future, there won't be as many fish or no fish at all, that's going to be spread out amongst everyone else. And so you have the situation where, because there's no one, I guess you could say either owning this land, or there's no one protecting this lake, or however you want to describe it, you have, there's a rational, and I want to be clear, rational does not always mean good, there rational actors might decide to overfish. Decide to overfish. And essentially by doing that, everyone's going to be worse off. They're going to destroy the productivity of this pond. They're going to destroy the productivity, productivity of the pond, of the pond right over here."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Decide to overfish. And essentially by doing that, everyone's going to be worse off. They're going to destroy the productivity of this pond. They're going to destroy the productivity, productivity of the pond, of the pond right over here. And this idea that if there's this common land or common resource, in this case it was a pond, and people can spread out the costs and they get the benefits directly, you essentially, you have a situation where that shared resource can get abused. And this is called the tragedy of the commons. So this is the tragedy, tragedy of the commons."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "They're going to destroy the productivity, productivity of the pond, of the pond right over here. And this idea that if there's this common land or common resource, in this case it was a pond, and people can spread out the costs and they get the benefits directly, you essentially, you have a situation where that shared resource can get abused. And this is called the tragedy of the commons. So this is the tragedy, tragedy of the commons. Where in this, in the example we did here, the pond is the common space that's being abused. And it's especially a tragedy, and I've already hinted at this already, is that even if Al decides that, hey, you know what, I'm going to hold back a little bit, I'm not going to fish so much because I don't want to deplete it, he'll say, but wait, if I do that, if I do that, other people are going to come and deplete it, so I have no incentive to hold back. And so other people are also going to have the same logic, and then this thing is going to get overfished here."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So this is the tragedy, tragedy of the commons. Where in this, in the example we did here, the pond is the common space that's being abused. And it's especially a tragedy, and I've already hinted at this already, is that even if Al decides that, hey, you know what, I'm going to hold back a little bit, I'm not going to fish so much because I don't want to deplete it, he'll say, but wait, if I do that, if I do that, other people are going to come and deplete it, so I have no incentive to hold back. And so other people are also going to have the same logic, and then this thing is going to get overfished here. And the classic example of tragedy of the commons, or the example was first given, was common grazing land. Same exact idea. If this was private grazing land over here, where I can keep my cows and my sheep, and this is private grazing land over here, where someone else has their cow and sheep, but this over here is literally a commons where anyone can graze their cow and sheep, then, just like the fishing, huge incentive for people to let their cow and sheep maybe overgraze the land, destroy the land, make it not sustainable, but the costs of it are going to be shared by everyone else and the benefit of overgrazing, at least in the near term, you, the person who's overgrazing, is going to get from it."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And so other people are also going to have the same logic, and then this thing is going to get overfished here. And the classic example of tragedy of the commons, or the example was first given, was common grazing land. Same exact idea. If this was private grazing land over here, where I can keep my cows and my sheep, and this is private grazing land over here, where someone else has their cow and sheep, but this over here is literally a commons where anyone can graze their cow and sheep, then, just like the fishing, huge incentive for people to let their cow and sheep maybe overgraze the land, destroy the land, make it not sustainable, but the costs of it are going to be shared by everyone else and the benefit of overgrazing, at least in the near term, you, the person who's overgrazing, is going to get from it. And you might even say, I'm not even the one overgrazing it. It's all of us collectively overgrazing, so you don't blame me. Now, what is the solution to the tragedy of the commons?"}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "If this was private grazing land over here, where I can keep my cows and my sheep, and this is private grazing land over here, where someone else has their cow and sheep, but this over here is literally a commons where anyone can graze their cow and sheep, then, just like the fishing, huge incentive for people to let their cow and sheep maybe overgraze the land, destroy the land, make it not sustainable, but the costs of it are going to be shared by everyone else and the benefit of overgrazing, at least in the near term, you, the person who's overgrazing, is going to get from it. And you might even say, I'm not even the one overgrazing it. It's all of us collectively overgrazing, so you don't blame me. Now, what is the solution to the tragedy of the commons? How does a government or a jurisdiction or a group of people avoid this type of destruction of a resource? Well, one way that you could do is you could make this somehow into private land. So if that was owned by the government, it could sell it, auction it off to private people who could then sell access to this, or if the government does retain control of it, it could sell permits to the land."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Now, what is the solution to the tragedy of the commons? How does a government or a jurisdiction or a group of people avoid this type of destruction of a resource? Well, one way that you could do is you could make this somehow into private land. So if that was owned by the government, it could sell it, auction it off to private people who could then sell access to this, or if the government does retain control of it, it could sell permits to the land. So in this situation, you could sell permits. So it could figure out, hey, if someone fishes responsibly in a given day, they're going to get, I don't know, $200 of value by doing this, so we're going to make a permit cost, I don't know, $150, so that someone still has an incentive to do it, but that will also limit the amount of fishing that can be there, and you could have some conservationists that make sure that not too many permits are given for this space over here. We see that happening."}, {"video_title": "Tragedy of the commons Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So if that was owned by the government, it could sell it, auction it off to private people who could then sell access to this, or if the government does retain control of it, it could sell permits to the land. So in this situation, you could sell permits. So it could figure out, hey, if someone fishes responsibly in a given day, they're going to get, I don't know, $200 of value by doing this, so we're going to make a permit cost, I don't know, $150, so that someone still has an incentive to do it, but that will also limit the amount of fishing that can be there, and you could have some conservationists that make sure that not too many permits are given for this space over here. We see that happening. If you wanted to go hunting, there are permits you need to have. If you want to go fishing in a lot of places, there are permits that you want to have. If you want to go camping in a lot of places, there are permits, because you could even over-camp an area."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "What we're going to think about in this video is elasticity of demand. Elasticity of demand. And what this is, is a measure of how does the quantity demanded change given a change in price, or how does a change in price impact the quantity demanded. So change in price impact quantity demanded. When you talk about demand, you're talking about the whole curve. Quantity demanded is a specific quantity. Quantity demanded."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So change in price impact quantity demanded. When you talk about demand, you're talking about the whole curve. Quantity demanded is a specific quantity. Quantity demanded. And the way that we as economists, I'm not really an economist, but since we're doing economics we can pretend to be economists. The way that economists measure this is they measure it as a percent change in quantity over the percent change in price. And the reason why they do this as opposed to just say change in quantity over change in price is because if you did change in quantity over change in price, you would have a number that's specific to the units you're using."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Quantity demanded. And the way that we as economists, I'm not really an economist, but since we're doing economics we can pretend to be economists. The way that economists measure this is they measure it as a percent change in quantity over the percent change in price. And the reason why they do this as opposed to just say change in quantity over change in price is because if you did change in quantity over change in price, you would have a number that's specific to the units you're using. So it would depend on whether you're doing quantity in terms of per hour, per week, or per year. And so you would have different numbers based on the time frame or the units that you might use. But when you use a percentage, it is a unitless number."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And the reason why they do this as opposed to just say change in quantity over change in price is because if you did change in quantity over change in price, you would have a number that's specific to the units you're using. So it would depend on whether you're doing quantity in terms of per hour, per week, or per year. And so you would have different numbers based on the time frame or the units that you might use. But when you use a percentage, it is a unitless number. Because of the percentage, you're taking a change in some quantity divided by that quantity. So the units themselves actually cancel out. And the reason why it's called elasticity, this might make some sense to you, or the reason why I like to think it's called elasticity is I imagine something that's elastic, like an elastic band or a rubber band."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "But when you use a percentage, it is a unitless number. Because of the percentage, you're taking a change in some quantity divided by that quantity. So the units themselves actually cancel out. And the reason why it's called elasticity, this might make some sense to you, or the reason why I like to think it's called elasticity is I imagine something that's elastic, like an elastic band or a rubber band. If you pull it, depending if something, so let's say this one is inelastic. So if you pull, you're not going to be able to pull it much. It's going to be fairly stiff."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And the reason why it's called elasticity, this might make some sense to you, or the reason why I like to think it's called elasticity is I imagine something that's elastic, like an elastic band or a rubber band. If you pull it, depending if something, so let's say this one is inelastic. So if you pull, you're not going to be able to pull it much. It's going to be fairly stiff. It's not going to stretch a lot. While if something is elastic, if something is elastic for a given amount of force, so this is for a given amount of force, you're not able to pull it much. And if something is elastic maybe for the same amount of force, you're going to be able to pull it a lot."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "It's going to be fairly stiff. It's not going to stretch a lot. While if something is elastic, if something is elastic for a given amount of force, so this is for a given amount of force, you're not able to pull it much. And if something is elastic maybe for the same amount of force, you're going to be able to pull it a lot. So this right over here is elastic. And so the analogy maybe might make a little bit sense relative to price and demand. Something is elastic, so let me write this down."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And if something is elastic maybe for the same amount of force, you're going to be able to pull it a lot. So this right over here is elastic. And so the analogy maybe might make a little bit sense relative to price and demand. Something is elastic, so let me write this down. Elastic, so let me write very elastic, if a given change in price, given price change, you have, and especially we'll talk about percentages in a little bit, but a given change in price, you have a large change in demand, so large percentage change. Let me just speak in terms of percentage. So if you're given a percentage change in P, you end up having a large percentage change in Q."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Something is elastic, so let me write this down. Elastic, so let me write very elastic, if a given change in price, given price change, you have, and especially we'll talk about percentages in a little bit, but a given change in price, you have a large change in demand, so large percentage change. Let me just speak in terms of percentage. So if you're given a percentage change in P, you end up having a large percentage change in Q. That would be very elastic. So you could imagine the P is like the force, and the Q, the quantity demanded, is how far the thing can get stretched apart. And that's why we would call this very elastic, just like a very elastic rubber band."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So if you're given a percentage change in P, you end up having a large percentage change in Q. That would be very elastic. So you could imagine the P is like the force, and the Q, the quantity demanded, is how far the thing can get stretched apart. And that's why we would call this very elastic, just like a very elastic rubber band. And if something is very inelastic, if given a percent change in P, you have a small percent change in Q. So just like a rubber band, for a given amount of force, if you're not able to pull it much at all, then it's inelastic. If you're able to pull it a lot, it's elastic."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And that's why we would call this very elastic, just like a very elastic rubber band. And if something is very inelastic, if given a percent change in P, you have a small percent change in Q. So just like a rubber band, for a given amount of force, if you're not able to pull it much at all, then it's inelastic. If you're able to pull it a lot, it's elastic. Same thing with price and quantity. For a given change in price, if the quantity demanded, if the percent quantity demanded changes a lot, very elastic. If it doesn't change a lot, very inelastic."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "If you're able to pull it a lot, it's elastic. Same thing with price and quantity. For a given change in price, if the quantity demanded, if the percent quantity demanded changes a lot, very elastic. If it doesn't change a lot, very inelastic. Now, with that out of the way, let's actually calculate the elasticity for multiple points along this demand curve right over here. And I think that will give us a better grounding, especially because there are a little slightly, I would call them unusual ways of calculating the percent change in quantity and the percent change of price, just so that we get the same number when we have a positive change in price and the same as we get the negative change in price, or a negative and a positive, or a drop in price and an increase in price. So let me give myself some real estate over here, because I want to do some actual mathematics."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "If it doesn't change a lot, very inelastic. Now, with that out of the way, let's actually calculate the elasticity for multiple points along this demand curve right over here. And I think that will give us a better grounding, especially because there are a little slightly, I would call them unusual ways of calculating the percent change in quantity and the percent change of price, just so that we get the same number when we have a positive change in price and the same as we get the negative change in price, or a negative and a positive, or a drop in price and an increase in price. So let me give myself some real estate over here, because I want to do some actual mathematics. And actually, all of this we will be reviewing in what I'm about to do, and it will give me some real estate to work with. So let me clear all of that, and let me clear that right over here. And what I'm going to do is I'm going to calculate the elasticity of demand at several points along this demand curve right over here."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So let me give myself some real estate over here, because I want to do some actual mathematics. And actually, all of this we will be reviewing in what I'm about to do, and it will give me some real estate to work with. So let me clear all of that, and let me clear that right over here. And what I'm going to do is I'm going to calculate the elasticity of demand at several points along this demand curve right over here. And so the first one I will do it at point A to point B. So let me make another column right over here. Elasticity of demand."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And what I'm going to do is I'm going to calculate the elasticity of demand at several points along this demand curve right over here. And so the first one I will do it at point A to point B. So let me make another column right over here. Elasticity of demand. And actually, we're going to have one column that's elasticity of demand. So it's a big E with a little subscript D. And the other one I'll just take its absolute value, because depending on, sometimes people like to just think of the number, which will tend to be a negative number, and sometimes people like to look at the absolute value of it. So we'll look at both and see what it actually means."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Elasticity of demand. And actually, we're going to have one column that's elasticity of demand. So it's a big E with a little subscript D. And the other one I'll just take its absolute value, because depending on, sometimes people like to just think of the number, which will tend to be a negative number, and sometimes people like to look at the absolute value of it. So we'll look at both and see what it actually means. So let's say our price drops from point A to point B. So from point A to point B, we have a negative $1 change in price, and we have a positive, so this is a negative $1 change in price, and we have a positive $2 burger per hour change in quantity demanded. So what is the elasticity of demand there?"}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So we'll look at both and see what it actually means. So let's say our price drops from point A to point B. So from point A to point B, we have a negative $1 change in price, and we have a positive, so this is a negative $1 change in price, and we have a positive $2 burger per hour change in quantity demanded. So what is the elasticity of demand there? So let's write it over here. I'll do it in A's color. So the elasticity of demand, remember, it's the percent change in quantity."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So what is the elasticity of demand there? So let's write it over here. I'll do it in A's color. So the elasticity of demand, remember, it's the percent change in quantity. So percent change in quantity, rewrite it. Percent change in quantity over percent change in price. And so we have, what's our percent change in quantity?"}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So the elasticity of demand, remember, it's the percent change in quantity. So percent change in quantity, rewrite it. Percent change in quantity over percent change in price. And so we have, what's our percent change in quantity? So it's going to be the change in quantity over some base quantity. So our change in quantity is 2, so it's going to be equal to 2 over. Now, in traditional terms, and this is what I want to kind of clarify, it's a little bit unusual in how we do it, but we do it so that we get the same elasticity of demand whether we go from A to B or B to A, or essentially we get the same elasticity of demand along this whole part of the curve."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And so we have, what's our percent change in quantity? So it's going to be the change in quantity over some base quantity. So our change in quantity is 2, so it's going to be equal to 2 over. Now, in traditional terms, and this is what I want to kind of clarify, it's a little bit unusual in how we do it, but we do it so that we get the same elasticity of demand whether we go from A to B or B to A, or essentially we get the same elasticity of demand along this whole part of the curve. Instead of just dividing the change in quantity divided by our starting point, what I want to do is I'm going to divide the change in quantity divided by the average of our starting and our ending points. So that's going to be 2 over, and I'll actually do the math explicitly. Actually, now let's just think about it."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now, in traditional terms, and this is what I want to kind of clarify, it's a little bit unusual in how we do it, but we do it so that we get the same elasticity of demand whether we go from A to B or B to A, or essentially we get the same elasticity of demand along this whole part of the curve. Instead of just dividing the change in quantity divided by our starting point, what I want to do is I'm going to divide the change in quantity divided by the average of our starting and our ending points. So that's going to be 2 over, and I'll actually do the math explicitly. Actually, now let's just think about it. What's the average between 2 and 4? Well, the average is just going to be 3. That's the average of 2 and 4."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Actually, now let's just think about it. What's the average between 2 and 4? Well, the average is just going to be 3. That's the average of 2 and 4. I could write, let me write it down just so it's clear. This right over here, that right over here is 2 plus 4 over 2. That's how you get 3."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "That's the average of 2 and 4. I could write, let me write it down just so it's clear. This right over here, that right over here is 2 plus 4 over 2. That's how you get 3. That's how you would calculate the average. All right, so that is our proportionate change, and then you want to multiply by 100 times 100 to actually get a percentage. Then what is our change in price?"}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "That's how you get 3. That's how you would calculate the average. All right, so that is our proportionate change, and then you want to multiply by 100 times 100 to actually get a percentage. Then what is our change in price? Well, we're going to do the same thing, or the percent change in price. Our change in price is negative 1. It is negative 1 over, and once again, we don't just do negative 1 divided by 9."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Then what is our change in price? Well, we're going to do the same thing, or the percent change in price. Our change in price is negative 1. It is negative 1 over, and once again, we don't just do negative 1 divided by 9. We do it over the average of 8 and 9, and the average of 8 and 9 is 8.5, and then multiply by 100 to get your percentage. Now, these hundreds obviously cancel out. We are going to be left with, when you divide by fractions, the same thing as multiplying by its inverse."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "It is negative 1 over, and once again, we don't just do negative 1 divided by 9. We do it over the average of 8 and 9, and the average of 8 and 9 is 8.5, and then multiply by 100 to get your percentage. Now, these hundreds obviously cancel out. We are going to be left with, when you divide by fractions, the same thing as multiplying by its inverse. We're going to get 2 thirds times negative 8.5 over 1, or times negative 8.5. We get out our calculator, and it is 2 times negative 8.5 and then divided by 3, which gives us negative 5.6667. It's really negative 5 and 2 thirds."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "We are going to be left with, when you divide by fractions, the same thing as multiplying by its inverse. We're going to get 2 thirds times negative 8.5 over 1, or times negative 8.5. We get out our calculator, and it is 2 times negative 8.5 and then divided by 3, which gives us negative 5.6667. It's really negative 5 and 2 thirds. I'll just write it negative. I'll round it. It's negative 5.67."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "It's really negative 5 and 2 thirds. I'll just write it negative. I'll round it. It's negative 5.67. This is approximately equal to negative 5.67. Right over here, it's negative 5.67, and this absolute value is obviously just 5.67. I'll leave it to you to verify for yourself that you'll get the same elasticity of demand using this technique where you use the average as your base and the percentage, going from 9 to 8 in price as going from 8 to 9 in price, which is different than if you use the 9 as the base or the 8 as a base."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "It's negative 5.67. This is approximately equal to negative 5.67. Right over here, it's negative 5.67, and this absolute value is obviously just 5.67. I'll leave it to you to verify for yourself that you'll get the same elasticity of demand using this technique where you use the average as your base and the percentage, going from 9 to 8 in price as going from 8 to 9 in price, which is different than if you use the 9 as the base or the 8 as a base. This right here is the elasticity of demand, not just at point A. You can view it as the average elasticity of demand over this little part of the curve, which is really a line in this example, over this part of the arc. We'll write that part right over here."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "I'll leave it to you to verify for yourself that you'll get the same elasticity of demand using this technique where you use the average as your base and the percentage, going from 9 to 8 in price as going from 8 to 9 in price, which is different than if you use the 9 as the base or the 8 as a base. This right here is the elasticity of demand, not just at point A. You can view it as the average elasticity of demand over this little part of the curve, which is really a line in this example, over this part of the arc. We'll write that part right over here. I'll write the absolute value. The absolute value of our elasticity of demand is 5.67. Now let's do the other two sections right over here."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "We'll write that part right over here. I'll write the absolute value. The absolute value of our elasticity of demand is 5.67. Now let's do the other two sections right over here. Let's think about what happens when we go from C to D. Our elasticity of demand there. From C to D, we have a change in quantity, once again of plus 2, and our change in price, once again, is negative 1. We'll see, even though the change in quantity is the same and the change in price is the same, we're going to have a different elasticity of demand because we have different starting points."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now let's do the other two sections right over here. Let's think about what happens when we go from C to D. Our elasticity of demand there. From C to D, we have a change in quantity, once again of plus 2, and our change in price, once again, is negative 1. We'll see, even though the change in quantity is the same and the change in price is the same, we're going to have a different elasticity of demand because we have different starting points. Our starting points and our ending points for price are lower and our starting and ending points for quantity are higher. It'll actually change the percentage. Let's see what we get."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "We'll see, even though the change in quantity is the same and the change in price is the same, we're going to have a different elasticity of demand because we have different starting points. Our starting points and our ending points for price are lower and our starting and ending points for quantity are higher. It'll actually change the percentage. Let's see what we get. Our percent change in quantity, we have a change in quantity of 2, and then our average quantity is 9 plus 11, which is 20, divided by 2 is 10. All of that over percent change in price. We have negative 1, let me scroll down a little bit, negative 1 divided by the change in, negative 1 divided by the average price."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Let's see what we get. Our percent change in quantity, we have a change in quantity of 2, and then our average quantity is 9 plus 11, which is 20, divided by 2 is 10. All of that over percent change in price. We have negative 1, let me scroll down a little bit, negative 1 divided by the change in, negative 1 divided by the average price. Negative 1 is the change in price, and we want to divide that by the average price. 550 plus 450 is $10, divided by 2 is 5. The average price is 5."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "We have negative 1, let me scroll down a little bit, negative 1 divided by the change in, negative 1 divided by the average price. Negative 1 is the change in price, and we want to divide that by the average price. 550 plus 450 is $10, divided by 2 is 5. The average price is 5. We can multiply the numerator by 100 and the denominator by 100, but that won't change anything because we'll just divide both by 100. This is equal to 2 over 10, times, dividing by a fraction, same thing as multiplying by its inverse, times negative 5 over 1. This is just because 2 over 10 is the same thing as 1 fifth."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "The average price is 5. We can multiply the numerator by 100 and the denominator by 100, but that won't change anything because we'll just divide both by 100. This is equal to 2 over 10, times, dividing by a fraction, same thing as multiplying by its inverse, times negative 5 over 1. This is just because 2 over 10 is the same thing as 1 fifth. 1 fifth times negative 5 over 1, it is negative 1. This right over here, our elasticity of demand right over here is negative 1 or its absolute value is 1. The absolute value of the elasticity of demand right over here is equal to 1."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "This is just because 2 over 10 is the same thing as 1 fifth. 1 fifth times negative 5 over 1, it is negative 1. This right over here, our elasticity of demand right over here is negative 1 or its absolute value is 1. The absolute value of the elasticity of demand right over here is equal to 1. Let's just do one more section, and maybe in the next video we can think a little bit about what it's telling us. Let's do this last section over here just for some practice. I encourage you to pause it and try it yourself."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "The absolute value of the elasticity of demand right over here is equal to 1. Let's just do one more section, and maybe in the next video we can think a little bit about what it's telling us. Let's do this last section over here just for some practice. I encourage you to pause it and try it yourself. We're going to think about this section right over here. Once again, our change in quantity is plus 2, and our change in price is negative 1, and our elasticity of demand, change in quantity, 2 over average quantity, which is 17, change in price is negative 1, over average price, 1 plus 2 divided by 2 is $1.50, or $1.50 is right in between these two, divided by $1.50. We don't have to multiply the numerator and denominator by 100 because those just cancel out."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "I encourage you to pause it and try it yourself. We're going to think about this section right over here. Once again, our change in quantity is plus 2, and our change in price is negative 1, and our elasticity of demand, change in quantity, 2 over average quantity, which is 17, change in price is negative 1, over average price, 1 plus 2 divided by 2 is $1.50, or $1.50 is right in between these two, divided by $1.50. We don't have to multiply the numerator and denominator by 100 because those just cancel out. We get 2 over 17 times negative, well, we could just write this as negative $1.50 over 1. This is equal to, getting our calculator back out, this is equal to, I'll just write, well, it's really just going to be negative 3 over 17. 2 times 1.50 is negative 3 over 17, so negative 3 divided by 17 is equal to negative.18."}, {"video_title": "Price elasticity of demand using the midpoint method Elasticity Microeconomics Khan Academy.mp3", "Sentence": "We don't have to multiply the numerator and denominator by 100 because those just cancel out. We get 2 over 17 times negative, well, we could just write this as negative $1.50 over 1. This is equal to, getting our calculator back out, this is equal to, I'll just write, well, it's really just going to be negative 3 over 17. 2 times 1.50 is negative 3 over 17, so negative 3 divided by 17 is equal to negative.18. Here it is negative 0.18, and its absolute value is 0.18. The elasticity of demand over here is 0.18. I'll leave you there, and in the next video we'll think about these results a little bit."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And what this chart tells us, if country A put all of their energy behind apples in a day, they could produce three apples. And if they put all of their energy behind bananas in a day, they could produce six bananas. Similarly, country B, if they put all of their energy behind apples in a day, they could produce two apples. And country B, if they put all of their energy behind bananas in a day, they could produce four bananas. So given this, who has the comparative advantage in apples and who has a comparative advantage in bananas and how should they trade? Pause this video and try to figure it out on your own. All right, so when we're thinking about comparative advantage, we really wanna think about, well, what is the opportunity cost of producing an apple in each country and what is the opportunity cost of producing a banana in each country?"}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And country B, if they put all of their energy behind bananas in a day, they could produce four bananas. So given this, who has the comparative advantage in apples and who has a comparative advantage in bananas and how should they trade? Pause this video and try to figure it out on your own. All right, so when we're thinking about comparative advantage, we really wanna think about, well, what is the opportunity cost of producing an apple in each country and what is the opportunity cost of producing a banana in each country? And so let me make another little subcolumn right over here, opportunity cost. And so what is the opportunity cost of an apple in country A? And pause the video at any point if you get inspired."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "All right, so when we're thinking about comparative advantage, we really wanna think about, well, what is the opportunity cost of producing an apple in each country and what is the opportunity cost of producing a banana in each country? And so let me make another little subcolumn right over here, opportunity cost. And so what is the opportunity cost of an apple in country A? And pause the video at any point if you get inspired. Well, to produce three apples, they would have to trade off six bananas. And so that means per apple, they are not producing two bananas. So this is two bananas, two bananas."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And pause the video at any point if you get inspired. Well, to produce three apples, they would have to trade off six bananas. And so that means per apple, they are not producing two bananas. So this is two bananas, two bananas. I'll just write bananas per apple. And their opportunity cost for bananas is just going to be the reciprocal of that. So one over two apples, apples per banana."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So this is two bananas, two bananas. I'll just write bananas per apple. And their opportunity cost for bananas is just going to be the reciprocal of that. So one over two apples, apples per banana. And then for country B, we can do a similar calculation and you might be noticing something interesting is about to happen. What's country B's opportunity cost of apples? Well, one way to think about it, if they produce two apples, that means they're giving up four bananas or they're giving up two bananas per apple."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So one over two apples, apples per banana. And then for country B, we can do a similar calculation and you might be noticing something interesting is about to happen. What's country B's opportunity cost of apples? Well, one way to think about it, if they produce two apples, that means they're giving up four bananas or they're giving up two bananas per apple. So two bananas, bananas per apple. And once again, if we wanna think in terms the opportunity cost of a banana, well, to produce four bananas, they're giving up two apples. So this is one half of an apple per banana, per, I'll just write banana right over there."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Well, one way to think about it, if they produce two apples, that means they're giving up four bananas or they're giving up two bananas per apple. So two bananas, bananas per apple. And once again, if we wanna think in terms the opportunity cost of a banana, well, to produce four bananas, they're giving up two apples. So this is one half of an apple per banana, per, I'll just write banana right over there. So this one is a little bit interesting. They have the same opportunity cost for, they have the same opportunity cost for apples in terms of bananas, and they have the same opportunity cost for bananas in terms of apples. And so because they have the same opportunity costs, so let me write this down, same opportunity costs, costs, costs, there is no comparative advantage."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So this is one half of an apple per banana, per, I'll just write banana right over there. So this one is a little bit interesting. They have the same opportunity cost for, they have the same opportunity cost for apples in terms of bananas, and they have the same opportunity cost for bananas in terms of apples. And so because they have the same opportunity costs, so let me write this down, same opportunity costs, costs, costs, there is no comparative advantage. So no comparative advantage in either. Advantage, advantage in either. And so based on our very simple model here, there are no gains from, no gains from trade."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And so because they have the same opportunity costs, so let me write this down, same opportunity costs, costs, costs, there is no comparative advantage. So no comparative advantage in either. Advantage, advantage in either. And so based on our very simple model here, there are no gains from, no gains from trade. Another way we could visualize this that maybe makes it maybe hopefully a little bit more clear, so let me make one axis here. I'm trying to draw a straight line. All right, and then this is my other axis right over here."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And so based on our very simple model here, there are no gains from, no gains from trade. Another way we could visualize this that maybe makes it maybe hopefully a little bit more clear, so let me make one axis here. I'm trying to draw a straight line. All right, and then this is my other axis right over here. And let's make this one right over here, this horizontal one, let's make this the apples axis, and let's make the vertical one the bananas axis. Bananas. And we're saying per day, per day."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "All right, and then this is my other axis right over here. And let's make this one right over here, this horizontal one, let's make this the apples axis, and let's make the vertical one the bananas axis. Bananas. And we're saying per day, per day. And this of course is apples per day. And so if we look at country A, let me do country A in a new color. So country A, let's say orange."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And we're saying per day, per day. And this of course is apples per day. And so if we look at country A, let me do country A in a new color. So country A, let's say orange. If they put all of their energy behind apples, they could produce one, two, maybe spread this out a little bit, they could produce one, two, three apples in a day. If they put all of the energy behind bananas, they could produce, let's just say this is two, four, six. So that's six, this is four, this is two, this is three right over here."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So country A, let's say orange. If they put all of their energy behind apples, they could produce one, two, maybe spread this out a little bit, they could produce one, two, three apples in a day. If they put all of the energy behind bananas, they could produce, let's just say this is two, four, six. So that's six, this is four, this is two, this is three right over here. Let me put markers in between to make this clear. So if they put all of their energy into bananas, they could produce six in a day. And so their production possibilities, if we assume it is a linear trade-off, would look something like this."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So that's six, this is four, this is two, this is three right over here. Let me put markers in between to make this clear. So if they put all of their energy into bananas, they could produce six in a day. And so their production possibilities, if we assume it is a linear trade-off, would look something like this. And the slope right over here, this would be the opportunity cost. This would be, so the slope right over here, every time we increase apples by one, we decrease bananas by two. So in this situation, we would have a, so the slope, slope here is equal to, well, it's actually a negative slope, it's equal to negative two bananas, bananas per apple."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And so their production possibilities, if we assume it is a linear trade-off, would look something like this. And the slope right over here, this would be the opportunity cost. This would be, so the slope right over here, every time we increase apples by one, we decrease bananas by two. So in this situation, we would have a, so the slope, slope here is equal to, well, it's actually a negative slope, it's equal to negative two bananas, bananas per apple. So this right over here, this slope, based on how I picked the axes, this is giving me the opportunity cost for apples in terms of bananas. Every time I increase an apple, how many bananas am I actually giving up? So that is my opportunity cost there."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So in this situation, we would have a, so the slope, slope here is equal to, well, it's actually a negative slope, it's equal to negative two bananas, bananas per apple. So this right over here, this slope, based on how I picked the axes, this is giving me the opportunity cost for apples in terms of bananas. Every time I increase an apple, how many bananas am I actually giving up? So that is my opportunity cost there. And now if we think about country B, and let me do this in a new color, I'm running out of colors. Country B right over here, they can either produce four bananas or two apples or things in between. But notice, it has the exact same slope."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So that is my opportunity cost there. And now if we think about country B, and let me do this in a new color, I'm running out of colors. Country B right over here, they can either produce four bananas or two apples or things in between. But notice, it has the exact same slope. The slope is the opportunity cost. And if we switch these axes right over here, then the slope would be the opportunity cost for bananas in terms of apples. But the big takeaway here, if you see the production possibilities of two countries, and we're talking about two goods, and they have the same slope, then that means our opportunity costs are going to be the same, and there's not going to be a gain from trade."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "But notice, it has the exact same slope. The slope is the opportunity cost. And if we switch these axes right over here, then the slope would be the opportunity cost for bananas in terms of apples. But the big takeaway here, if you see the production possibilities of two countries, and we're talking about two goods, and they have the same slope, then that means our opportunity costs are going to be the same, and there's not going to be a gain from trade. Remember, the whole point of comparative advantage and trading is that both countries will benefit. That's really the big takeaway here. But there are situations where both countries wouldn't benefit because they have the same opportunity cost, and this was an example of one of them."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "But the big takeaway here, if you see the production possibilities of two countries, and we're talking about two goods, and they have the same slope, then that means our opportunity costs are going to be the same, and there's not going to be a gain from trade. Remember, the whole point of comparative advantage and trading is that both countries will benefit. That's really the big takeaway here. But there are situations where both countries wouldn't benefit because they have the same opportunity cost, and this was an example of one of them. Now the other case, sometimes they will have, one will have a comparative advantage over the other. They do have different opportunity costs. And then you might have no gains from trade."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "But there are situations where both countries wouldn't benefit because they have the same opportunity cost, and this was an example of one of them. Now the other case, sometimes they will have, one will have a comparative advantage over the other. They do have different opportunity costs. And then you might have no gains from trade. Maybe there's some way that they can't know each other's opportunity cost. There's some way that they don't trade. Maybe irrespective of what the models tell us about comparative advantage, some country says, hey, I don't want to produce bananas."}, {"video_title": "When there aren't gains from trade Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And then you might have no gains from trade. Maybe there's some way that they can't know each other's opportunity cost. There's some way that they don't trade. Maybe irrespective of what the models tell us about comparative advantage, some country says, hey, I don't want to produce bananas. Apples are the future. That's a higher-skilled industry, whatever else. So there's definitely scenarios, especially even in our model, in our very simplified model, where there might not be gains from trade."}, {"video_title": "Elasticity and strange percent changes Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So just to remind ourselves, and we'll focus on price elasticity of demand, although we've been exposed to other types of elasticities already, but just as a review, price elasticity of demand, so the elasticity of demand, is defined as the percent change in quantity demanded over the percent change in price. So first I'll calculate it the conventional way, the way that you would do it in a traditional microeconomics class, and then I'll calculate it the way that you would just based on how you would traditionally calculate percentages, and we'll see why microeconomists like to do it the way that they do. So first we'll talk about the correct way, and I'll put it in quotes because correct is really just by definition, really just by convention. But we first think about the percent change in quantity, and we're going to assume we're going to calculate the elasticity of demand between point A over here, point A, and point B over here. So what is our percent change in quantity? Well our absolute change in quantity going from A to B, we have increased by 2, so we have increased by 2, I'll write it down here, this is going to be 2 over, and then this is kind of the slightly strange thing that we do when we calculate our percentages. We don't say 2 over 4, we say 2 over the average of 4 and 6, 2 over the average of our starting point and our ending point, and the average of 4 and 6 is 5."}, {"video_title": "Elasticity and strange percent changes Elasticity Microeconomics Khan Academy.mp3", "Sentence": "But we first think about the percent change in quantity, and we're going to assume we're going to calculate the elasticity of demand between point A over here, point A, and point B over here. So what is our percent change in quantity? Well our absolute change in quantity going from A to B, we have increased by 2, so we have increased by 2, I'll write it down here, this is going to be 2 over, and then this is kind of the slightly strange thing that we do when we calculate our percentages. We don't say 2 over 4, we say 2 over the average of 4 and 6, 2 over the average of our starting point and our ending point, and the average of 4 and 6 is 5. So this is going to be, we have a 40% change based on how we calculated the percentages in our quantity demanded, and then let's do our percent change in price. So this is all going to be over our percent change in price. So our absolute change in price is negative 1 dollar, and then instead of doing it over our starting point, over 2, we do it over the average of the two, over 150."}, {"video_title": "Elasticity and strange percent changes Elasticity Microeconomics Khan Academy.mp3", "Sentence": "We don't say 2 over 4, we say 2 over the average of 4 and 6, 2 over the average of our starting point and our ending point, and the average of 4 and 6 is 5. So this is going to be, we have a 40% change based on how we calculated the percentages in our quantity demanded, and then let's do our percent change in price. So this is all going to be over our percent change in price. So our absolute change in price is negative 1 dollar, and then instead of doing it over our starting point, over 2, we do it over the average of the two, over 150. And negative 1 over 150 is negative 2 thirds, or right about negative 66.7% if we say roughly. So this right over here, so based on how we calculated percentages, and I want to make it clear, this is kind of a strange way when we do it over the midpoint of the starting and ending points, but we're saying that our percent change from A to B in quantity, so our percent change in quantity, this right over here, we are saying it is 40%, and then we are saying that this percent change in price right over here is negative 66.7%. Now the reason why this is valuable, and then obviously if you do the math right here, 40% over negative 66.7%, you're going to get some, let's see, you're going to get something, I think it's going to be in the sixes,.6 something, but let's actually get a calculator out to calculate it."}, {"video_title": "Elasticity and strange percent changes Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So our absolute change in price is negative 1 dollar, and then instead of doing it over our starting point, over 2, we do it over the average of the two, over 150. And negative 1 over 150 is negative 2 thirds, or right about negative 66.7% if we say roughly. So this right over here, so based on how we calculated percentages, and I want to make it clear, this is kind of a strange way when we do it over the midpoint of the starting and ending points, but we're saying that our percent change from A to B in quantity, so our percent change in quantity, this right over here, we are saying it is 40%, and then we are saying that this percent change in price right over here is negative 66.7%. Now the reason why this is valuable, and then obviously if you do the math right here, 40% over negative 66.7%, you're going to get some, let's see, you're going to get something, I think it's going to be in the sixes,.6 something, but let's actually get a calculator out to calculate it. So it would be 40 divided by 66.7 gives you, it's almost 60, so it's roughly.60 if we were to round. So this is approximately 0.60, it was 597 something. Actually I'll just leave it there, oh yeah,.60."}, {"video_title": "Elasticity and strange percent changes Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now the reason why this is valuable, and then obviously if you do the math right here, 40% over negative 66.7%, you're going to get some, let's see, you're going to get something, I think it's going to be in the sixes,.6 something, but let's actually get a calculator out to calculate it. So it would be 40 divided by 66.7 gives you, it's almost 60, so it's roughly.60 if we were to round. So this is approximately 0.60, it was 597 something. Actually I'll just leave it there, oh yeah,.60. Now what's cool about this, or what's useful about this, and this is the reason why we economists do it is you would get the same answer whether you're going from A to B or whether you're going from B to A. So this is the situation where we're going from A to B, but if we were to go from B to A, it's the exact same thing. If we go from B to A, what is our change in quantity?"}, {"video_title": "Elasticity and strange percent changes Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Actually I'll just leave it there, oh yeah,.60. Now what's cool about this, or what's useful about this, and this is the reason why we economists do it is you would get the same answer whether you're going from A to B or whether you're going from B to A. So this is the situation where we're going from A to B, but if we were to go from B to A, it's the exact same thing. If we go from B to A, what is our change in quantity? Our change in quantity is negative two, so it would be negative two over, now you wouldn't do it over your starting point, you do it over the average. This is why we'll get the same value regardless of what direction we go in. So we get the average of four and six is going to be five, and that's going to be over, now going from B to A, what is our change in price?"}, {"video_title": "Elasticity and strange percent changes Elasticity Microeconomics Khan Academy.mp3", "Sentence": "If we go from B to A, what is our change in quantity? Our change in quantity is negative two, so it would be negative two over, now you wouldn't do it over your starting point, you do it over the average. This is why we'll get the same value regardless of what direction we go in. So we get the average of four and six is going to be five, and that's going to be over, now going from B to A, what is our change in price? Our change in price is now plus one, it is plus one over the average of our starting point and our ending point, over 150. Now these are the exact same quantities, both going to be a negative number. Here the negative is on the bottom, here the negative is on top, but either way, you're going to, and actually this was a negative.60 because you have a positive divided by a negative, and this too, when you evaluate it, is going to turn out to be the exact same thing."}, {"video_title": "Elasticity and strange percent changes Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So we get the average of four and six is going to be five, and that's going to be over, now going from B to A, what is our change in price? Our change in price is now plus one, it is plus one over the average of our starting point and our ending point, over 150. Now these are the exact same quantities, both going to be a negative number. Here the negative is on the bottom, here the negative is on top, but either way, you're going to, and actually this was a negative.60 because you have a positive divided by a negative, and this too, when you evaluate it, is going to turn out to be the exact same thing. It's going to be negative 0.60. Now if you calculated percentages in the traditional way, you would not get the same value for the price elasticity of demand whether you go from A to B and B to A. And just to show that to you, I'll put this in quotation marks because it's not the wrong way to do it in general."}, {"video_title": "Elasticity and strange percent changes Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Here the negative is on the bottom, here the negative is on top, but either way, you're going to, and actually this was a negative.60 because you have a positive divided by a negative, and this too, when you evaluate it, is going to turn out to be the exact same thing. It's going to be negative 0.60. Now if you calculated percentages in the traditional way, you would not get the same value for the price elasticity of demand whether you go from A to B and B to A. And just to show that to you, I'll put this in quotation marks because it's not the wrong way to do it in general. In fact, this is how you would calculate price changes traditionally, but it's not how you do it in kind of the microeconomic sense. And so if you do it the wrong way, if you said from A to B, you have your absolute change in quantity is plus two, and your base, remember this is the way that's done outside of microeconomics, your base is four, and then your change in price, you went down one, and your base, you started at A, so your base is two. This is the way you do it outside of economics class, and so you get, this would be equal to 50% plus 50% over negative 50%."}, {"video_title": "Elasticity and strange percent changes Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And just to show that to you, I'll put this in quotation marks because it's not the wrong way to do it in general. In fact, this is how you would calculate price changes traditionally, but it's not how you do it in kind of the microeconomic sense. And so if you do it the wrong way, if you said from A to B, you have your absolute change in quantity is plus two, and your base, remember this is the way that's done outside of microeconomics, your base is four, and then your change in price, you went down one, and your base, you started at A, so your base is two. This is the way you do it outside of economics class, and so you get, this would be equal to 50% plus 50% over negative 50%. So you essentially get negative one going from A to B using a traditional way of calculating percent change. Now what happens if you go from B to A? Well now all of a sudden, your change in quantity is negative two."}, {"video_title": "Elasticity and strange percent changes Elasticity Microeconomics Khan Academy.mp3", "Sentence": "This is the way you do it outside of economics class, and so you get, this would be equal to 50% plus 50% over negative 50%. So you essentially get negative one going from A to B using a traditional way of calculating percent change. Now what happens if you go from B to A? Well now all of a sudden, your change in quantity is negative two. Your base is now, the starting point is six, and then your change in price, once again you're increasing in price by one going from B to A, so this is plus one, and your base is now one. So you will get, this is negative 33%, roughly, it's negative a third, so 33.333, it keeps repeating, over 100%. So this will be equal to negative.33."}, {"video_title": "Elasticity and strange percent changes Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Well now all of a sudden, your change in quantity is negative two. Your base is now, the starting point is six, and then your change in price, once again you're increasing in price by one going from B to A, so this is plus one, and your base is now one. So you will get, this is negative 33%, roughly, it's negative a third, so 33.333, it keeps repeating, over 100%. So this will be equal to negative.33. So notice, when you calculate percentages in the traditional way, you get a different answer whether you're going from A to B, or whether you're going from B to A. And so the whole reason why when we take the percentages, we take it over the average of our starting and our ending points, over the average of our starting and ending points, is so we get the same value for the elasticity of demand along this portion of the curve. You can really view it as the average elasticity of demand over this portion of the curve."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "And in the video we constructed it, this firm is a car wash. And also how we can use this to think about what's a rational number of people for this firm to hire. And just as a reminder, this horizontal axis here, this is a quantity of labor per hour. So this is people per hour that are working at the firm. People per hour. And the vertical axis here, the marginal product revenue, that you could view as the marginal dollars or the incremental dollars that you're getting per person per hour. And to just verify that it's telling us the same thing visually that this table told us right up here, we could think about what is the marginal, how much incremental revenue do we get from hiring that first person? So what we could do is we can multiply the quantity of people, which is 1, times the average marginal product revenue that we get from one person."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "People per hour. And the vertical axis here, the marginal product revenue, that you could view as the marginal dollars or the incremental dollars that you're getting per person per hour. And to just verify that it's telling us the same thing visually that this table told us right up here, we could think about what is the marginal, how much incremental revenue do we get from hiring that first person? So what we could do is we can multiply the quantity of people, which is 1, times the average marginal product revenue that we get from one person. Or I should say the average we get going from 0 to 1 person. And the average is 25. And the reason why I said it that way is you could imagine a reality where getting a tenth of a person, you get a value higher than 25."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "So what we could do is we can multiply the quantity of people, which is 1, times the average marginal product revenue that we get from one person. Or I should say the average we get going from 0 to 1 person. And the average is 25. And the reason why I said it that way is you could imagine a reality where getting a tenth of a person, you get a value higher than 25. And you might say, how do I get a tenth of a person? Well, what if one person shows up every 10 days? And then you get a little, little less benefit as you get closer and closer to a whole person per hour."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "And the reason why I said it that way is you could imagine a reality where getting a tenth of a person, you get a value higher than 25. And you might say, how do I get a tenth of a person? Well, what if one person shows up every 10 days? And then you get a little, little less benefit as you get closer and closer to a whole person per hour. But on average, as we go from 0 to 1 person, we are getting $25 of value or $25 of marginal revenue per person per hour. And so if you wanted to figure out what's the total marginal revenue that we got from this person right over here, the total incremental revenue that this is allowing us to get, well, it's the 1 person times the average marginal product revenue, which is 25. So that would give us the area of this rectangle right over there, which would be $25."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "And then you get a little, little less benefit as you get closer and closer to a whole person per hour. But on average, as we go from 0 to 1 person, we are getting $25 of value or $25 of marginal revenue per person per hour. And so if you wanted to figure out what's the total marginal revenue that we got from this person right over here, the total incremental revenue that this is allowing us to get, well, it's the 1 person times the average marginal product revenue, which is 25. So that would give us the area of this rectangle right over there, which would be $25. Now, and you would really have to do a little bit of calculus to fully appreciate it, but I think you can look at it geometrically. That also happens to be, given that this is a line, that our curve, our marginal product revenue is a line right over here, that the area under this rectangle is going to be the same thing as the area under the orange curve. The orange curve, between 0 and 1 half, is above this rectangle."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "So that would give us the area of this rectangle right over there, which would be $25. Now, and you would really have to do a little bit of calculus to fully appreciate it, but I think you can look at it geometrically. That also happens to be, given that this is a line, that our curve, our marginal product revenue is a line right over here, that the area under this rectangle is going to be the same thing as the area under the orange curve. The orange curve, between 0 and 1 half, is above this rectangle. And between 1 half and 1, it is below the rectangle. And the area above is the same as the area below. So $25 is also the area under this curve."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "The orange curve, between 0 and 1 half, is above this rectangle. And between 1 half and 1, it is below the rectangle. And the area above is the same as the area below. So $25 is also the area under this curve. And that's essentially how much benefit the firm is getting from hiring, from going from 0 to 1 person. They're getting $25 of benefit. Now, how much benefit do they get going from 1 to 2 people?"}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "So $25 is also the area under this curve. And that's essentially how much benefit the firm is getting from hiring, from going from 0 to 1 person. They're getting $25 of benefit. Now, how much benefit do they get going from 1 to 2 people? Well, going from 1 to 2, our change in quantity of people per hour is 1. And then our average marginal product revenue, going from 1 to 2 people, is $20. So it is $20."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "Now, how much benefit do they get going from 1 to 2 people? Well, going from 1 to 2, our change in quantity of people per hour is 1. And then our average marginal product revenue, going from 1 to 2 people, is $20. So it is $20. And so the area is 1 times 20. And that's also going to be the same as the area under the curve. So the area under the curve right over there is going to be 20."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "So it is $20. And so the area is 1 times 20. And that's also going to be the same as the area under the curve. So the area under the curve right over there is going to be 20. Likewise, the area under the curve, if we wanted to say, what's the marginal product revenue we get going from 2 to 3 people? Well, the average height here, we'd essentially just say, well, what is the area between 2 and 3? And we can figure out that area by saying, well, the average height is 15 multiply 15."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "So the area under the curve right over there is going to be 20. Likewise, the area under the curve, if we wanted to say, what's the marginal product revenue we get going from 2 to 3 people? Well, the average height here, we'd essentially just say, well, what is the area between 2 and 3? And we can figure out that area by saying, well, the average height is 15 multiply 15. So this height, the average height is 15. Multiply 15 times 1. You get $15 of benefit."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "And we can figure out that area by saying, well, the average height is 15 multiply 15. So this height, the average height is 15. Multiply 15 times 1. You get $15 of benefit. Between 3 and 4, the average height is 10. So you get 10 times 1. You get $10 of benefit would be the area under the curve right over here."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "You get $15 of benefit. Between 3 and 4, the average height is 10. So you get 10 times 1. You get $10 of benefit would be the area under the curve right over here. $10 of benefit. And then the area under the curve there, by the same argument, is $5 of benefit. Now, given this, this is just telling us the revenue we're getting."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "You get $10 of benefit would be the area under the curve right over here. $10 of benefit. And then the area under the curve there, by the same argument, is $5 of benefit. Now, given this, this is just telling us the revenue we're getting. But it's really not telling us what is the optimal or the rational number of employees to hire. To do that, we have to think about the cost per employee, the marginal cost that we are actually incurring. And I mentioned earlier that this is a competitive firm."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "Now, given this, this is just telling us the revenue we're getting. But it's really not telling us what is the optimal or the rational number of employees to hire. To do that, we have to think about the cost per employee, the marginal cost that we are actually incurring. And I mentioned earlier that this is a competitive firm. And when I mentioned it before, I talked about it being competitive in terms of the car wash market. So it was a competitive supplier. But let's assume that it is also a competitive buyer in the labor market."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "And I mentioned earlier that this is a competitive firm. And when I mentioned it before, I talked about it being competitive in terms of the car wash market. So it was a competitive supplier. But let's assume that it is also a competitive buyer in the labor market. So these are two different markets. I want to clarify, in the car wash market, we are a competitive supplier. Or I guess we could say we are a seller of car washes."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "But let's assume that it is also a competitive buyer in the labor market. So these are two different markets. I want to clarify, in the car wash market, we are a competitive supplier. Or I guess we could say we are a seller of car washes. In the labor market, our firm is a competitive buyer. Now, I'll do a little bit of an aside here. Because when we talk about suppliers, there's the competitive suppliers, where there's many undifferentiated people who are supplying some type of good or service."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "Or I guess we could say we are a seller of car washes. In the labor market, our firm is a competitive buyer. Now, I'll do a little bit of an aside here. Because when we talk about suppliers, there's the competitive suppliers, where there's many undifferentiated people who are supplying some type of good or service. And the opposite of that was a monopoly. So non-competitive. As a seller, we call that a monopoly."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "Because when we talk about suppliers, there's the competitive suppliers, where there's many undifferentiated people who are supplying some type of good or service. And the opposite of that was a monopoly. So non-competitive. As a seller, we call that a monopoly. If we had a non-competitive buyer, so if you had many sellers but only one big buyer that could have a lot of market influence, and we haven't done a deep analysis of that yet, that word, just so you know it, you're not taken by surprise if someone says it, just it means monopsony. Or the word is monopsony. Not relevant to this video, we are the opposite of a monopsony in the labor market."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "As a seller, we call that a monopoly. If we had a non-competitive buyer, so if you had many sellers but only one big buyer that could have a lot of market influence, and we haven't done a deep analysis of that yet, that word, just so you know it, you're not taken by surprise if someone says it, just it means monopsony. Or the word is monopsony. Not relevant to this video, we are the opposite of a monopsony in the labor market. We're assuming that we are a competitive buyer. There are many, many, many, many, many buyers here. So we essentially just have to take the market wages."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "Not relevant to this video, we are the opposite of a monopsony in the labor market. We're assuming that we are a competitive buyer. There are many, many, many, many, many buyers here. So we essentially just have to take the market wages. And we are also the opposite of a monopoly in the car wash market. We're assuming that we are one of many competitive sellers. Monopoly means only one seller."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "So we essentially just have to take the market wages. And we are also the opposite of a monopoly in the car wash market. We're assuming that we are one of many competitive sellers. Monopoly means only one seller. Monopsony means one powerful buyer. But the whole reason why I'm saying that we are competitive in the labor market is I'm assuming that we're just going to have to take the market wages. So the market wage for the type of labor we're hiring, so the market wage, and we're just going to have to take that, the market wage is going to be, let's just say it is $10 per hour."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "Monopoly means only one seller. Monopsony means one powerful buyer. But the whole reason why I'm saying that we are competitive in the labor market is I'm assuming that we're just going to have to take the market wages. So the market wage for the type of labor we're hiring, so the market wage, and we're just going to have to take that, the market wage is going to be, let's just say it is $10 per hour. And given that, what is a rational number of people to hire? Well, that first person we hire, we're getting $25 of benefit. The marginal cost of them, and we can actually draw a marginal cost curve, the marginal cost curve will just be flat right here at $25."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "So the market wage for the type of labor we're hiring, so the market wage, and we're just going to have to take that, the market wage is going to be, let's just say it is $10 per hour. And given that, what is a rational number of people to hire? Well, that first person we hire, we're getting $25 of benefit. The marginal cost of them, and we can actually draw a marginal cost curve, the marginal cost curve will just be flat right here at $25. It'll just be, sorry, it'll be flat here at $10. That's how much it costs us. If we hire one person, it costs us, the area would be $10."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "The marginal cost of them, and we can actually draw a marginal cost curve, the marginal cost curve will just be flat right here at $25. It'll just be, sorry, it'll be flat here at $10. That's how much it costs us. If we hire one person, it costs us, the area would be $10. If we hire two people, the area would be between 0 and 2 and under the curve, which would be 20. Or you could say the increment from going from 1 to 2 people is another $10. From going to 2 to 3 people, this area right over here is another $10."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "If we hire one person, it costs us, the area would be $10. If we hire two people, the area would be between 0 and 2 and under the curve, which would be 20. Or you could say the increment from going from 1 to 2 people is another $10. From going to 2 to 3 people, this area right over here is another $10. If you go from 3 to 4 people, this area under here is another $10 under this green curve. So does it make sense to hire that first person? Sure."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "From going to 2 to 3 people, this area right over here is another $10. If you go from 3 to 4 people, this area under here is another $10 under this green curve. So does it make sense to hire that first person? Sure. You're going to get $25 in revenue and you're going to have $10 in wages. So you're going to have $15 of benefit. So you definitely want to hire one person."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "Sure. You're going to get $25 in revenue and you're going to have $10 in wages. So you're going to have $15 of benefit. So you definitely want to hire one person. Does it make sense to hire that second person? Well, the marginal product revenue is going to be $20 from that second person. Your marginal cost from that second person is $10."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "So you definitely want to hire one person. Does it make sense to hire that second person? Well, the marginal product revenue is going to be $20 from that second person. Your marginal cost from that second person is $10. So you're going to make $10 on that second person. So you should hire that second person. The third person, you're going to make $15 off them."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "Your marginal cost from that second person is $10. So you're going to make $10 on that second person. So you should hire that second person. The third person, you're going to make $15 off them. They're going to cost you $10. And this is all on a per hour basis. You're going to make $5."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "The third person, you're going to make $15 off them. They're going to cost you $10. And this is all on a per hour basis. You're going to make $5. So you should hire that. The fourth person, well, now it's interesting. The fourth person, you're going to make $10 in total off of the fourth person, but you're also going to have to pay $10 for that fourth person."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "You're going to make $5. So you should hire that. The fourth person, well, now it's interesting. The fourth person, you're going to make $10 in total off of the fourth person, but you're also going to have to pay $10 for that fourth person. So it doesn't make sense for you to hire another total fourth person. Now, if you could, it could make sense for you to hire another half person, maybe someone who shows up every other day if this still holds, or maybe someone who shows up for half an hour, or maybe someone who is doing this job and also operating the cash register and they're kind of going in between. Because for a half person, it does make sense."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "The fourth person, you're going to make $10 in total off of the fourth person, but you're also going to have to pay $10 for that fourth person. So it doesn't make sense for you to hire another total fourth person. Now, if you could, it could make sense for you to hire another half person, maybe someone who shows up every other day if this still holds, or maybe someone who shows up for half an hour, or maybe someone who is doing this job and also operating the cash register and they're kind of going in between. Because for a half person, it does make sense. A half person is going to cost $5. And their marginal benefit is going to be the area under the curve between this point and this point. So the profit from that person, the net benefit we're going to get, is going to be this area right over here."}, {"video_title": "How many people to hire given the MPR curve Microeconomics Khan Academy.mp3", "Sentence": "Because for a half person, it does make sense. A half person is going to cost $5. And their marginal benefit is going to be the area under the curve between this point and this point. So the profit from that person, the net benefit we're going to get, is going to be this area right over here. So it would be rational to get them. But what you're seeing is it makes sense to keep increasing the quantity demanded. It makes sense to keep hiring more and more people until the marginal benefit, or another way of saying the marginal product revenue curve, is equal to the marginal cost curve."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "And the idea here is if you want to produce anything, so let's just say this circle is the production process, and this arrow is the output, you need inputs. Now, you might have many, many, many inputs. You might need supplies, you might need a factory, you might need people to work in the factory. You need all of these different things, but the idea of the four factors of production is that these things can all be classified in one of these four groups as either land, labor, capital, or entrepreneurship. Now, these words have meaning in everyday language, and so some of it might jump out at you. Of course, if you need to build a factory or if you need a farm, you need land to do so. And you can see that in this example here where we see a farm, clearly they need a lot of land in order to have the farm."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "You need all of these different things, but the idea of the four factors of production is that these things can all be classified in one of these four groups as either land, labor, capital, or entrepreneurship. Now, these words have meaning in everyday language, and so some of it might jump out at you. Of course, if you need to build a factory or if you need a farm, you need land to do so. And you can see that in this example here where we see a farm, clearly they need a lot of land in order to have the farm. Even in a garment factory, this is a picture of a garment factory from maybe 100 years ago, even there, they needed land on which to build the factory. So this floor is sitting on land. And land doesn't just have to strictly mean land in an economics context."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "And you can see that in this example here where we see a farm, clearly they need a lot of land in order to have the farm. Even in a garment factory, this is a picture of a garment factory from maybe 100 years ago, even there, they needed land on which to build the factory. So this floor is sitting on land. And land doesn't just have to strictly mean land in an economics context. It can mean natural resources in general. This could be things like water or air or energy. So in some context, instead of land, some people might say natural resources for this first factor of production."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "And land doesn't just have to strictly mean land in an economics context. It can mean natural resources in general. This could be things like water or air or energy. So in some context, instead of land, some people might say natural resources for this first factor of production. Now, another important factor of production, and arguably they are all important, is the idea of labor. To produce many or most things, someone has to work on it. So someone had to plant these seeds and they will have to harvest these crops."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "So in some context, instead of land, some people might say natural resources for this first factor of production. Now, another important factor of production, and arguably they are all important, is the idea of labor. To produce many or most things, someone has to work on it. So someone had to plant these seeds and they will have to harvest these crops. The labor is very clear here. You see people putting in work in order to produce the product right over there. Now, capital is an interesting one."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "So someone had to plant these seeds and they will have to harvest these crops. The labor is very clear here. You see people putting in work in order to produce the product right over there. Now, capital is an interesting one. It means one thing in everyday language, and it means something slightly more specific when we talk about it in an economics context. In an economic context, capital is something produced to produce other things. So examples of capital would be tools that you use to produce other things."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "Now, capital is an interesting one. It means one thing in everyday language, and it means something slightly more specific when we talk about it in an economics context. In an economic context, capital is something produced to produce other things. So examples of capital would be tools that you use to produce other things. It could be a building that you need in order to produce other things. It could be the machinery in a factory. So in these two pictures, there's many examples of capital."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "So examples of capital would be tools that you use to produce other things. It could be a building that you need in order to produce other things. It could be the machinery in a factory. So in these two pictures, there's many examples of capital. You could view this table and the tools that these folks are using. That is capital. You could view the whole building itself and all of the light fixtures and all of that as capital."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "So in these two pictures, there's many examples of capital. You could view this table and the tools that these folks are using. That is capital. You could view the whole building itself and all of the light fixtures and all of that as capital. So all of this stuff is capital. The hangers that they're putting the coats on after they produce it, that is capital. In this farm example, the capital would be the buildings."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "You could view the whole building itself and all of the light fixtures and all of that as capital. So all of this stuff is capital. The hangers that they're putting the coats on after they produce it, that is capital. In this farm example, the capital would be the buildings. These were constructed so that they could produce the food from the farm. This little, it looks like some type of machinery there, that is capital for the farm. It's being used to produce the output of the farm."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "In this farm example, the capital would be the buildings. These were constructed so that they could produce the food from the farm. This little, it looks like some type of machinery there, that is capital for the farm. It's being used to produce the output of the farm. Now, the place that that's different than everyday language, in everyday language when people talk about capital, they'll often include financial capital, financial assets that could be used to get benefit in the future, things like money. But in an economic context, we are not considering financial assets. We're only thinking about things that were produced in order to produce other things."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "It's being used to produce the output of the farm. Now, the place that that's different than everyday language, in everyday language when people talk about capital, they'll often include financial capital, financial assets that could be used to get benefit in the future, things like money. But in an economic context, we are not considering financial assets. We're only thinking about things that were produced in order to produce other things. The fourth factor of production is entrepreneurship. Entrepreneurship in our everyday language means putting things together so you're trying to create other things. When someone's an entrepreneur, you might imagine someone who's trying to start a business."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "We're only thinking about things that were produced in order to produce other things. The fourth factor of production is entrepreneurship. Entrepreneurship in our everyday language means putting things together so you're trying to create other things. When someone's an entrepreneur, you might imagine someone who's trying to start a business. In an economic context, it has a related idea. Entrepreneurship is putting together all of the other factors of production so that you can actually produce things. You can't just randomly build buildings and randomly plant seeds."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "When someone's an entrepreneur, you might imagine someone who's trying to start a business. In an economic context, it has a related idea. Entrepreneurship is putting together all of the other factors of production so that you can actually produce things. You can't just randomly build buildings and randomly plant seeds. Someone has to think about how do you put these things together so that you can produce things in a reasonable way. And obviously, you wanna produce as much as possible given the other factors that you are putting into the production. A related idea, and it sometimes is used interchangeably in an economics course, is technology."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "You can't just randomly build buildings and randomly plant seeds. Someone has to think about how do you put these things together so that you can produce things in a reasonable way. And obviously, you wanna produce as much as possible given the other factors that you are putting into the production. A related idea, and it sometimes is used interchangeably in an economics course, is technology. So sometimes you'll see the four factors of production is land, labor, capital, and entrepreneurship, and sometimes you'll see it listed as land, labor, capital, and technology. But when you see this, when you see technology as a factor of production, don't think about it as technology in everyday language where you think of computer chips or software. When people are talking about technology as a factor of production, they are really talking about entrepreneurship."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "A related idea, and it sometimes is used interchangeably in an economics course, is technology. So sometimes you'll see the four factors of production is land, labor, capital, and entrepreneurship, and sometimes you'll see it listed as land, labor, capital, and technology. But when you see this, when you see technology as a factor of production, don't think about it as technology in everyday language where you think of computer chips or software. When people are talking about technology as a factor of production, they are really talking about entrepreneurship. They're talking about the know-how of putting together the other factors of production in order to produce that output. Finally, I wanna leave on one idea, the idea of the two types of things that could be produced from all of these factors of production. Broadly speaking, we could produce something that could be used to produce more things, and we already talked about it."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "When people are talking about technology as a factor of production, they are really talking about entrepreneurship. They're talking about the know-how of putting together the other factors of production in order to produce that output. Finally, I wanna leave on one idea, the idea of the two types of things that could be produced from all of these factors of production. Broadly speaking, we could produce something that could be used to produce more things, and we already talked about it. We could be, in that situation, be producing capital goods. That could be that we are constructing a factory that itself maybe produces tools for other people to use in some other production process. The other option we have is to produce what are known as consumption goods."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "Broadly speaking, we could produce something that could be used to produce more things, and we already talked about it. We could be, in that situation, be producing capital goods. That could be that we are constructing a factory that itself maybe produces tools for other people to use in some other production process. The other option we have is to produce what are known as consumption goods. Consumption goods. Consumption goods are goods that are just used. It might make people happy."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "The other option we have is to produce what are known as consumption goods. Consumption goods. Consumption goods are goods that are just used. It might make people happy. They might find pleasure in it, but it's not being used to produce other things. And because our production resources are scarce, there's a trade-off when a society or a factory or whoever decides how much capital to produce versus how much consumption goods. You need some consumption goods, otherwise, frankly, we wouldn't have clothing on."}, {"video_title": "Four factors of production AP Microeconomics Khan Academy.mp3", "Sentence": "It might make people happy. They might find pleasure in it, but it's not being used to produce other things. And because our production resources are scarce, there's a trade-off when a society or a factory or whoever decides how much capital to produce versus how much consumption goods. You need some consumption goods, otherwise, frankly, we wouldn't have clothing on. We wouldn't be eating nice meals. We wouldn't be able to enjoy our lives. But at the same time, you also need capital."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "We've spent several videos already talking about graphs like you see here. This is the graph for a particular firm. Maybe it's making donuts, so it's in the donut industry. And we can see how the marginal cost relates to the average variable cost and average total cost. We go into some depth several videos ago, but we see that trend, that marginal cost can trend down initially because as quantity increases, each incremental unit could benefit from things like specialization. And then the marginal cost, the cost of each incremental unit as a function of quantity could go up because of things like coordination costs. And then we've also seen how that relates to average variable cost, that while marginal cost is below average variable cost, every incremental unit is going to bring down the average variable cost."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And we can see how the marginal cost relates to the average variable cost and average total cost. We go into some depth several videos ago, but we see that trend, that marginal cost can trend down initially because as quantity increases, each incremental unit could benefit from things like specialization. And then the marginal cost, the cost of each incremental unit as a function of quantity could go up because of things like coordination costs. And then we've also seen how that relates to average variable cost, that while marginal cost is below average variable cost, every incremental unit is going to bring down the average variable cost. But then when marginal cost crosses average variable cost, well now every incremental unit is going to bring up the average variable cost. And the same thing happens once it crosses the average total cost. And of course, the difference between, for any given quantity between the average total cost and the average variable cost, that is the average fixed cost."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then we've also seen how that relates to average variable cost, that while marginal cost is below average variable cost, every incremental unit is going to bring down the average variable cost. But then when marginal cost crosses average variable cost, well now every incremental unit is going to bring up the average variable cost. And the same thing happens once it crosses the average total cost. And of course, the difference between, for any given quantity between the average total cost and the average variable cost, that is the average fixed cost. Now with that out of the way, we're going to think about how this firm would react under different market conditions. We're going to assume that it's in a very competitive, or we could say a perfectly competitive market, and so it is a price taker. And so let's first imagine what would be a positive scenario for this firm."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And of course, the difference between, for any given quantity between the average total cost and the average variable cost, that is the average fixed cost. Now with that out of the way, we're going to think about how this firm would react under different market conditions. We're going to assume that it's in a very competitive, or we could say a perfectly competitive market, and so it is a price taker. And so let's first imagine what would be a positive scenario for this firm. Let's imagine the price up here. So let's call this P sub one. And in a previous video, we already said it would be rational for a profit-maximizing firm to produce at a quantity where the marginal cost and the marginal revenue is meet."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so let's first imagine what would be a positive scenario for this firm. Let's imagine the price up here. So let's call this P sub one. And in a previous video, we already said it would be rational for a profit-maximizing firm to produce at a quantity where the marginal cost and the marginal revenue is meet. And if we're talking about a competitive market, then this price right over here is not going to be a function of the firm's quantity, so that's why it's horizontal, and it would be the same thing as the marginal revenue. So in this situation, at P sub one, the firm would produce Q sub one. And this is a good situation for the firm because the price that it's getting is higher than its average total cost, and so there is going to be a nice amount of profit for this firm."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And in a previous video, we already said it would be rational for a profit-maximizing firm to produce at a quantity where the marginal cost and the marginal revenue is meet. And if we're talking about a competitive market, then this price right over here is not going to be a function of the firm's quantity, so that's why it's horizontal, and it would be the same thing as the marginal revenue. So in this situation, at P sub one, the firm would produce Q sub one. And this is a good situation for the firm because the price that it's getting is higher than its average total cost, and so there is going to be a nice amount of profit for this firm. The profit is going to be the price minus the average total cost at that quantity times the actual quantity. So because P one is greater than the average total cost, we have a situation where the firm is profitable. Firm is profitable."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And this is a good situation for the firm because the price that it's getting is higher than its average total cost, and so there is going to be a nice amount of profit for this firm. The profit is going to be the price minus the average total cost at that quantity times the actual quantity. So because P one is greater than the average total cost, we have a situation where the firm is profitable. Firm is profitable. It would want to stay in the market, but because you have a profitable firm in this market, and you're likely to have many profitable firms in that market, it will probably attract entrance. Attract, attract entrance. Other people might say, hey, I wanna make just as much money as this donut company right over here than this firm, and so you'll probably have more and more entrance into the market, which will probably reduce the prices."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Firm is profitable. It would want to stay in the market, but because you have a profitable firm in this market, and you're likely to have many profitable firms in that market, it will probably attract entrance. Attract, attract entrance. Other people might say, hey, I wanna make just as much money as this donut company right over here than this firm, and so you'll probably have more and more entrance into the market, which will probably reduce the prices. Now, they could reduce the prices until you get to a price that looks something like this. So I will call that P sub two. Now, a profit-maximizing firm in this world would keep producing until the marginal cost is equal to the marginal revenue, which in this case is the price."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Other people might say, hey, I wanna make just as much money as this donut company right over here than this firm, and so you'll probably have more and more entrance into the market, which will probably reduce the prices. Now, they could reduce the prices until you get to a price that looks something like this. So I will call that P sub two. Now, a profit-maximizing firm in this world would keep producing until the marginal cost is equal to the marginal revenue, which in this case is the price. And so this would be, my lines aren't completely straight there, but you get the idea. So that's Q sub two. Now, in this situation, P sub two is equal to the average total cost, so the firm is break-even."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, a profit-maximizing firm in this world would keep producing until the marginal cost is equal to the marginal revenue, which in this case is the price. And so this would be, my lines aren't completely straight there, but you get the idea. So that's Q sub two. Now, in this situation, P sub two is equal to the average total cost, so the firm is break-even. It's not running at a loss or a profit, so it is break-even. And so here, the firm is neutral about whether in the long run it stays in the market or it exits the market, but you're no longer likely attracting entrance. So no longer attracting, attracting entrance."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, in this situation, P sub two is equal to the average total cost, so the firm is break-even. It's not running at a loss or a profit, so it is break-even. And so here, the firm is neutral about whether in the long run it stays in the market or it exits the market, but you're no longer likely attracting entrance. So no longer attracting, attracting entrance. But it does make sense for the firm to keep operating at this situation, even in the long run, because it is at least break-even. Now, let's imagine another scenario. Let's imagine this price level."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So no longer attracting, attracting entrance. But it does make sense for the firm to keep operating at this situation, even in the long run, because it is at least break-even. Now, let's imagine another scenario. Let's imagine this price level. So for whatever reason, the market price gets to that. As we've talked about, a rational firm would be producing at Q sub three. And at P sub three right over here, there's some interesting things."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Let's imagine this price level. So for whatever reason, the market price gets to that. As we've talked about, a rational firm would be producing at Q sub three. And at P sub three right over here, there's some interesting things. Because P sub three is less than your average total cost, your firm is running at a loss. It's running at a loss here. So running, so firm, firm not profitable."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And at P sub three right over here, there's some interesting things. Because P sub three is less than your average total cost, your firm is running at a loss. It's running at a loss here. So running, so firm, firm not profitable. Not profitable. Now, you might say, well, what is this firm likely to do? Would it just shut down?"}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So running, so firm, firm not profitable. Not profitable. Now, you might say, well, what is this firm likely to do? Would it just shut down? Well, in the short run, it would not make sense for this firm to shut down, because the price that it's getting is still higher than its average variable cost. In the short run, the fixed costs, they've already been spent. So you might as well get as much incremental profit on the margin as you can."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Would it just shut down? Well, in the short run, it would not make sense for this firm to shut down, because the price that it's getting is still higher than its average variable cost. In the short run, the fixed costs, they've already been spent. So you might as well get as much incremental profit on the margin as you can. And so as long as the price is higher than the average variable cost, well, outside of their fixed costs, they're still making some money to make up those fixed costs. So you have two things going on. So they would stay operating in the short run, stay operating, operating in the short run, short run."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So you might as well get as much incremental profit on the margin as you can. And so as long as the price is higher than the average variable cost, well, outside of their fixed costs, they're still making some money to make up those fixed costs. So you have two things going on. So they would stay operating in the short run, stay operating, operating in the short run, short run. But what would this firm do in the long run? Well, in the long run, it makes no sense to be in a market where you can't make a profit. So in the long run, it will exit."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So they would stay operating in the short run, stay operating, operating in the short run, short run. But what would this firm do in the long run? Well, in the long run, it makes no sense to be in a market where you can't make a profit. So in the long run, it will exit. So it will exit in the long run. And in general, the terminology, when people are talking about, well, do you start or stop in the short run, they usually talk about, do you either shut down or operate in the short run? And then in the long run, where it's like, hey, are you going to sell your factories or somehow dismantle them, or are you gonna build new factories?"}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So in the long run, it will exit. So it will exit in the long run. And in general, the terminology, when people are talking about, well, do you start or stop in the short run, they usually talk about, do you either shut down or operate in the short run? And then in the long run, where it's like, hey, are you going to sell your factories or somehow dismantle them, or are you gonna build new factories? That's all about exiting or entering the industry. And of course, you have another even worse scenario for this firm, which might be down here, where you have price sub four. Here, in theory, this is where we intersect the marginal cost curve, Q sub four."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then in the long run, where it's like, hey, are you going to sell your factories or somehow dismantle them, or are you gonna build new factories? That's all about exiting or entering the industry. And of course, you have another even worse scenario for this firm, which might be down here, where you have price sub four. Here, in theory, this is where we intersect the marginal cost curve, Q sub four. Now here, it makes no sense for the company to operate at all. So because P sub four is less than the average total cost, you would want to exit in the long run, exit in long run, exit the market. But you wouldn't even wait for that long, wait to sell your factories."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Here, in theory, this is where we intersect the marginal cost curve, Q sub four. Now here, it makes no sense for the company to operate at all. So because P sub four is less than the average total cost, you would want to exit in the long run, exit in long run, exit the market. But you wouldn't even wait for that long, wait to sell your factories. Because P sub four is less than your average variable cost, you would also just shut down, shut down in the short run. So big picture, from a firm's point of view, you obviously want to be at P one, where you make a profit, but you might attract entrance. At P sub two, you as a firm, in the long run, are neutral versus exiting the market or entering the market or other people entering the market."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But you wouldn't even wait for that long, wait to sell your factories. Because P sub four is less than your average variable cost, you would also just shut down, shut down in the short run. So big picture, from a firm's point of view, you obviously want to be at P one, where you make a profit, but you might attract entrance. At P sub two, you as a firm, in the long run, are neutral versus exiting the market or entering the market or other people entering the market. You're at break even. At P sub three, in the long run, you'd want to exit because you're not profitable if the prices stay at P sub three. Your price is below your average total cost at the rational quantity to produce."}, {"video_title": "Shutting down or exiting industry based on price AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "At P sub two, you as a firm, in the long run, are neutral versus exiting the market or entering the market or other people entering the market. You're at break even. At P sub three, in the long run, you'd want to exit because you're not profitable if the prices stay at P sub three. Your price is below your average total cost at the rational quantity to produce. So in the long run, you would exit. But because P sub three is greater than your average variable cost at the rational quantity, you would stay operating in the short run. And then the last scenario, of course, is P sub four, where the price gets so low that it just doesn't make sense to even operate another moment."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "And this is in per worker per day. So for example, in country A, per worker per day, they could, if they put all of their energy into pants, they could produce 20. If they put all of their energy into shirts, they could produce 10. Or there could be some combination that would sit on this line. Now to help us digest the production possibility curves for these two countries, let me construct an output table. So this will be, this column will be the output for country A, this column will be the output for country B. And we're gonna think about the maximum number of pants."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "Or there could be some combination that would sit on this line. Now to help us digest the production possibility curves for these two countries, let me construct an output table. So this will be, this column will be the output for country A, this column will be the output for country B. And we're gonna think about the maximum number of pants. Maximum pants, the maximum output of pants per worker per day, the input is the worker per day. And then let's think about the maximum number of shirts. So pause this video and see if you can fill this out."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "And we're gonna think about the maximum number of pants. Maximum pants, the maximum output of pants per worker per day, the input is the worker per day. And then let's think about the maximum number of shirts. So pause this video and see if you can fill this out. What are the max pants and shirts in country A and country B? Well in country A, I already talked about it. The maximum pants is 20, 20 pants."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So pause this video and see if you can fill this out. What are the max pants and shirts in country A and country B? Well in country A, I already talked about it. The maximum pants is 20, 20 pants. And then the maximum shirts, if they didn't make any pants, are 10. And in country B, the maximum pants are 30. And the maximum shirts, it looks like that is about 45."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "The maximum pants is 20, 20 pants. And then the maximum shirts, if they didn't make any pants, are 10. And in country B, the maximum pants are 30. And the maximum shirts, it looks like that is about 45. Now from either of these production possibility curves or from this output table, because we have a constant opportunity cost, these production possibility curves are straight lines with a fixed slope, we can calculate the opportunity cost. So let's do that next. So this is country A and then this is country B."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "And the maximum shirts, it looks like that is about 45. Now from either of these production possibility curves or from this output table, because we have a constant opportunity cost, these production possibility curves are straight lines with a fixed slope, we can calculate the opportunity cost. So let's do that next. So this is country A and then this is country B. And let me calculate the opportunity cost of pants. And let's calculate the opportunity cost of shirts. So pause this video and see if you can figure that out."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So this is country A and then this is country B. And let me calculate the opportunity cost of pants. And let's calculate the opportunity cost of shirts. So pause this video and see if you can figure that out. What are the opportunity costs of pants and shirts in countries A and B and fill out this table? Well, one way to think about it, in country A, I could put all of my energy into pants and produce 20 pants. Or I could put all of my energy into shirts and produce 10 shirts."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So pause this video and see if you can figure that out. What are the opportunity costs of pants and shirts in countries A and B and fill out this table? Well, one way to think about it, in country A, I could put all of my energy into pants and produce 20 pants. Or I could put all of my energy into shirts and produce 10 shirts. 10 shirts, S for shirts, P for pants. And so if I want the cost of pants, I could just divide both sides by 20 and I would get pants, the amount of energy per pant, is equal to, well, 10 divided by 20 is 1 1\u20442 a shirt. So the energy for a pant is 1 1\u20442, is the same as the energy for 1\u20442 a shirt."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "Or I could put all of my energy into shirts and produce 10 shirts. 10 shirts, S for shirts, P for pants. And so if I want the cost of pants, I could just divide both sides by 20 and I would get pants, the amount of energy per pant, is equal to, well, 10 divided by 20 is 1 1\u20442 a shirt. So the energy for a pant is 1 1\u20442, is the same as the energy for 1\u20442 a shirt. And so we could say the opportunity cost of producing a pant is 1 1\u20442 a shirt. If we want the opportunity cost for shirts, we could take the reciprocal of this number, we could say it's going to be two over one pants, or we could start with this equation right over here, and instead of solving for P, we could solve for S. How much energy in terms of pants does it take for us to produce one shirt? So if you divide both sides of this equation by 10, you would get, you would get 2P is equal to S. Or another way of thinking about it, the energy to create one shirt is equal to the energy to create two pants."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So the energy for a pant is 1 1\u20442, is the same as the energy for 1\u20442 a shirt. And so we could say the opportunity cost of producing a pant is 1 1\u20442 a shirt. If we want the opportunity cost for shirts, we could take the reciprocal of this number, we could say it's going to be two over one pants, or we could start with this equation right over here, and instead of solving for P, we could solve for S. How much energy in terms of pants does it take for us to produce one shirt? So if you divide both sides of this equation by 10, you would get, you would get 2P is equal to S. Or another way of thinking about it, the energy to create one shirt is equal to the energy to create two pants. So the opportunity cost of producing a shirt is two pants. With that same energy of the shirt, you could produce two pants. Now let's also fill it out for country B."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So if you divide both sides of this equation by 10, you would get, you would get 2P is equal to S. Or another way of thinking about it, the energy to create one shirt is equal to the energy to create two pants. So the opportunity cost of producing a shirt is two pants. With that same energy of the shirt, you could produce two pants. Now let's also fill it out for country B. If you haven't done so already, try to use the same method to fill this, the opportunity cost for pants and shirts for country B. Well, in country B, I could put all of my energy into pants and produce 30 pants, or all of my energy into shirts and produce 45 shirts. So the opportunity cost per pant, if I divide both sides by 30, it'd be 45 over 30, which would be equal to, they're both divisible by 15, 3 1 2 of a shirt."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "Now let's also fill it out for country B. If you haven't done so already, try to use the same method to fill this, the opportunity cost for pants and shirts for country B. Well, in country B, I could put all of my energy into pants and produce 30 pants, or all of my energy into shirts and produce 45 shirts. So the opportunity cost per pant, if I divide both sides by 30, it'd be 45 over 30, which would be equal to, they're both divisible by 15, 3 1 2 of a shirt. The energy for one pair of pants is the same as the energy for 1 1 2 shirts, I guess I could say. So let me write it that way. So the opportunity cost of pants is, for each pair, I'm giving up 1 1 2 shirts."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So the opportunity cost per pant, if I divide both sides by 30, it'd be 45 over 30, which would be equal to, they're both divisible by 15, 3 1 2 of a shirt. The energy for one pair of pants is the same as the energy for 1 1 2 shirts, I guess I could say. So let me write it that way. So the opportunity cost of pants is, for each pair, I'm giving up 1 1 2 shirts. And then in the opportunity cost for shirts, well, I could just solve for S here. If I divide both sides by 45, I get the same energy for one shirt would be 30 4 1 5 of a pair of pants, which is the same thing as 2 3 of a pair of pants. And so I could write that as 2 3 of a pair of pants, or if I wanted, oh, let me just write it that way, 2 3 of a pair of pants."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So the opportunity cost of pants is, for each pair, I'm giving up 1 1 2 shirts. And then in the opportunity cost for shirts, well, I could just solve for S here. If I divide both sides by 45, I get the same energy for one shirt would be 30 4 1 5 of a pair of pants, which is the same thing as 2 3 of a pair of pants. And so I could write that as 2 3 of a pair of pants, or if I wanted, oh, let me just write it that way, 2 3 of a pair of pants. So given the opportunity costs, what should each of these countries focus on? Pause this video and try to figure that out. Well, let's first compare their opportunity costs in pants."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "And so I could write that as 2 3 of a pair of pants, or if I wanted, oh, let me just write it that way, 2 3 of a pair of pants. So given the opportunity costs, what should each of these countries focus on? Pause this video and try to figure that out. Well, let's first compare their opportunity costs in pants. So let's first compare their opportunity cost in pants. It is clear that country A has a lower opportunity cost for producing a pair of pants. It's only giving up half a shirt, while country B is giving up 1 1 2 shirts."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "Well, let's first compare their opportunity costs in pants. So let's first compare their opportunity cost in pants. It is clear that country A has a lower opportunity cost for producing a pair of pants. It's only giving up half a shirt, while country B is giving up 1 1 2 shirts. So country A has the comparative advantage right over here. So comparative advantage right over here in pants. And so it should focus all of its energy, according to the theory of comparative advantage, it should focus all of its energy on pants."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "It's only giving up half a shirt, while country B is giving up 1 1 2 shirts. So country A has the comparative advantage right over here. So comparative advantage right over here in pants. And so it should focus all of its energy, according to the theory of comparative advantage, it should focus all of its energy on pants. And likewise, if we look at, so here we compared this to this, and likewise, if we try to look at shirts right over here, if we look at their opportunity costs, country B is only giving up 2 3 of a pair of pants, while country A would be giving up two pairs of pants. So country B has the lower opportunity cost, or the comparative advantage, in shirts. So country B should put all of their focus here on shirts."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "And so it should focus all of its energy, according to the theory of comparative advantage, it should focus all of its energy on pants. And likewise, if we look at, so here we compared this to this, and likewise, if we try to look at shirts right over here, if we look at their opportunity costs, country B is only giving up 2 3 of a pair of pants, while country A would be giving up two pairs of pants. So country B has the lower opportunity cost, or the comparative advantage, in shirts. So country B should put all of their focus here on shirts. Now I know what you might be thinking. People can't just walk around wearing only shirts. That might, people might get cold below their waist."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So country B should put all of their focus here on shirts. Now I know what you might be thinking. People can't just walk around wearing only shirts. That might, people might get cold below their waist. Or people don't wanna only wear pants. They might get cold above their waist. And so how can people in these countries get the other type of garment?"}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "That might, people might get cold below their waist. Or people don't wanna only wear pants. They might get cold above their waist. And so how can people in these countries get the other type of garment? Well, the obvious answer is, if they focus in this way, they can trade. And what would be an acceptable trading price, let's say for pants? Let's focus on pants for a second."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "And so how can people in these countries get the other type of garment? Well, the obvious answer is, if they focus in this way, they can trade. And what would be an acceptable trading price, let's say for pants? Let's focus on pants for a second. So if we're thinking about the market for pants, so if you're country A, what would you be willing to sell pants for in terms of shirts? Well, a good price, so to speak, would be something higher than your opportunity cost. So A, willing to sell, sell pants at price, I'll put that in quotes, because we're really thinking of price in terms of another good, at price greater than their opportunity cost, greater than one half of a shirt."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "Let's focus on pants for a second. So if we're thinking about the market for pants, so if you're country A, what would you be willing to sell pants for in terms of shirts? Well, a good price, so to speak, would be something higher than your opportunity cost. So A, willing to sell, sell pants at price, I'll put that in quotes, because we're really thinking of price in terms of another good, at price greater than their opportunity cost, greater than one half of a shirt. And you could think of this willing to trade or sell. I'll put that in quotes. We're really trading in our everyday language right over here."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So A, willing to sell, sell pants at price, I'll put that in quotes, because we're really thinking of price in terms of another good, at price greater than their opportunity cost, greater than one half of a shirt. And you could think of this willing to trade or sell. I'll put that in quotes. We're really trading in our everyday language right over here. And likewise, what about country B? Well, B, willing to buy pants, they need pants, otherwise they would just be walking around with only shirts on, willing to buy pants at a price less than their opportunity cost for pants. And so that would be less than 1.5 of a shirt."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "We're really trading in our everyday language right over here. And likewise, what about country B? Well, B, willing to buy pants, they need pants, otherwise they would just be walking around with only shirts on, willing to buy pants at a price less than their opportunity cost for pants. And so that would be less than 1.5 of a shirt. So what would be a price that is greater than half a shirt and less than one half, and less than one and a half of a shirt? And really, any price in between these two values would work. Well, a nice round number is, well, they could trade at one pair of pants for one shirt."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "And so that would be less than 1.5 of a shirt. So what would be a price that is greater than half a shirt and less than one half, and less than one and a half of a shirt? And really, any price in between these two values would work. Well, a nice round number is, well, they could trade at one pair of pants for one shirt. So a clearing price, a price that would work, would work, could be one P, one pants, for one shirt. And now let's appreciate the gains from trade that they would both have here. So let's imagine this world where country A is producing 20 pants per worker per day."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "Well, a nice round number is, well, they could trade at one pair of pants for one shirt. So a clearing price, a price that would work, would work, could be one P, one pants, for one shirt. And now let's appreciate the gains from trade that they would both have here. So let's imagine this world where country A is producing 20 pants per worker per day. But let's say they decide that they want, instead of those 20 pants, they would wanna trade 15 of them away for shirts. And so they would get, at this price, they would get 15 shirts. So they're gonna give up 15 pants."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So let's imagine this world where country A is producing 20 pants per worker per day. But let's say they decide that they want, instead of those 20 pants, they would wanna trade 15 of them away for shirts. And so they would get, at this price, they would get 15 shirts. So they're gonna give up 15 pants. They're giving up 15 pants, so they'll only have five pants right over here. But they're going to get 15 shirts. So they're gonna get 15 shirts."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So they're gonna give up 15 pants. They're giving up 15 pants, so they'll only have five pants right over here. But they're going to get 15 shirts. So they're gonna get 15 shirts. And they're going to end up right over here. This is where country A is going to end up. And what's cool about this is we've gone beyond the production possibilities curve."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So they're gonna get 15 shirts. And they're going to end up right over here. This is where country A is going to end up. And what's cool about this is we've gone beyond the production possibilities curve. So you see very clearly the gain from trade. Country A could not have gotten to this point on its own. This is above the production possibilities curve."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "And what's cool about this is we've gone beyond the production possibilities curve. So you see very clearly the gain from trade. Country A could not have gotten to this point on its own. This is above the production possibilities curve. Likewise, country B was over here with 45 shirts. It gave up 15 of those shirts. It now has 30 shirts."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "This is above the production possibilities curve. Likewise, country B was over here with 45 shirts. It gave up 15 of those shirts. It now has 30 shirts. But it now has 15 pants. At least some of the people in the country are going to be able to wear pants now. So it now has 15 pants."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "It now has 30 shirts. But it now has 15 pants. At least some of the people in the country are going to be able to wear pants now. So it now has 15 pants. Once again, it too is in a point beyond its production possibilities curve. It would not have been able to get here without the trade. So they are both better off."}, {"video_title": "Terms of Trade and the Gains from Trade AP Macroeconomics Khan Academy.mp3", "Sentence": "So it now has 15 pants. Once again, it too is in a point beyond its production possibilities curve. It would not have been able to get here without the trade. So they are both better off. So the key thing, the key takeaway from this video is we now appreciate why comparative advantage is valuable. Once again, making all the assumptions for these simplified economic models. Because we can calculate opportunity costs from that comparative advantage."}, {"video_title": "Graphical impact of cost changes on marginal and average costs (2).mp3", "Sentence": "In this video, we're gonna think about it visually. So we constructed these curves several videos ago to visualize how average fixed cost trends over time as you take that fixed cost and then you spread it over more and more and more units, you see that that just asymptotes towards zero as you get more and more units. You see your marginal cost curve, and this is something that you'll typically see in a lot of textbooks, it's kind of U-shaped, and we talked about where it intersects the average variable cost, that's where the average variable cost goes from trending down to trending up, so it hits that minimum point, and the same thing happens at average total cost. It hits the bottom of that U of average total cost. It goes from trending down to trending up, and then over time, this difference that you see between your average total cost and your average variable cost, that difference right over there. That is your average fixed cost, and so since your average fixed costs are asymptoting downwards, you see that this difference between average total cost and your average variable cost gets less and less over time, that they are going to, over time, converge to each other as your average fixed cost gets closer and closer and closer to zero. But now let's think about how these curves might be impacted if you have changes in productivity or cost."}, {"video_title": "Graphical impact of cost changes on marginal and average costs (2).mp3", "Sentence": "It hits the bottom of that U of average total cost. It goes from trending down to trending up, and then over time, this difference that you see between your average total cost and your average variable cost, that difference right over there. That is your average fixed cost, and so since your average fixed costs are asymptoting downwards, you see that this difference between average total cost and your average variable cost gets less and less over time, that they are going to, over time, converge to each other as your average fixed cost gets closer and closer and closer to zero. But now let's think about how these curves might be impacted if you have changes in productivity or cost. So let's start with a change in your fixed costs. Let's say your rent goes up. What would happen then?"}, {"video_title": "Graphical impact of cost changes on marginal and average costs (2).mp3", "Sentence": "But now let's think about how these curves might be impacted if you have changes in productivity or cost. So let's start with a change in your fixed costs. Let's say your rent goes up. What would happen then? Pause this video and think about what would happen visually. Well then your average fixed costs would shift up and it might look something like this. Your average fixed costs might look something like this."}, {"video_title": "Graphical impact of cost changes on marginal and average costs (2).mp3", "Sentence": "What would happen then? Pause this video and think about what would happen visually. Well then your average fixed costs would shift up and it might look something like this. Your average fixed costs might look something like this. And then which of these other curves also have fixed costs embedded in it? Well your average total costs is a combination of your average variable costs and your average fixed costs. So the amount that your average fixed costs went up for any quantity, your average total costs would also go up that amount for that quantity."}, {"video_title": "Graphical impact of cost changes on marginal and average costs (2).mp3", "Sentence": "Your average fixed costs might look something like this. And then which of these other curves also have fixed costs embedded in it? Well your average total costs is a combination of your average variable costs and your average fixed costs. So the amount that your average fixed costs went up for any quantity, your average total costs would also go up that amount for that quantity. So it would look something like this. It would look something like this. And once again, just as before, it will trend downwards until you intersect with your marginal cost curve and then it'll start trending upwards."}, {"video_title": "Graphical impact of cost changes on marginal and average costs (2).mp3", "Sentence": "So the amount that your average fixed costs went up for any quantity, your average total costs would also go up that amount for that quantity. So it would look something like this. It would look something like this. And once again, just as before, it will trend downwards until you intersect with your marginal cost curve and then it'll start trending upwards. So a change in your fixed costs, either upwards or downwards, would affect your average fixed costs. It would affect your average total costs. The reason why it doesn't affect your average variable costs is because your average variable costs are taking out your fixed costs, they're just thinking about the variable costs."}, {"video_title": "Graphical impact of cost changes on marginal and average costs (2).mp3", "Sentence": "And once again, just as before, it will trend downwards until you intersect with your marginal cost curve and then it'll start trending upwards. So a change in your fixed costs, either upwards or downwards, would affect your average fixed costs. It would affect your average total costs. The reason why it doesn't affect your average variable costs is because your average variable costs are taking out your fixed costs, they're just thinking about the variable costs. And your marginal costs are thinking about a difference in costs between two different states of output. And the fixed costs are in either of those so they will cancel out. What would be a change in your variable costs?"}, {"video_title": "Graphical impact of cost changes on marginal and average costs (2).mp3", "Sentence": "The reason why it doesn't affect your average variable costs is because your average variable costs are taking out your fixed costs, they're just thinking about the variable costs. And your marginal costs are thinking about a difference in costs between two different states of output. And the fixed costs are in either of those so they will cancel out. What would be a change in your variable costs? Let's say you have to give everyone a pay increase. Well then your variable costs will go up and your variable costs might look something like this. They will just shift up."}, {"video_title": "Graphical impact of cost changes on marginal and average costs (2).mp3", "Sentence": "What would be a change in your variable costs? Let's say you have to give everyone a pay increase. Well then your variable costs will go up and your variable costs might look something like this. They will just shift up. And once again, they will trend downwards until you intersect with your marginal cost curve and then you will trend upwards. Now a change in your variable costs will also affect your marginal costs because as you produce more output, well then you are likely to incur more incremental costs. So then your marginal cost curve, and I know this is getting very messy, might start looking something like, might look something like that."}, {"video_title": "Graphical impact of cost changes on marginal and average costs (2).mp3", "Sentence": "They will just shift up. And once again, they will trend downwards until you intersect with your marginal cost curve and then you will trend upwards. Now a change in your variable costs will also affect your marginal costs because as you produce more output, well then you are likely to incur more incremental costs. So then your marginal cost curve, and I know this is getting very messy, might start looking something like, might look something like that. So big picture, changes in productivity would likely affect your average variable costs, likely affect your marginal costs. And of course, average variable costs feeds into average total costs so that would be impacted as well. But changes in just your fixed costs would affect your average fixed cost curve and your average total cost."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "So the first question they ask us is, is the market price greater than, less than, or equal to the firm's price? Explain. So pause this video and see if you can answer this on your own before we do it together. All right, now let's do it together. So remember, we are talking about a perfectly competitive market. So in a perfectly competitive market, all of the players in that market have to be price-takers. They have no pricing power."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "All right, now let's do it together. So remember, we are talking about a perfectly competitive market. So in a perfectly competitive market, all of the players in that market have to be price-takers. They have no pricing power. So the market price has to be equal to the firm's price. So market, market price, equal, equal to firm price, firm price, because in perfectly, perfectly competitive market, market, firms are price-takers. Firms are price-takers."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "They have no pricing power. So the market price has to be equal to the firm's price. So market, market price, equal, equal to firm price, firm price, because in perfectly, perfectly competitive market, market, firms are price-takers. Firms are price-takers. They have no pricing power. All right, part B. Draw correctly labeled side-by-side graphs for both the market and a typical firm, and show each of the following."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "Firms are price-takers. They have no pricing power. All right, part B. Draw correctly labeled side-by-side graphs for both the market and a typical firm, and show each of the following. And then it'll ask us to do a bunch of stuff here. So once again, pause this video, and actually get out paper. This will be very valuable for you to have a go at this."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "Draw correctly labeled side-by-side graphs for both the market and a typical firm, and show each of the following. And then it'll ask us to do a bunch of stuff here. So once again, pause this video, and actually get out paper. This will be very valuable for you to have a go at this. All right, so let's see. We wanna do these side-by-side graphs, and we wanna think about the market and the firm. And we've done this in multiple videos before."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "This will be very valuable for you to have a go at this. All right, so let's see. We wanna do these side-by-side graphs, and we wanna think about the market and the firm. And we've done this in multiple videos before. So let's think about what they're talking about is, so this is the market right over here. That's the market. And this is, on this axis is going to be price."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "And we've done this in multiple videos before. So let's think about what they're talking about is, so this is the market right over here. That's the market. And this is, on this axis is going to be price. On this axis is going to be quantity. And then let me do a similar thing for a firm here. So that would be the firm's price axis."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "And this is, on this axis is going to be price. On this axis is going to be quantity. And then let me do a similar thing for a firm here. So that would be the firm's price axis. Price. And then this would be quantity for the firm. Quantity."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "So that would be the firm's price axis. Price. And then this would be quantity for the firm. Quantity. Let me make it clear. This is the market. And then this right over here is the firm."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "Quantity. Let me make it clear. This is the market. And then this right over here is the firm. And let's see, they say market price and quantity. So the equilibrium price and quantity in the market. So we could draw the supply curve for the market."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "And then this right over here is the firm. And let's see, they say market price and quantity. So the equilibrium price and quantity in the market. So we could draw the supply curve for the market. It might look something like this. Upward sloping, we've seen that multiple times. We could do the demand curve for the market."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "So we could draw the supply curve for the market. It might look something like this. Upward sloping, we've seen that multiple times. We could do the demand curve for the market. It would look something like that. And then we have the equilibrium price in the market, which they want us to use P sub M. So P sub M. And then we have the equilibrium quantity in the market, which they want us to use Q sub M. So we've done this first part. All right, now let's see what else they want."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "We could do the demand curve for the market. It would look something like that. And then we have the equilibrium price in the market, which they want us to use P sub M. So P sub M. And then we have the equilibrium quantity in the market, which they want us to use Q sub M. So we've done this first part. All right, now let's see what else they want. The firm's quantity labeled Q sub F. The firm's average revenue curve labeled AR. The firm's average total cost curve labeled ATC. The area representing total cost shaded completely."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "All right, now let's see what else they want. The firm's quantity labeled Q sub F. The firm's average revenue curve labeled AR. The firm's average total cost curve labeled ATC. The area representing total cost shaded completely. So in order to do this first part, the quantity that would be rational for this profit-seeking firm, or the profit-maximizing firm to produce, to think about that, we'd actually also have to think about the firm's average revenue. And the average revenue, which is going to be the same thing as the demand curve for that firm, is going to be based on this market price. Remember, the firm in this perfectly competitive market has to be a price taker."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "The area representing total cost shaded completely. So in order to do this first part, the quantity that would be rational for this profit-seeking firm, or the profit-maximizing firm to produce, to think about that, we'd actually also have to think about the firm's average revenue. And the average revenue, which is going to be the same thing as the demand curve for that firm, is going to be based on this market price. Remember, the firm in this perfectly competitive market has to be a price taker. So this horizontal line right over there, that is the firm's average revenue, AR, which is equal to its marginal revenue, which is equal to its demand curve, which is equal to this market price. And the quantity that it's rational for this firm to produce is where this marginal revenue curve, which is also the average revenue curve in this case, intersects our marginal cost curve. So the marginal cost curve might look something like this."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "Remember, the firm in this perfectly competitive market has to be a price taker. So this horizontal line right over there, that is the firm's average revenue, AR, which is equal to its marginal revenue, which is equal to its demand curve, which is equal to this market price. And the quantity that it's rational for this firm to produce is where this marginal revenue curve, which is also the average revenue curve in this case, intersects our marginal cost curve. So the marginal cost curve might look something like this. So marginal cost. And so this right over here is our Q sub F. So we've done this part and this part. The firm's average total cost curve, well, the average total cost at this quantity needs to be below the marginal revenue and the average revenue of that quantity, because we know that the firm is earning a positive economic profit."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "So the marginal cost curve might look something like this. So marginal cost. And so this right over here is our Q sub F. So we've done this part and this part. The firm's average total cost curve, well, the average total cost at this quantity needs to be below the marginal revenue and the average revenue of that quantity, because we know that the firm is earning a positive economic profit. So we are dealing with a situation that likely looks like this so the average total cost might look something like this. And I drew it that way to ensure that at this quantity, Q sub F, our marginal revenue and our average revenue is above our average total cost. That tells us that we're earning economic profit in this situation."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "The firm's average total cost curve, well, the average total cost at this quantity needs to be below the marginal revenue and the average revenue of that quantity, because we know that the firm is earning a positive economic profit. So we are dealing with a situation that likely looks like this so the average total cost might look something like this. And I drew it that way to ensure that at this quantity, Q sub F, our marginal revenue and our average revenue is above our average total cost. That tells us that we're earning economic profit in this situation. So I've done part four. The area representing total cost shaded completely. Well, the area representing total cost would be the cost per unit, the average cost per unit, which is that much, times the total number of units."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "That tells us that we're earning economic profit in this situation. So I've done part four. The area representing total cost shaded completely. Well, the area representing total cost would be the cost per unit, the average cost per unit, which is that much, times the total number of units. And the total number of units is going to be this length, which is equal to Q sub F. And so your total cost is going to be this shaded area. If they were asking us our total economic profit, then we would be talking about this area up here, but they're not. They're talking about our total cost, which is this area right over there."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "Well, the area representing total cost would be the cost per unit, the average cost per unit, which is that much, times the total number of units. And the total number of units is going to be this length, which is equal to Q sub F. And so your total cost is going to be this shaded area. If they were asking us our total economic profit, then we would be talking about this area up here, but they're not. They're talking about our total cost, which is this area right over there. So we have done those parts. Now let's go to part C. If one firm in the market were to raise its price, what would happen to its total revenue? Explain."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "They're talking about our total cost, which is this area right over there. So we have done those parts. Now let's go to part C. If one firm in the market were to raise its price, what would happen to its total revenue? Explain. Pause this video, see if you can answer that. Well, remember, we're dealing with a perfectly competitive market, a perfectly competitive industry. There's no differentiation between anyone's product."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy (2).mp3", "Sentence": "Explain. Pause this video, see if you can answer that. Well, remember, we're dealing with a perfectly competitive market, a perfectly competitive industry. There's no differentiation between anyone's product. So if all of a sudden, someone were to stick their head out and try to raise price, no one would buy their product anymore because people can get identical products from other people for a lower price. And so its total revenue, its total revenue would go to zero since product is undifferentiated, differentiated, and consumers could buy from others at lower price, at lower price. And this is another way to think about it."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "And it's true not just of these scenarios, it's true of any of the points on this curve. So you have achieved, any point on that curve, productive, productive, let me give ourselves some real estate on the right, productive efficiency, productive efficiency, productive efficiency, efficiency, which means, or another way to think about it, is that as soon as you're at any point on that curve, if you want any more of one of these things, you have to give up some of the other. So for example, if you're at point C, and if you want more rabbits, if you want one more rabbit, you're going to have to give up, you're going to have to give up some berries. Or if you're at point C and you want more berries, you want more berries, you're going to have to give up some rabbits. And that's true of any point on the production possibilities frontier. A point over here, let me do this in a different color, so let's say that this point right over here, you have not achieved productive efficiency here, because you can get more rabbits, you can get more rabbits without having to give up any berries, and you could get to scenario B, or you could get more berries, and not have to give up any rabbits, and you would get to scenario D. So this right over here is inefficient. Now, all of these, that's all good, all of these five or six scenarios, we've achieved productive efficiency, but which of these do we pick?"}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "Or if you're at point C and you want more berries, you want more berries, you're going to have to give up some rabbits. And that's true of any point on the production possibilities frontier. A point over here, let me do this in a different color, so let's say that this point right over here, you have not achieved productive efficiency here, because you can get more rabbits, you can get more rabbits without having to give up any berries, and you could get to scenario B, or you could get more berries, and not have to give up any rabbits, and you would get to scenario D. So this right over here is inefficient. Now, all of these, that's all good, all of these five or six scenarios, we've achieved productive efficiency, but which of these do we pick? How do we decide to allocate our time? So what I want to talk about in this video is allocative efficiency. Allocative efficiency."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "Now, all of these, that's all good, all of these five or six scenarios, we've achieved productive efficiency, but which of these do we pick? How do we decide to allocate our time? So what I want to talk about in this video is allocative efficiency. Allocative efficiency. And it's somewhat subjective based on the preferences of, if we are the hunter-gatherer, based on our preferences, but at least it gives us a framework for thinking which of these meets our preferences the best. And to do that, I will review a little bit from the last video. In the last video, we talked about the marginal cost of each incremental rabbit, or we said the opportunity cost of each incremental rabbit, and the opportunity cost of one incremental unit, that really is just the marginal cost."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "Allocative efficiency. And it's somewhat subjective based on the preferences of, if we are the hunter-gatherer, based on our preferences, but at least it gives us a framework for thinking which of these meets our preferences the best. And to do that, I will review a little bit from the last video. In the last video, we talked about the marginal cost of each incremental rabbit, or we said the opportunity cost of each incremental rabbit, and the opportunity cost of one incremental unit, that really is just the marginal cost. So let's just write these different scenarios. So these are the, let's write the scenarios, scenario for short, scene for short, and then let's think about the marginal cost of one incremental rabbit, of, I'll just draw a rabbit here, of one incremental rabbit, and it's going to be given in berries. So in berries."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "In the last video, we talked about the marginal cost of each incremental rabbit, or we said the opportunity cost of each incremental rabbit, and the opportunity cost of one incremental unit, that really is just the marginal cost. So let's just write these different scenarios. So these are the, let's write the scenarios, scenario for short, scene for short, and then let's think about the marginal cost of one incremental rabbit, of, I'll just draw a rabbit here, of one incremental rabbit, and it's going to be given in berries. So in berries. Alright, let's start with scenario F, and this is all review from the last video. Sitting in scenario F, if we want to get one extra rabbit, we are going to have to give up 20 berries. In scenario E, if we're sitting in scenario E, and we want even one more rabbit, we now have to give up 40 berries."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So in berries. Alright, let's start with scenario F, and this is all review from the last video. Sitting in scenario F, if we want to get one extra rabbit, we are going to have to give up 20 berries. In scenario E, if we're sitting in scenario E, and we want even one more rabbit, we now have to give up 40 berries. So the marginal cost of that point, of one more rabbit is 40 berries. Now let's go to scenario D. And I encourage you to pause and do this yourself, it'll help if you kind of work it out. Scenario D, the cost of one extra rabbit is now 60 berries."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "In scenario E, if we're sitting in scenario E, and we want even one more rabbit, we now have to give up 40 berries. So the marginal cost of that point, of one more rabbit is 40 berries. Now let's go to scenario D. And I encourage you to pause and do this yourself, it'll help if you kind of work it out. Scenario D, the cost of one extra rabbit is now 60 berries. You go to scenario C, the cost is now 80 berries. Finally you go to scenario B, and the cost of sitting in scenario B, of getting one extra rabbit, you're going to have to give up 100 berries. And I won't even go into scenario A, because it will be impossible for you to have any more rabbits, and you have no more berries to give up."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "Scenario D, the cost of one extra rabbit is now 60 berries. You go to scenario C, the cost is now 80 berries. Finally you go to scenario B, and the cost of sitting in scenario B, of getting one extra rabbit, you're going to have to give up 100 berries. And I won't even go into scenario A, because it will be impossible for you to have any more rabbits, and you have no more berries to give up. So these are all the possible scenarios, and the marginal costs of them. And we can actually plot them on a line. So let me do that right over here."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "And I won't even go into scenario A, because it will be impossible for you to have any more rabbits, and you have no more berries to give up. So these are all the possible scenarios, and the marginal costs of them. And we can actually plot them on a line. So let me do that right over here. This will be useful. So let me draw one axis right over here, one axis over here, and this is, let's call this the different scenarios. So this, let me do it in the same order, let's call this scenario F, scenario E, I'm just doing one color right now, scenario E, scenario D, scenario C, and scenario B."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So let me do that right over here. This will be useful. So let me draw one axis right over here, one axis over here, and this is, let's call this the different scenarios. So this, let me do it in the same order, let's call this scenario F, scenario E, I'm just doing one color right now, scenario E, scenario D, scenario C, and scenario B. Actually, instead of doing it that way, let me just talk about it in terms of the number of squirrels I have. So the number of squirrels that I have. So in scenario F, if you remember, in scenario F, not squirrels, rabbits, in scenario F, you have zero rabbits."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So this, let me do it in the same order, let's call this scenario F, scenario E, I'm just doing one color right now, scenario E, scenario D, scenario C, and scenario B. Actually, instead of doing it that way, let me just talk about it in terms of the number of squirrels I have. So the number of squirrels that I have. So in scenario F, if you remember, in scenario F, not squirrels, rabbits, in scenario F, you have zero rabbits. Scenario F, you have zero rabbits. So let's say zero, one, two, three, four, and five. And so this is the number of rabbits, not squirrels, the number of rabbits that you right now are able to catch on average each day."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So in scenario F, if you remember, in scenario F, not squirrels, rabbits, in scenario F, you have zero rabbits. Scenario F, you have zero rabbits. So let's say zero, one, two, three, four, and five. And so this is the number of rabbits, not squirrels, the number of rabbits that you right now are able to catch on average each day. And then in the vertical axis, right now, I want to put the marginal cost in berries. And let's see, it goes from 20 up to 100, so let's say that this is 20, 40, 60, 80, and 100. So scenario F, that's when we had zero rabbits and the marginal cost of trying to get another rabbit, you'd have to give up 20 berries, so that is scenario F right over there."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "And so this is the number of rabbits, not squirrels, the number of rabbits that you right now are able to catch on average each day. And then in the vertical axis, right now, I want to put the marginal cost in berries. And let's see, it goes from 20 up to 100, so let's say that this is 20, 40, 60, 80, and 100. So scenario F, that's when we had zero rabbits and the marginal cost of trying to get another rabbit, you'd have to give up 20 berries, so that is scenario F right over there. Scenario E, that's one where we already had one rabbit and we are thinking about the marginal cost of getting another one. So that's scenario E, is right over there. This is scenario D, marginal cost is 60."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So scenario F, that's when we had zero rabbits and the marginal cost of trying to get another rabbit, you'd have to give up 20 berries, so that is scenario F right over there. Scenario E, that's one where we already had one rabbit and we are thinking about the marginal cost of getting another one. So that's scenario E, is right over there. This is scenario D, marginal cost is 60. We already have two rabbits and we're thinking about getting a third. That's scenario D. And then scenario C, we already have three rabbits, thinking about getting a fourth. That's scenario C. And then finally, we have scenario B, where we already have four rabbits and we're thinking about getting a fifth and we would have to give up 100 berries to get that fifth rabbit."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "This is scenario D, marginal cost is 60. We already have two rabbits and we're thinking about getting a third. That's scenario D. And then scenario C, we already have three rabbits, thinking about getting a fourth. That's scenario C. And then finally, we have scenario B, where we already have four rabbits and we're thinking about getting a fifth and we would have to give up 100 berries to get that fifth rabbit. So that's scenario B right over there. So what I've just done is plotted the marginal cost along, these are points on essentially our marginal cost curve, our marginal cost as a function of the number of rabbits we have. So let me connect all the dots."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "That's scenario C. And then finally, we have scenario B, where we already have four rabbits and we're thinking about getting a fifth and we would have to give up 100 berries to get that fifth rabbit. So that's scenario B right over there. So what I've just done is plotted the marginal cost along, these are points on essentially our marginal cost curve, our marginal cost as a function of the number of rabbits we have. So let me connect all the dots. And in this scenario, it just happened to be a line. It doesn't always have to be a line, but in many introductory economics courses, it's often a line for simplicity. So let me just make this a line right over here."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So let me connect all the dots. And in this scenario, it just happened to be a line. It doesn't always have to be a line, but in many introductory economics courses, it's often a line for simplicity. So let me just make this a line right over here. This is our marginal cost as a function of the number of rabbits we have. And actually, I should probably draw this axis. I should probably draw, let me copy and paste this."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So let me just make this a line right over here. This is our marginal cost as a function of the number of rabbits we have. And actually, I should probably draw this axis. I should probably draw, let me copy and paste this. So let me cut this. So let me cut that and then let me paste it because it really should sit on the zero point right over there. And ignore that little line right over there."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "I should probably draw, let me copy and paste this. So let me cut this. So let me cut that and then let me paste it because it really should sit on the zero point right over there. And ignore that little line right over there. So there you have marginal cost as a function of berries. But we still don't know which scenario to pick. And to think about that, I want to introduce something called the marginal benefit."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "And ignore that little line right over there. So there you have marginal cost as a function of berries. But we still don't know which scenario to pick. And to think about that, I want to introduce something called the marginal benefit. So the marginal benefit. The marginal, and I'll write it as MB, the marginal benefit of an incremental rabbit. And once again, we're going to write it in berries."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "And to think about that, I want to introduce something called the marginal benefit. So the marginal benefit. The marginal, and I'll write it as MB, the marginal benefit of an incremental rabbit. And once again, we're going to write it in berries. And the way to think about the marginal benefit is, if we are the hunter-gatherer, we're saying, if we're sitting in one of these scenarios, how much would we pay to some hypothetical convenience store in berries? Maybe that convenience store only sells bunnies and they only accept berries. How much would we pay to them in berries for an extra rabbit?"}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "And once again, we're going to write it in berries. And the way to think about the marginal benefit is, if we are the hunter-gatherer, we're saying, if we're sitting in one of these scenarios, how much would we pay to some hypothetical convenience store in berries? Maybe that convenience store only sells bunnies and they only accept berries. How much would we pay to them in berries for an extra rabbit? And let's not even look at this thing right over here. So if we're sitting in scenario F, and you remember scenario F is right over here, we have no rabbits. How much would we be willing to pay?"}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "How much would we pay to them in berries for an extra rabbit? And let's not even look at this thing right over here. So if we're sitting in scenario F, and you remember scenario F is right over here, we have no rabbits. How much would we be willing to pay? We have no rabbits and we actually have a ton of berries. So in scenario F right here, we have no rabbits and we have 300 berries. If we have no rabbits and a lot of berries, let's say we'll say, well, we have a lot of berries, we might be in the mood for a rabbit, we'd be willing to pay a lot in berries for a rabbit."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "How much would we be willing to pay? We have no rabbits and we actually have a ton of berries. So in scenario F right here, we have no rabbits and we have 300 berries. If we have no rabbits and a lot of berries, let's say we'll say, well, we have a lot of berries, we might be in the mood for a rabbit, we'd be willing to pay a lot in berries for a rabbit. So let's say we would pay 100. 100 berries to that hypothetical convenience store for a rabbit. Now, let's say that we're in scenario E. How much would we pay to that hypothetical convenience store?"}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "If we have no rabbits and a lot of berries, let's say we'll say, well, we have a lot of berries, we might be in the mood for a rabbit, we'd be willing to pay a lot in berries for a rabbit. So let's say we would pay 100. 100 berries to that hypothetical convenience store for a rabbit. Now, let's say that we're in scenario E. How much would we pay to that hypothetical convenience store? Well, in scenario E, we already have one rabbit and we have fewer berries. So we need a rabbit less and we have fewer berries to give. So we're not willing to give quite as many berries for another rabbit."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "Now, let's say that we're in scenario E. How much would we pay to that hypothetical convenience store? Well, in scenario E, we already have one rabbit and we have fewer berries. So we need a rabbit less and we have fewer berries to give. So we're not willing to give quite as many berries for another rabbit. So maybe we'll only give 80 berries. Then you go to scenario D. We already have two rabbits and we have even fewer berries. So we're willing to give even fewer berries for another rabbit."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So we're not willing to give quite as many berries for another rabbit. So maybe we'll only give 80 berries. Then you go to scenario D. We already have two rabbits and we have even fewer berries. So we're willing to give even fewer berries for another rabbit. This is what we would pay to a convenience store just based on thinking about it, our current preferences. Then we can go all the way to scenario C. And it is subjective. It's not like a measurable thing."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So we're willing to give even fewer berries for another rabbit. This is what we would pay to a convenience store just based on thinking about it, our current preferences. Then we can go all the way to scenario C. And it is subjective. It's not like a measurable thing. It's just based on this person's preferences, this hunter-gatherer's preferences. Scenario C. Well, they already have more rabbits, even fewer berries, so they'll pay even less. And then finally, scenario B."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "It's not like a measurable thing. It's just based on this person's preferences, this hunter-gatherer's preferences. Scenario C. Well, they already have more rabbits, even fewer berries, so they'll pay even less. And then finally, scenario B. They have a good number of rabbits and even fewer berries. They'd be willing to pay very little for an incremental rabbit. So let's plot the marginal benefit as a function of the number of rabbits that they already have."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "And then finally, scenario B. They have a good number of rabbits and even fewer berries. They'd be willing to pay very little for an incremental rabbit. So let's plot the marginal benefit as a function of the number of rabbits that they already have. So if we go to scenario F, the marginal benefit, doing that little thought experiment, is 100. In scenario E, the marginal benefit, how much you would hypothetically be willing to pay in berries, is now 80 berries. In scenario D, it is 60 berries."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So let's plot the marginal benefit as a function of the number of rabbits that they already have. So if we go to scenario F, the marginal benefit, doing that little thought experiment, is 100. In scenario E, the marginal benefit, how much you would hypothetically be willing to pay in berries, is now 80 berries. In scenario D, it is 60 berries. In scenario C, it is 40 berries. So scenario C is right over here. So in scenario C, it is 40 berries."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "In scenario D, it is 60 berries. In scenario C, it is 40 berries. So scenario C is right over here. So in scenario C, it is 40 berries. And then in scenario B, it is 20 berries. So in scenario B, it is 20 berries, just like that. So now we're not just plotting the marginal cost."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So in scenario C, it is 40 berries. And then in scenario B, it is 20 berries. So in scenario B, it is 20 berries, just like that. So now we're not just plotting the marginal cost. We're plotting the marginal cost and the marginal benefit in berries. And the marginal benefit curve, and it's really a line here, once again for simplicity, looks like that. Now given this, so this is the marginal benefit curve."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So now we're not just plotting the marginal cost. We're plotting the marginal cost and the marginal benefit in berries. And the marginal benefit curve, and it's really a line here, once again for simplicity, looks like that. Now given this, so this is the marginal benefit curve. Marginal benefit is a function of the number of rabbits that we already have. And this is the marginal cost as a function of the number of rabbits we already have. And so when I say E, this is actually situation E, that's situation D. This is also situation C. And this is also, this is the marginal benefit at situation B."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "Now given this, so this is the marginal benefit curve. Marginal benefit is a function of the number of rabbits that we already have. And this is the marginal cost as a function of the number of rabbits we already have. And so when I say E, this is actually situation E, that's situation D. This is also situation C. And this is also, this is the marginal benefit at situation B. So given this, what would I rationally do? If these really are my preferences, what would I rationally do? So if I'm sitting here in situation F, I have no rabbits."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "And so when I say E, this is actually situation E, that's situation D. This is also situation C. And this is also, this is the marginal benefit at situation B. So given this, what would I rationally do? If these really are my preferences, what would I rationally do? So if I'm sitting here in situation F, I have no rabbits. I already know that it would cost me 20 rabbits to try to get an incremental one. But I've already said that I'd be willing to pay 100, sorry, it would cost me 20 berries to get an incremental rabbit. But I've already said that I'm willing to pay 100 berries to get an incremental rabbit."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So if I'm sitting here in situation F, I have no rabbits. I already know that it would cost me 20 rabbits to try to get an incremental one. But I've already said that I'd be willing to pay 100, sorry, it would cost me 20 berries to get an incremental rabbit. But I've already said that I'm willing to pay 100 berries to get an incremental rabbit. So I would want to move along the curve. So I would definitely want to get more rabbits. I said that I'm willing to pay 100 berries for a rabbit, and it would only cost me 20 berries for a rabbit."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "But I've already said that I'm willing to pay 100 berries to get an incremental rabbit. So I would want to move along the curve. So I would definitely want to get more rabbits. I said that I'm willing to pay 100 berries for a rabbit, and it would only cost me 20 berries for a rabbit. So I'm saying that I want to get more rabbits. And another way to look at this visually, marginal benefit is much higher than marginal cost here. So I'm willing to go forth and try to get more rabbits."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "I said that I'm willing to pay 100 berries for a rabbit, and it would only cost me 20 berries for a rabbit. So I'm saying that I want to get more rabbits. And another way to look at this visually, marginal benefit is much higher than marginal cost here. So I'm willing to go forth and try to get more rabbits. This is even true in scenario E. The marginal benefit of an incremental rabbit is worth much more to me than the marginal cost. So I'm willing to try to get more rabbits. So in scenario E, I'm still trying to get more rabbits."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So I'm willing to go forth and try to get more rabbits. This is even true in scenario E. The marginal benefit of an incremental rabbit is worth much more to me than the marginal cost. So I'm willing to try to get more rabbits. So in scenario E, I'm still trying to get more rabbits. I still want to move along the production possibilities frontier in this general direction. Now, what happens as I get closer to D? So if I'm in this scenario right over here, and this isn't one of our labeled scenarios, but if I'm right over there, still my marginal cost is lower than my marginal benefit."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So in scenario E, I'm still trying to get more rabbits. I still want to move along the production possibilities frontier in this general direction. Now, what happens as I get closer to D? So if I'm in this scenario right over here, and this isn't one of our labeled scenarios, but if I'm right over there, still my marginal cost is lower than my marginal benefit. So I'll still want to get more rabbits all the way until I'm scenario D. In scenario D, I'm a little bit neutral. I'm willing to pay 60 berries for a rabbit, but that's exactly how much I'd have to give up to get that extra rabbit. So let's just think about scenario D for a little bit."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So if I'm in this scenario right over here, and this isn't one of our labeled scenarios, but if I'm right over there, still my marginal cost is lower than my marginal benefit. So I'll still want to get more rabbits all the way until I'm scenario D. In scenario D, I'm a little bit neutral. I'm willing to pay 60 berries for a rabbit, but that's exactly how much I'd have to give up to get that extra rabbit. So let's just think about scenario D for a little bit. I'll just circle it right over here because it looks kind of interesting. Now, would we want to do anything beyond scenario D? So if I'm at this point right over here, if I'm working enough on average to say get 2.5 rabbits a day, does this make sense for me to try to get any more rabbits?"}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So let's just think about scenario D for a little bit. I'll just circle it right over here because it looks kind of interesting. Now, would we want to do anything beyond scenario D? So if I'm at this point right over here, if I'm working enough on average to say get 2.5 rabbits a day, does this make sense for me to try to get any more rabbits? Well, at that point, the benefit of getting an incremental rabbit is smaller than the cost of getting a rabbit. At that point, if I try to get another rabbit, I'm getting less benefit from it. I'm getting less benefit than the cost associated with it."}, {"video_title": "Allocative efficiency and marginal benefit Microeconomics Khan Academy.mp3", "Sentence": "So if I'm at this point right over here, if I'm working enough on average to say get 2.5 rabbits a day, does this make sense for me to try to get any more rabbits? Well, at that point, the benefit of getting an incremental rabbit is smaller than the cost of getting a rabbit. At that point, if I try to get another rabbit, I'm getting less benefit from it. I'm getting less benefit than the cost associated with it. So I definitely don't want to move past D. So I achieve allocative efficiency where my marginal cost and my marginal benefit is equal. So based on the way that I've rigged the numbers in this example right over here, you want to settle on scenario D. We have achieved allocative efficiency over there. The marginal cost as a function of our rabbits and the marginal benefit of our function of rabbits is equal."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "And insulin is interesting. It's what's needed by diabetes in order to maintain their blood sugar levels. So for them, you can almost imagine, they need this just to survive. It almost has an infinite marginal benefit for them. So they're willing, no matter what the price, they're essentially willing to take the insulin that they need to take. So for example, even if the price of insulin were a dollar, if the doctors in this town say, collectively all the diabetics need 3,000 vials a year, they will take 3,000 vials a year. If the price is $80 a vial, they'll still take 3,000 vials a year."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "It almost has an infinite marginal benefit for them. So they're willing, no matter what the price, they're essentially willing to take the insulin that they need to take. So for example, even if the price of insulin were a dollar, if the doctors in this town say, collectively all the diabetics need 3,000 vials a year, they will take 3,000 vials a year. If the price is $80 a vial, they'll still take 3,000 vials a year. So within reason, within a reasonable price range, you have no change in quantity demanded. So in this case, at least in a reasonable price range, the demand curve for insulin is vertical. Obviously, if we went up to prices like $9 million per vial, then all of a sudden, some diabetics just won't be able to afford it."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "If the price is $80 a vial, they'll still take 3,000 vials a year. So within reason, within a reasonable price range, you have no change in quantity demanded. So in this case, at least in a reasonable price range, the demand curve for insulin is vertical. Obviously, if we went up to prices like $9 million per vial, then all of a sudden, some diabetics just won't be able to afford it. And all of a sudden, the curve wouldn't be able to be vertical anymore. But at least in a reasonable price range, you have a vertical curve. So this right over here is our demand curve."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "Obviously, if we went up to prices like $9 million per vial, then all of a sudden, some diabetics just won't be able to afford it. And all of a sudden, the curve wouldn't be able to be vertical anymore. But at least in a reasonable price range, you have a vertical curve. So this right over here is our demand curve. And you might remember when we talked about elasticity, this is perfectly inelastic demand. So it's perfectly inelastic. And the way you could think about it, I kind of think of a brick as perfectly inelastic."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is our demand curve. And you might remember when we talked about elasticity, this is perfectly inelastic demand. So it's perfectly inelastic. And the way you could think about it, I kind of think of a brick as perfectly inelastic. No matter how much you push or pull on the brick, within reason, at least my level of strength, you're not going to be able to deform the brick. And that's the opposite of a rubber band, which is very elastic. Or you can think about the definition of elasticity, the one we've been using."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "And the way you could think about it, I kind of think of a brick as perfectly inelastic. No matter how much you push or pull on the brick, within reason, at least my level of strength, you're not going to be able to deform the brick. And that's the opposite of a rubber band, which is very elastic. Or you can think about the definition of elasticity, the one we've been using. Elasticity is equal to percent change in quantity over percent change in price. And over here, no matter how much we change price within reason, at least within this range of price along this curve, people are still going to demand a quantity of 3,000 vials per year. And let me just draw a supply curve here."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "Or you can think about the definition of elasticity, the one we've been using. Elasticity is equal to percent change in quantity over percent change in price. And over here, no matter how much we change price within reason, at least within this range of price along this curve, people are still going to demand a quantity of 3,000 vials per year. And let me just draw a supply curve here. So let's say the supply curve looks something like that. And so if you have no taxes, no regulation of this market, based on the way I've drawn it right over here, the equilibrium price lands us right around $75. And I did a little research before this video."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "And let me just draw a supply curve here. So let's say the supply curve looks something like that. And so if you have no taxes, no regulation of this market, based on the way I've drawn it right over here, the equilibrium price lands us right around $75. And I did a little research before this video. It actually turns out that is about the market price for a vial of insulin in the equilibrium quantity, because that is the exact quantity that people need, is 3,000 vials. Now, a slightly interesting thing to think about in this situation, where you have perfectly inelastic demand, is what is the producer surplus and the consumer surplus? So the producer surplus is how much more money they're getting relative to their, you could view them as their opportunity cost or their incremental marginal cost."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "And I did a little research before this video. It actually turns out that is about the market price for a vial of insulin in the equilibrium quantity, because that is the exact quantity that people need, is 3,000 vials. Now, a slightly interesting thing to think about in this situation, where you have perfectly inelastic demand, is what is the producer surplus and the consumer surplus? So the producer surplus is how much more money they're getting relative to their, you could view them as their opportunity cost or their incremental marginal cost. And here, and we've done it multiple times, this is the producer surplus right over here. It's the area between the price is equal to the clearing price and our supply curve. So that's our producer surplus."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "So the producer surplus is how much more money they're getting relative to their, you could view them as their opportunity cost or their incremental marginal cost. And here, and we've done it multiple times, this is the producer surplus right over here. It's the area between the price is equal to the clearing price and our supply curve. So that's our producer surplus. And our consumer surplus is where things get a little bit interesting. Consumer surplus is how much more marginal benefit people are getting than what they are paying. And we've traditionally said, OK, that's the area between the demand curve and the price."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "So that's our producer surplus. And our consumer surplus is where things get a little bit interesting. Consumer surplus is how much more marginal benefit people are getting than what they are paying. And we've traditionally said, OK, that's the area between the demand curve and the price. But now all of a sudden, this area is infinite. And one way to think about it is that these diabetics get, you could almost say, close to infinite marginal benefit from that insulin. It allows them to have a healthy life."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "And we've traditionally said, OK, that's the area between the demand curve and the price. But now all of a sudden, this area is infinite. And one way to think about it is that these diabetics get, you could almost say, close to infinite marginal benefit from that insulin. It allows them to have a healthy life. It allows them to stay alive. So for them, it's essentially priceless. But it's kind of an interesting idea that you have infinite consumer surplus."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "It allows them to have a healthy life. It allows them to stay alive. So for them, it's essentially priceless. But it's kind of an interesting idea that you have infinite consumer surplus. It's not necessarily saying that this is a great deal for the diabetics. It's really just saying that their benefit is something that they need to survive. If this was just slightly more elastic, so if we were to get maybe to a slightly more real world scenario, in a real world, if things got a little bit more expensive, there might be a few diabetics who would all of a sudden try to lower their dose or something like that."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "But it's kind of an interesting idea that you have infinite consumer surplus. It's not necessarily saying that this is a great deal for the diabetics. It's really just saying that their benefit is something that they need to survive. If this was just slightly more elastic, so if we were to get maybe to a slightly more real world scenario, in a real world, if things got a little bit more expensive, there might be a few diabetics who would all of a sudden try to lower their dose or something like that. And so the curve in a real world actually might have some very slight elasticity. It would still be a very steep slope, but it would actually have some slight elasticity. And so you can imagine if I kept taking this up and up and up, then at some point, it actually would bound the area."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "If this was just slightly more elastic, so if we were to get maybe to a slightly more real world scenario, in a real world, if things got a little bit more expensive, there might be a few diabetics who would all of a sudden try to lower their dose or something like that. And so the curve in a real world actually might have some very slight elasticity. It would still be a very steep slope, but it would actually have some slight elasticity. And so you can imagine if I kept taking this up and up and up, then at some point, it actually would bound the area. But it would, so maybe it goes up here. Maybe if this was like $2 million up here, then the demand would go down dramatically. But it would be bounded."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "And so you can imagine if I kept taking this up and up and up, then at some point, it actually would bound the area. But it would, so maybe it goes up here. Maybe if this was like $2 million up here, then the demand would go down dramatically. But it would be bounded. But it is a very, very, very large consumer surplus. Now with that out of the way, let's think about what happens if some misguided politician decides to tax insulin. Obviously a very bad idea and nothing that I would ever advocate."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "But it would be bounded. But it is a very, very, very large consumer surplus. Now with that out of the way, let's think about what happens if some misguided politician decides to tax insulin. Obviously a very bad idea and nothing that I would ever advocate. But let's think about who would bear the burden. I think you could probably guess who would bear the burden if you had to put a tax. But we'll actually see it."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "Obviously a very bad idea and nothing that I would ever advocate. But let's think about who would bear the burden. I think you could probably guess who would bear the burden if you had to put a tax. But we'll actually see it. We'll think it through with our supply and our perfectly inelastic demand curve. So what ends up getting passed is a tax of $10 per vial. And I'm just making it, instead of a percentage, I'm just doing it as a fixed amount so that we get kind of a fixed shift in terms of the perceived supply price."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "But we'll actually see it. We'll think it through with our supply and our perfectly inelastic demand curve. So what ends up getting passed is a tax of $10 per vial. And I'm just making it, instead of a percentage, I'm just doing it as a fixed amount so that we get kind of a fixed shift in terms of the perceived supply price. So for the producers, this is what they need to get. If you want them to produce 3,000 vials, they need to get $75. If you want to get them to even produce that first vial, they need to get $60."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "And I'm just making it, instead of a percentage, I'm just doing it as a fixed amount so that we get kind of a fixed shift in terms of the perceived supply price. So for the producers, this is what they need to get. If you want them to produce 3,000 vials, they need to get $75. If you want to get them to even produce that first vial, they need to get $60. So what the producers need to get plus the tax, we can draw a new curve. And we've done this multiple times. So for that very first vial, the producer needs $60."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "If you want to get them to even produce that first vial, they need to get $60. So what the producers need to get plus the tax, we can draw a new curve. And we've done this multiple times. So for that very first vial, the producer needs $60. But then you add the tax there, it's going to be $70. For 1,000 vials, it looks like it's going to be, I don't know, $60 something. You add the tax, it's going to move up to here."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "So for that very first vial, the producer needs $60. But then you add the tax there, it's going to be $70. For 1,000 vials, it looks like it's going to be, I don't know, $60 something. You add the tax, it's going to move up to here. For 3,000 vials, the producers need around $75, $76. You add 10 to it, it gets to $85, $86, like that. So what you get is this new curve."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "You add the tax, it's going to move up to here. For 3,000 vials, the producers need around $75, $76. You add 10 to it, it gets to $85, $86, like that. So what you get is this new curve. You could view it as the price from the consumer's point of view. Or you could view it as the supply plus tax curve. So I'll call this the supply plus tax curve."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "So what you get is this new curve. You could view it as the price from the consumer's point of view. Or you could view it as the supply plus tax curve. So I'll call this the supply plus tax curve. That's hard to read, but that says tax right over there. This is the supply plus tax curve. And so where does that intersect our perfectly inelastic demand curve?"}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "So I'll call this the supply plus tax curve. That's hard to read, but that says tax right over there. This is the supply plus tax curve. And so where does that intersect our perfectly inelastic demand curve? Well, as you can imagine, even though the prices are higher, people still have to get exactly 3,000 vials per year. And so they intersect right at that quantity, but now we have a new equilibrium price. Our new equilibrium price is exactly $10 higher."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "And so where does that intersect our perfectly inelastic demand curve? Well, as you can imagine, even though the prices are higher, people still have to get exactly 3,000 vials per year. And so they intersect right at that quantity, but now we have a new equilibrium price. Our new equilibrium price is exactly $10 higher. And so it is about, if this was 75 or 76, this is 85 or 86. So this distance right over here is 10. So let's think about a few things."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "Our new equilibrium price is exactly $10 higher. And so it is about, if this was 75 or 76, this is 85 or 86. So this distance right over here is 10. So let's think about a few things. Let's think about the total revenue that the government is going to get in this situation. So the total revenue is going to be that $10 times the 3,000 vials per year. So they're going to get $30,000 per year."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "So let's think about a few things. Let's think about the total revenue that the government is going to get in this situation. So the total revenue is going to be that $10 times the 3,000 vials per year. So they're going to get $30,000 per year. Now let's think about whose surplus that came out of. So the tax revenue, this right over here is the tax revenue. That right over there is the tax revenue."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "So they're going to get $30,000 per year. Now let's think about whose surplus that came out of. So the tax revenue, this right over here is the tax revenue. That right over there is the tax revenue. The producers are still going to have the exact same producer surplus. So all of that tax revenue came directly out of the consumer surplus. Now another interesting thing to note here is because we had this perfectly inelastic demand, that even when you raise the price, it didn't lower the quantity demanded, that we actually don't have a deadweight loss here, because this was perfectly inelastic."}, {"video_title": "Taxes and perfectly inelastic demand Microeconomics Khan Academy.mp3", "Sentence": "That right over there is the tax revenue. The producers are still going to have the exact same producer surplus. So all of that tax revenue came directly out of the consumer surplus. Now another interesting thing to note here is because we had this perfectly inelastic demand, that even when you raise the price, it didn't lower the quantity demanded, that we actually don't have a deadweight loss here, because this was perfectly inelastic. We're actually having the same quantity produced. And so you have a transfer of surplus from essentially the diabetics to the government in this situation, but you don't have any lost surplus here. Because there's no lost area, I guess you could say, between where the supply curve and the demand curves intersect."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Assume that a country, Loreland, is a price taker in the world market for sugar. Some of the sugar consumed in Loreland is produced domestically, while the rest is imported. The world price of sugar is $2 per pound. The graph below shows Loreland's sugar market, and P sub w represents the world price. So we see our domestic demand, we see our domestic supply, and then we see the world price. All right, now let's try to answer the questions that they have given us. At the world price of $2 per pound, how much sugar is Loreland importing?"}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "The graph below shows Loreland's sugar market, and P sub w represents the world price. So we see our domestic demand, we see our domestic supply, and then we see the world price. All right, now let's try to answer the questions that they have given us. At the world price of $2 per pound, how much sugar is Loreland importing? So pause this video and see if you can figure that out on your own. All right, now let's do it together. So at first, you look at your domestic demand and see, well, what would the domestic demand be at the world price?"}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "At the world price of $2 per pound, how much sugar is Loreland importing? So pause this video and see if you can figure that out on your own. All right, now let's do it together. So at first, you look at your domestic demand and see, well, what would the domestic demand be at the world price? So that would be where these two lines intersect. So the domestic demand at the world price would be 14 million pounds. You might be tempted to put 14 million pounds here, but that would be the total domestic demand at the world price, but some of that is domestically produced and some of it is imported."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So at first, you look at your domestic demand and see, well, what would the domestic demand be at the world price? So that would be where these two lines intersect. So the domestic demand at the world price would be 14 million pounds. You might be tempted to put 14 million pounds here, but that would be the total domestic demand at the world price, but some of that is domestically produced and some of it is imported. How much is domestically produced? Well, at a price of $2, the domestic producers are up for producing two million of those 14 million pounds. So this is domestic production, and so between these two points, that length, that represents how much is actually imported."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "You might be tempted to put 14 million pounds here, but that would be the total domestic demand at the world price, but some of that is domestically produced and some of it is imported. How much is domestically produced? Well, at a price of $2, the domestic producers are up for producing two million of those 14 million pounds. So this is domestic production, and so between these two points, that length, that represents how much is actually imported. So to go from two million pounds to 14 million pounds, 14 minus two is 12 million pounds. That is imported, 12 million pounds. Part B, suppose that Loreland imposes a per unit tariff on sugar imports and the new domestic price, including the tariff, is $4."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this is domestic production, and so between these two points, that length, that represents how much is actually imported. So to go from two million pounds to 14 million pounds, 14 minus two is 12 million pounds. That is imported, 12 million pounds. Part B, suppose that Loreland imposes a per unit tariff on sugar imports and the new domestic price, including the tariff, is $4. Identify the new level of domestic production. So once again, pause the video and try to figure that out. All right, so they say the new domestic price, including the tariff, is $4."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Part B, suppose that Loreland imposes a per unit tariff on sugar imports and the new domestic price, including the tariff, is $4. Identify the new level of domestic production. So once again, pause the video and try to figure that out. All right, so they say the new domestic price, including the tariff, is $4. So we are now in this situation. This is the new price. Now, they say what is the new level of domestic production?"}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "All right, so they say the new domestic price, including the tariff, is $4. So we are now in this situation. This is the new price. Now, they say what is the new level of domestic production? So the domestic supply at that price, the domestic suppliers look like they are willing to supply six million pounds. So that is our new level of domestic production, six million pounds. All right, part two, calculate the domestic consumer surplus for Loreland."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, they say what is the new level of domestic production? So the domestic supply at that price, the domestic suppliers look like they are willing to supply six million pounds. So that is our new level of domestic production, six million pounds. All right, part two, calculate the domestic consumer surplus for Loreland. You must show your work. Pause the video and see if you can figure that out. Well, the domestic consumer surplus for Loreland in this scenario where this is the price, well, then we are going to, let me scroll down a little bit so we can see the entire consumer surplus, that is going to be the area above this horizontal line at the price and below our domestic demand curve."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "All right, part two, calculate the domestic consumer surplus for Loreland. You must show your work. Pause the video and see if you can figure that out. Well, the domestic consumer surplus for Loreland in this scenario where this is the price, well, then we are going to, let me scroll down a little bit so we can see the entire consumer surplus, that is going to be the area above this horizontal line at the price and below our domestic demand curve. So this right over here is the consumer surplus in that scenario. And so that is going to be this width, which is the quantity demanded, which is 10 million pounds, times the height, which is, you're going from four to $9, so it has a height of $5, and then times 1 1\u20442. If I just multiplied the quantity times the height, I'd be figuring out the area of this entire rectangle, so it's a little bit of a geometry review, to get half of that, we would multiply by half."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, the domestic consumer surplus for Loreland in this scenario where this is the price, well, then we are going to, let me scroll down a little bit so we can see the entire consumer surplus, that is going to be the area above this horizontal line at the price and below our domestic demand curve. So this right over here is the consumer surplus in that scenario. And so that is going to be this width, which is the quantity demanded, which is 10 million pounds, times the height, which is, you're going from four to $9, so it has a height of $5, and then times 1 1\u20442. If I just multiplied the quantity times the height, I'd be figuring out the area of this entire rectangle, so it's a little bit of a geometry review, to get half of that, we would multiply by half. So this is going to be, it's going to be 10 million pounds, I'll do it right over here so I have some space, 10 million pounds times, we have a difference of $5 per pound, $5 per pound, and then of course we want to multiply it times 1 1\u20442, so this one right over here. So let's see, the pounds cancel out, and so if you multiply it out, this is going to be $50 million times 1 1\u20442, so it's going to be $25 million. All right, part three, scroll down a little bit."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "If I just multiplied the quantity times the height, I'd be figuring out the area of this entire rectangle, so it's a little bit of a geometry review, to get half of that, we would multiply by half. So this is going to be, it's going to be 10 million pounds, I'll do it right over here so I have some space, 10 million pounds times, we have a difference of $5 per pound, $5 per pound, and then of course we want to multiply it times 1 1\u20442, so this one right over here. So let's see, the pounds cancel out, and so if you multiply it out, this is going to be $50 million times 1 1\u20442, so it's going to be $25 million. All right, part three, scroll down a little bit. Calculate the total tariff revenue collected by the government. This also says you must show your work. Once again, pause the video and see if you can work through that."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "All right, part three, scroll down a little bit. Calculate the total tariff revenue collected by the government. This also says you must show your work. Once again, pause the video and see if you can work through that. So the tariff revenue collected by the government. Well, we went from a world price of $2 per pound to a domestic price of $4 per pound, so it was a $2 per pound tariff. And the government is collecting that $2 per pound on the imports."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Once again, pause the video and see if you can work through that. So the tariff revenue collected by the government. Well, we went from a world price of $2 per pound to a domestic price of $4 per pound, so it was a $2 per pound tariff. And the government is collecting that $2 per pound on the imports. So in this situation, this is the domestic supply, we've already talked about that, and so this amount right over here are the imports. So if you multiply this amount, which went from 6 million pounds to 10 million pounds, so this is going to be 4 million pounds, times the tariff, which is $2 per pound, per pound, you're going to get this area, which would be the government revenue. So this is going to be 4 million pounds times $2 per pound, times $2 per pound."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And the government is collecting that $2 per pound on the imports. So in this situation, this is the domestic supply, we've already talked about that, and so this amount right over here are the imports. So if you multiply this amount, which went from 6 million pounds to 10 million pounds, so this is going to be 4 million pounds, times the tariff, which is $2 per pound, per pound, you're going to get this area, which would be the government revenue. So this is going to be 4 million pounds times $2 per pound, times $2 per pound. Pound cancels out, and this is an area of a rectangle here, and so this is going to be equal to $8 million. All right, now let's do part C. Given the world price of $2, what per unit tariff maximizes the sum of Loreland's domestic consumer surplus and producer surplus? Pause the video once more and see if you can figure this out."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this is going to be 4 million pounds times $2 per pound, times $2 per pound. Pound cancels out, and this is an area of a rectangle here, and so this is going to be equal to $8 million. All right, now let's do part C. Given the world price of $2, what per unit tariff maximizes the sum of Loreland's domestic consumer surplus and producer surplus? Pause the video once more and see if you can figure this out. All right, so you might be tempted to try out a bunch of tariffs and figure out if you can get a higher total surplus, but the important thing to realize is, any tariff is going to reduce your total economic surplus. So you can immediately go and say that, hey, the ideal per unit tariff is going to be $0 per unit. And if you want to see visually why that is, we talk about it in other videos, remember, in the first situation where we are just at the world price without any tariff, the total economic surplus, this is the domestic producer surplus, which isn't that much, but you have a huge consumer surplus."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Pause the video once more and see if you can figure this out. All right, so you might be tempted to try out a bunch of tariffs and figure out if you can get a higher total surplus, but the important thing to realize is, any tariff is going to reduce your total economic surplus. So you can immediately go and say that, hey, the ideal per unit tariff is going to be $0 per unit. And if you want to see visually why that is, we talk about it in other videos, remember, in the first situation where we are just at the world price without any tariff, the total economic surplus, this is the domestic producer surplus, which isn't that much, but you have a huge consumer surplus. You have all of this area as well. So those two triangles make the total economic surplus. Now a tariff is going to raise this level, and as you raise this level, as you saw in the case of part B, well, you're going to shrink this upper triangle."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And if you want to see visually why that is, we talk about it in other videos, remember, in the first situation where we are just at the world price without any tariff, the total economic surplus, this is the domestic producer surplus, which isn't that much, but you have a huge consumer surplus. You have all of this area as well. So those two triangles make the total economic surplus. Now a tariff is going to raise this level, and as you raise this level, as you saw in the case of part B, well, you're going to shrink this upper triangle. You will grow this bottom triangle, but you're still going to be smaller than your two triangles that you had before. Because look at that second scenario, the scenario in part B, your consumer surplus has now shrunk to this right over here. Your producer surplus has grown to that over there, but you haven't grown the total surplus."}, {"video_title": "Tariff and imports worked example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now a tariff is going to raise this level, and as you raise this level, as you saw in the case of part B, well, you're going to shrink this upper triangle. You will grow this bottom triangle, but you're still going to be smaller than your two triangles that you had before. Because look at that second scenario, the scenario in part B, your consumer surplus has now shrunk to this right over here. Your producer surplus has grown to that over there, but you haven't grown the total surplus. In fact, now for the consumers and the producers, you've lost this entire triangle. Some of it is captured by government revenue, but you also have deadweight loss. You also just have this section and this section as just deadweight loss."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "Let's now move away from the world of the hunter-gatherer and into the dinnerware market. So let's say we're going to talk about two products, two types of dinnerware. We'll have cups on this axis, and we will have plates on this axis. And let's say we have a producer, Charlie. And if you were to focus all of his time on cups, he could produce, so let me put these 10, 20, 30. So if you were to focus all of his time on cups, he could produce 30 cups. And if you were to focus all of his time on plates, he could produce 10 plates."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "And let's say we have a producer, Charlie. And if you were to focus all of his time on cups, he could produce, so let me put these 10, 20, 30. So if you were to focus all of his time on cups, he could produce 30 cups. And if you were to focus all of his time on plates, he could produce 10 plates. And we're going to assume he has a linear production possibilities frontier. So this is what his PPF is going to look like. Let me draw it a little bit, actually connect the two dots."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "And if you were to focus all of his time on plates, he could produce 10 plates. And we're going to assume he has a linear production possibilities frontier. So this is what his PPF is going to look like. Let me draw it a little bit, actually connect the two dots. So I want to make it more looking like a line. So that's about as good as I can do. So that right over there is the PPF for Charlie."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "Let me draw it a little bit, actually connect the two dots. So I want to make it more looking like a line. So that's about as good as I can do. So that right over there is the PPF for Charlie. Now let's think about his opportunity cost. And because this is a linear PPF, his opportunity cost does not change. The slope of this line is not changing."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "So that right over there is the PPF for Charlie. Now let's think about his opportunity cost. And because this is a linear PPF, his opportunity cost does not change. The slope of this line is not changing. It's not that bow-shaped curve that we saw for the hunter-gatherer. So it's going to be a fixed opportunity cost for one product relative to the other at any point along this production possibilities frontier. So let's say we're sitting over here."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "The slope of this line is not changing. It's not that bow-shaped curve that we saw for the hunter-gatherer. So it's going to be a fixed opportunity cost for one product relative to the other at any point along this production possibilities frontier. So let's say we're sitting over here. This will just make things simple to just think about the endpoints. And he's producing 30 cups. What is his opportunity cost of producing 10 plates?"}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "So let's say we're sitting over here. This will just make things simple to just think about the endpoints. And he's producing 30 cups. What is his opportunity cost of producing 10 plates? Well, to produce 10 plates, he's going to have to give up those 30 cups. So his opportunity cost of producing 10 plates is equal to 30 cups. Or if you want the opportunity cost for one plate, you just divide both sides by 10."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "What is his opportunity cost of producing 10 plates? Well, to produce 10 plates, he's going to have to give up those 30 cups. So his opportunity cost of producing 10 plates is equal to 30 cups. Or if you want the opportunity cost for one plate, you just divide both sides by 10. And so you get the opportunity cost of one plate is equal to 3 cups. That's fair enough. Now, let's think about the same scenario, or let's think about another producer in this market for dinnerware."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "Or if you want the opportunity cost for one plate, you just divide both sides by 10. And so you get the opportunity cost of one plate is equal to 3 cups. That's fair enough. Now, let's think about the same scenario, or let's think about another producer in this market for dinnerware. Let's call her Patty. If Patty focused all of her time on cups, she could produce 10 cups in a day. And if she focused all of her time on plates, she could produce 30 plates in a day."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "Now, let's think about the same scenario, or let's think about another producer in this market for dinnerware. Let's call her Patty. If Patty focused all of her time on cups, she could produce 10 cups in a day. And if she focused all of her time on plates, she could produce 30 plates in a day. And she also has a linear production possibilities frontier. So that right over there is the PPF for Patty. And let's think about her opportunity cost for producing a plate."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "And if she focused all of her time on plates, she could produce 30 plates in a day. And she also has a linear production possibilities frontier. So that right over there is the PPF for Patty. And let's think about her opportunity cost for producing a plate. So the opportunity cost, if she's sitting right over here and she was focused all on cups, and if she wanted to produce 30 plates, and I'm intentionally using the endpoints to make the math more obvious, if she wanted to produce 30 plates, then she would have to give up 10 cups. So her opportunity cost to produce 30 plates is equal to 10 cups. Or if you divide both sides by 30, the opportunity cost of her producing one plate in terms of cups is 10 divided by 30 is 1 third of a cup."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "And let's think about her opportunity cost for producing a plate. So the opportunity cost, if she's sitting right over here and she was focused all on cups, and if she wanted to produce 30 plates, and I'm intentionally using the endpoints to make the math more obvious, if she wanted to produce 30 plates, then she would have to give up 10 cups. So her opportunity cost to produce 30 plates is equal to 10 cups. Or if you divide both sides by 30, the opportunity cost of her producing one plate in terms of cups is 10 divided by 30 is 1 third of a cup. Now, this is interesting. We can now compare their relative opportunity costs. The opportunity cost for Charlie to produce a plate is 3 cups."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "Or if you divide both sides by 30, the opportunity cost of her producing one plate in terms of cups is 10 divided by 30 is 1 third of a cup. Now, this is interesting. We can now compare their relative opportunity costs. The opportunity cost for Charlie to produce a plate is 3 cups. The opportunity cost for Patty to produce a plate is 1 third of a cup. So for Patty, especially when you measure it in terms of cups, it is cheaper for her to produce a plate. She has a lower opportunity cost than Charlie does in producing plates."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "The opportunity cost for Charlie to produce a plate is 3 cups. The opportunity cost for Patty to produce a plate is 1 third of a cup. So for Patty, especially when you measure it in terms of cups, it is cheaper for her to produce a plate. She has a lower opportunity cost than Charlie does in producing plates. And so relative to Charlie, we say, because her opportunity cost is lower in producing plates, 1 third relative to 3, we say that Patty has the comparative advantage in plates relative to Charlie. And it's not just because she can produce. And we'll see situations maybe in the next video where we actually show this."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "She has a lower opportunity cost than Charlie does in producing plates. And so relative to Charlie, we say, because her opportunity cost is lower in producing plates, 1 third relative to 3, we say that Patty has the comparative advantage in plates relative to Charlie. And it's not just because she can produce. And we'll see situations maybe in the next video where we actually show this. It doesn't even have to be the case that she can even produce more plates in a given day. This is not why she has a comparative advantage. This is called an absolute advantage."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "And we'll see situations maybe in the next video where we actually show this. It doesn't even have to be the case that she can even produce more plates in a given day. This is not why she has a comparative advantage. This is called an absolute advantage. And we'll talk about that more. She has a comparative advantage because her opportunity cost is lower. Her opportunity cost for producing a plate is lower than it is for Charlie."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "This is called an absolute advantage. And we'll talk about that more. She has a comparative advantage because her opportunity cost is lower. Her opportunity cost for producing a plate is lower than it is for Charlie. Now, let's think about the other way around. Who has a comparative advantage in cups? Well, if we divide both sides of this right over here by 3, we see that if, or let's swap both sides."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "Her opportunity cost for producing a plate is lower than it is for Charlie. Now, let's think about the other way around. Who has a comparative advantage in cups? Well, if we divide both sides of this right over here by 3, we see that if, or let's swap both sides. So the opportunity cost for Charlie of producing 3 cups is equal to 1 plate. Or if you divide both sides by 3, opportunity cost of 1 cup is 1 third of a plate. If we go to the situation for Patty, so let's go to Patty."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "Well, if we divide both sides of this right over here by 3, we see that if, or let's swap both sides. So the opportunity cost for Charlie of producing 3 cups is equal to 1 plate. Or if you divide both sides by 3, opportunity cost of 1 cup is 1 third of a plate. If we go to the situation for Patty, so let's go to Patty. Let's swap these two around. The opportunity cost for 10 cups is 30 plates. If you divide both sides by 10, the opportunity cost of 1 cup is equal to 3 plates."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "If we go to the situation for Patty, so let's go to Patty. Let's swap these two around. The opportunity cost for 10 cups is 30 plates. If you divide both sides by 10, the opportunity cost of 1 cup is equal to 3 plates. And obviously, and we've talked about this before, the opportunity cost of 1 incremental unit, that's the same thing as the marginal cost of a cup. But anyway, who has the lower opportunity cost for producing cups? Well, let's see."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "If you divide both sides by 10, the opportunity cost of 1 cup is equal to 3 plates. And obviously, and we've talked about this before, the opportunity cost of 1 incremental unit, that's the same thing as the marginal cost of a cup. But anyway, who has the lower opportunity cost for producing cups? Well, let's see. Charlie's opportunity cost for producing an extra cup is 1 third of a plate. And Patty's is 3 plates. So Charlie has the lower opportunity cost for producing a cup."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "Well, let's see. Charlie's opportunity cost for producing an extra cup is 1 third of a plate. And Patty's is 3 plates. So Charlie has the lower opportunity cost for producing a cup. So it's only 1 third plate relative to 3 plates. So this is where Charlie has the comparative advantage. And what we're going to see is if both of these parties specialize in their comparative advantage and then trade, they can get outcomes that are beyond each of their individual production possibility frontiers."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "So Charlie has the lower opportunity cost for producing a cup. So it's only 1 third plate relative to 3 plates. So this is where Charlie has the comparative advantage. And what we're going to see is if both of these parties specialize in their comparative advantage and then trade, they can get outcomes that are beyond each of their individual production possibility frontiers. So what we can see is, for example, they can get an outcome where they are each able to get 15 cups and 15 plates, which would have been impossible left to their own devices. So let's see how they could actually do it. So we've said that Charlie has a comparative advantage in cups."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "And what we're going to see is if both of these parties specialize in their comparative advantage and then trade, they can get outcomes that are beyond each of their individual production possibility frontiers. So what we can see is, for example, they can get an outcome where they are each able to get 15 cups and 15 plates, which would have been impossible left to their own devices. So let's see how they could actually do it. So we've said that Charlie has a comparative advantage in cups. His opportunity cost of producing a cup is lower than it is for Patty. It's only 1 third of a plate relative to 3 plates. So let's make him specialize in cups."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "So we've said that Charlie has a comparative advantage in cups. His opportunity cost of producing a cup is lower than it is for Patty. It's only 1 third of a plate relative to 3 plates. So let's make him specialize in cups. So cup specialties. So he's going to specialize in cups. And Patty, for the same reason, is going to specialize in plates."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "So let's make him specialize in cups. So cup specialties. So he's going to specialize in cups. And Patty, for the same reason, is going to specialize in plates. So Charlie specializing in cups means he's going to focus only on cups. So he's going to produce 30 cups every day. And Patty specializing in plates means that she's going to produce 30 plates every day."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "And Patty, for the same reason, is going to specialize in plates. So Charlie specializing in cups means he's going to focus only on cups. So he's going to produce 30 cups every day. And Patty specializing in plates means that she's going to produce 30 plates every day. Let me do this in a different color. I'll just do the magenta. She's going to produce 30 plates every day."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "And Patty specializing in plates means that she's going to produce 30 plates every day. Let me do this in a different color. I'll just do the magenta. She's going to produce 30 plates every day. Now imagine, I'm going to make an assumption here. But imagine that they both do that, but they don't each only want to have what they're producing. They want to have some combination of them."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "She's going to produce 30 plates every day. Now imagine, I'm going to make an assumption here. But imagine that they both do that, but they don't each only want to have what they're producing. They want to have some combination of them. So they decide to trade. And I'm going to just fix the price here. We're going to talk more about markets in the future."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "They want to have some combination of them. So they decide to trade. And I'm going to just fix the price here. We're going to talk more about markets in the future. But I assume that they agree to trade at 1 cup for 1 plate. And this makes sense for either of them because this trading price, or you can also say this market price, is lower than their opportunity cost. So here's Charlie."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "We're going to talk more about markets in the future. But I assume that they agree to trade at 1 cup for 1 plate. And this makes sense for either of them because this trading price, or you can also say this market price, is lower than their opportunity cost. So here's Charlie. He's got all of these cups. It left to his own devices. If he wanted an extra plate, he would have to spend 3 cups."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "So here's Charlie. He's got all of these cups. It left to his own devices. If he wanted an extra plate, he would have to spend 3 cups. But now in the market at this price over here, he only has to spend 1 cup for an extra plate. So this makes sense for him because the market price is lower than his opportunity cost. So he would definitely rather get a plate in the market than have to do it by producing it himself."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "If he wanted an extra plate, he would have to spend 3 cups. But now in the market at this price over here, he only has to spend 1 cup for an extra plate. So this makes sense for him because the market price is lower than his opportunity cost. So he would definitely rather get a plate in the market than have to do it by producing it himself. It's cheaper this way. And the same thing for Patty. She has all of these plates, but if she wants a cup left by herself, she would have to spend 3 plates to do it."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "So he would definitely rather get a plate in the market than have to do it by producing it himself. It's cheaper this way. And the same thing for Patty. She has all of these plates, but if she wants a cup left by herself, she would have to spend 3 plates to do it. She would have to give up 3 plates. But now in the market, she would only have to give up 1 plate. So this is a good deal."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "She has all of these plates, but if she wants a cup left by herself, she would have to spend 3 plates to do it. She would have to give up 3 plates. But now in the market, she would only have to give up 1 plate. So this is a good deal. This is lower than our opportunity cost, so she'll want to transact. And so they can do each of them. So for example, Charlie can keep trading cups for plates, and he could end up anywhere on this line right over there."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "So this is a good deal. This is lower than our opportunity cost, so she'll want to transact. And so they can do each of them. So for example, Charlie can keep trading cups for plates, and he could end up anywhere on this line right over there. And Patty could actually do the same thing. She could trade cups for plates and end up someplace over there. But obviously, where they end up is dependent on how much the other one is willing to trade."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "So for example, Charlie can keep trading cups for plates, and he could end up anywhere on this line right over there. And Patty could actually do the same thing. She could trade cups for plates and end up someplace over there. But obviously, where they end up is dependent on how much the other one is willing to trade. But let's say they both want to get to that 15-15 scenario. So they can both trade 15 cups to the other person. So Charlie could trade 15 cups for 15 plates, and obviously, Patty would be trading 15 plates for 15 cups."}, {"video_title": "Comparative advantage specialization and gains from trade Microeconomics Khan Academy.mp3", "Sentence": "But obviously, where they end up is dependent on how much the other one is willing to trade. But let's say they both want to get to that 15-15 scenario. So they can both trade 15 cups to the other person. So Charlie could trade 15 cups for 15 plates, and obviously, Patty would be trading 15 plates for 15 cups. And they would both be able to get right over there, which is a situation that was unattainable left to their own production possibilities. So hopefully, you found that interesting, by specializing, they could get these gains of trade. And they specialized in their comparative advantage."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "And you can see the equilibrium price right over here, marked with this dotted line. And as we've talked about in multiple videos, the firms in that perfectly competitive market, the perfectly competitive firms, they just have to be price takers. So the market price is going to be their marginal revenue curve, and it's going to be this horizontal curve. And it would be rational for them to produce the quantity. So they're not going to set the price, but they can choose what quantity to produce. But it would be rational for them to keep producing while the marginal revenue is higher than the marginal cost, up to and including when the marginal revenue is equal to the marginal cost. So for this firm at this current state of affairs, it would be rational for them to produce this quantity right over there."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "And it would be rational for them to produce the quantity. So they're not going to set the price, but they can choose what quantity to produce. But it would be rational for them to keep producing while the marginal revenue is higher than the marginal cost, up to and including when the marginal revenue is equal to the marginal cost. So for this firm at this current state of affairs, it would be rational for them to produce this quantity right over there. And as we've talked about in other videos, at that quantity, they're going to make an economic profit. And the way that we can see that is, at this quantity, this is the average total cost, that is your marginal revenue. And so you are going to get this much per unit, and then you multiply, so the height is how much you get per unit, and then you multiply that times the number of units."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "So for this firm at this current state of affairs, it would be rational for them to produce this quantity right over there. And as we've talked about in other videos, at that quantity, they're going to make an economic profit. And the way that we can see that is, at this quantity, this is the average total cost, that is your marginal revenue. And so you are going to get this much per unit, and then you multiply, so the height is how much you get per unit, and then you multiply that times the number of units. So the area of this rectangle is that positive economic profit that this firm will have. Now that's in the short run. But now let's think about what will likely happen in the long run."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "And so you are going to get this much per unit, and then you multiply, so the height is how much you get per unit, and then you multiply that times the number of units. So the area of this rectangle is that positive economic profit that this firm will have. Now that's in the short run. But now let's think about what will likely happen in the long run. If folks see other folks making a positive economic profit, remember, economic profit doesn't just account for regular costs, it also includes opportunity costs. So a lot of people say, hey, I would want to put my resources into this market so that I can make that positive economic profit as well. But what's going to happen as you have entrance into this market?"}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "But now let's think about what will likely happen in the long run. If folks see other folks making a positive economic profit, remember, economic profit doesn't just account for regular costs, it also includes opportunity costs. So a lot of people say, hey, I would want to put my resources into this market so that I can make that positive economic profit as well. But what's going to happen as you have entrance into this market? Well, that's going to shift the supply curve to the right. At any given price, you're going to have more supply is one way to think about it. So if that's supply curve, let's just call that one."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "But what's going to happen as you have entrance into this market? Well, that's going to shift the supply curve to the right. At any given price, you're going to have more supply is one way to think about it. So if that's supply curve, let's just call that one. Now you're going to have more entrance, more entrance. And what's going to happen? Well, you might get to something like, you might get to a situation like this."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "So if that's supply curve, let's just call that one. Now you're going to have more entrance, more entrance. And what's going to happen? Well, you might get to something like, you might get to a situation like this. Actually, let me see if I can draw it well. You might get to a situation like this, where you have more entrance, and you go to supply curve two. Now what's going to be the quantity that firm A produces in that world?"}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "Well, you might get to something like, you might get to a situation like this. Actually, let me see if I can draw it well. You might get to a situation like this, where you have more entrance, and you go to supply curve two. Now what's going to be the quantity that firm A produces in that world? Remember, firm A is just one of many firms. Well, in this situation, we have a new equilibrium price. So if this was P sub one, now we have this new equilibrium price, P sub two, which is going to define a new marginal revenue curve for all of the players in this perfectly competitive market."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "Now what's going to be the quantity that firm A produces in that world? Remember, firm A is just one of many firms. Well, in this situation, we have a new equilibrium price. So if this was P sub one, now we have this new equilibrium price, P sub two, which is going to define a new marginal revenue curve for all of the players in this perfectly competitive market. And so the new marginal revenue curve is going to be right over there. Now in this situation, what is the rational quantity for firm A to produce? Well, once again, as long as marginal revenue is higher than marginal cost, it makes sense for them to produce more and more and more, up until the point that they are equal."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "So if this was P sub one, now we have this new equilibrium price, P sub two, which is going to define a new marginal revenue curve for all of the players in this perfectly competitive market. And so the new marginal revenue curve is going to be right over there. Now in this situation, what is the rational quantity for firm A to produce? Well, once again, as long as marginal revenue is higher than marginal cost, it makes sense for them to produce more and more and more, up until the point that they are equal. So now firm A would want to produce less, because the market price that it just has to take is less. But notice what happens as more and more entrance got into the market. The market price, which also defines this horizontal marginal revenue curve, went lower and lower to the point where firm A now in this situation is making no economic profit."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "Well, once again, as long as marginal revenue is higher than marginal cost, it makes sense for them to produce more and more and more, up until the point that they are equal. So now firm A would want to produce less, because the market price that it just has to take is less. But notice what happens as more and more entrance got into the market. The market price, which also defines this horizontal marginal revenue curve, went lower and lower to the point where firm A now in this situation is making no economic profit. At this point, not only is marginal revenue intersecting marginal cost, but that's exactly at the point at which marginal cost is equaling average total cost. So one way to think about it is, in a perfectly competitive firm, they are productively efficient. They are producing the quantity that minimizes their average total cost."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "The market price, which also defines this horizontal marginal revenue curve, went lower and lower to the point where firm A now in this situation is making no economic profit. At this point, not only is marginal revenue intersecting marginal cost, but that's exactly at the point at which marginal cost is equaling average total cost. So one way to think about it is, in a perfectly competitive firm, they are productively efficient. They are producing the quantity that minimizes their average total cost. We've already talked about that point where marginal cost and average total cost intersect. That's going to be the minimum point for average total cost. And why is that?"}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "They are producing the quantity that minimizes their average total cost. We've already talked about that point where marginal cost and average total cost intersect. That's going to be the minimum point for average total cost. And why is that? Well, while marginal cost is below average total cost, average total cost is gonna get lower and lower and lower, and then once marginal cost gets higher than average total cost, well then the average total cost curve will start curving up. So we just saw a situation that even where we see economic profit in the short run, in the long run, entrance are going to go into that market and it's going to reduce the economic profit down to zero. And at that point, the firm that has that zero economic profit, they are productively efficient."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "And why is that? Well, while marginal cost is below average total cost, average total cost is gonna get lower and lower and lower, and then once marginal cost gets higher than average total cost, well then the average total cost curve will start curving up. So we just saw a situation that even where we see economic profit in the short run, in the long run, entrance are going to go into that market and it's going to reduce the economic profit down to zero. And at that point, the firm that has that zero economic profit, they are productively efficient. They are producing at the minimum point of their average total cost curve. And we've already talked before that this equilibrium point right over here in our market, because our demand and supply curves, the intersection point defines the price, our equilibrium price and quantities, we are also allocatively efficient. We've talked about things like deadweight loss in the past."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "And at that point, the firm that has that zero economic profit, they are productively efficient. They are producing at the minimum point of their average total cost curve. And we've already talked before that this equilibrium point right over here in our market, because our demand and supply curves, the intersection point defines the price, our equilibrium price and quantities, we are also allocatively efficient. We've talked about things like deadweight loss in the past. That is not happening right over here. Our marginal benefit is equal to our marginal cost right at that equilibrium price and quantity. Now some of you might be saying, well, what about the other situation?"}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "We've talked about things like deadweight loss in the past. That is not happening right over here. Our marginal benefit is equal to our marginal cost right at that equilibrium price and quantity. Now some of you might be saying, well, what about the other situation? What about if for some reason we were in a, let's call it a supply curve three, let's say people overshot, too many people joined into this market. So let's say we went to supply curve three, well what's going to happen? And let me label this."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "Now some of you might be saying, well, what about the other situation? What about if for some reason we were in a, let's call it a supply curve three, let's say people overshot, too many people joined into this market. So let's say we went to supply curve three, well what's going to happen? And let me label this. This is right over here, this is marginal revenue curve one, which is equal to price one. This is marginal revenue curve two, which is equal to price two. And then this would define, so this right over here would be price three, price three, which would define marginal revenue curve three."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "And let me label this. This is right over here, this is marginal revenue curve one, which is equal to price one. This is marginal revenue curve two, which is equal to price two. And then this would define, so this right over here would be price three, price three, which would define marginal revenue curve three. So marginal revenue curve three, which is equal to price three. Well, if too many entrants joined into that market, now firm A has a more difficult scenario. They would produce at this quantity, we've talked about many times already, but at that quantity, each unit, their average total cost is higher than that revenue they're getting."}, {"video_title": "Long-run economic profit for perfectly competitive firms Microeconomics Khan Academy (2).mp3", "Sentence": "And then this would define, so this right over here would be price three, price three, which would define marginal revenue curve three. So marginal revenue curve three, which is equal to price three. Well, if too many entrants joined into that market, now firm A has a more difficult scenario. They would produce at this quantity, we've talked about many times already, but at that quantity, each unit, their average total cost is higher than that revenue they're getting. So they're going to be running at an economic loss in the short run. But what would happen in the long run? Well, firm A in the long run would probably exit the market and other firms who are running an economic loss would exit the market."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Let's think about the market for plastic bags. Plastic bags. And I'm picking this market in particular because there might be some costs associated with plastic bags that aren't captured when you're only looking at it from the point of view of the suppliers or the consumers. So right over here you have a demand curve and that's really the demand coming from the supermarkets. So this is the demand curve. You could also view it as marginal benefit. So that very first bag that gets produced, a supermarket gets a lot of marginal benefit."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So right over here you have a demand curve and that's really the demand coming from the supermarkets. So this is the demand curve. You could also view it as marginal benefit. So that very first bag that gets produced, a supermarket gets a lot of marginal benefit. They'd really want to get that bag because then they could give it to the people who shop at the supermarket and they can carry their bags home. But then each incremental bag after that, the marginal benefit gets lower and lower and lower. And this green curve over here, we've seen this multiple times, that is our supply curve, which we can also think of it as our marginal cost curve to produce that very first bag."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So that very first bag that gets produced, a supermarket gets a lot of marginal benefit. They'd really want to get that bag because then they could give it to the people who shop at the supermarket and they can carry their bags home. But then each incremental bag after that, the marginal benefit gets lower and lower and lower. And this green curve over here, we've seen this multiple times, that is our supply curve, which we can also think of it as our marginal cost curve to produce that very first bag. The opportunity cost for that very first bag looks like about a penny per bag. And then it gets higher and higher and higher as we produce more and more bags. And we have an equilibrium price and an equilibrium quantity."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And this green curve over here, we've seen this multiple times, that is our supply curve, which we can also think of it as our marginal cost curve to produce that very first bag. The opportunity cost for that very first bag looks like about a penny per bag. And then it gets higher and higher and higher as we produce more and more bags. And we have an equilibrium price and an equilibrium quantity. Our equilibrium quantity looks like it's about 3.5 million bags. We have an equilibrium price of about 2 cents per bag. And if this were all of the costs and all of the benefits, then this area right over here would show the aggregate total benefit that the ecosystem here, that the suppliers and the consumers, or the supermarkets or the consumers in this case, are getting from this transaction."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And we have an equilibrium price and an equilibrium quantity. Our equilibrium quantity looks like it's about 3.5 million bags. We have an equilibrium price of about 2 cents per bag. And if this were all of the costs and all of the benefits, then this area right over here would show the aggregate total benefit that the ecosystem here, that the suppliers and the consumers, or the supermarkets or the consumers in this case, are getting from this transaction. Marginal benefit higher than marginal cost, marginal benefit higher than marginal cost. This whole area is our total surplus, and we've seen that multiple times. But now let's think about that added cost that plastic bags have that are not factored in to the costs and the prices or the costs and the benefits right over here."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And if this were all of the costs and all of the benefits, then this area right over here would show the aggregate total benefit that the ecosystem here, that the suppliers and the consumers, or the supermarkets or the consumers in this case, are getting from this transaction. Marginal benefit higher than marginal cost, marginal benefit higher than marginal cost. This whole area is our total surplus, and we've seen that multiple times. But now let's think about that added cost that plastic bags have that are not factored in to the costs and the prices or the costs and the benefits right over here. Plastic bags have a negative externality. There is a cost associated. It's negative because there's a cost associated with plastic bags that is not being born by either, in this situation, that is not being factored in to the marginal cost curve."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "But now let's think about that added cost that plastic bags have that are not factored in to the costs and the prices or the costs and the benefits right over here. Plastic bags have a negative externality. There is a cost associated. It's negative because there's a cost associated with plastic bags that is not being born by either, in this situation, that is not being factored in to the marginal cost curve. You can also have positive externalities, which are a benefit. Maybe you're talking about the market for trees and society benefits when more plants or more trees are being planted or whatever. Let's just say that negative externality that's coming from obvious things."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "It's negative because there's a cost associated with plastic bags that is not being born by either, in this situation, that is not being factored in to the marginal cost curve. You can also have positive externalities, which are a benefit. Maybe you're talking about the market for trees and society benefits when more plants or more trees are being planted or whatever. Let's just say that negative externality that's coming from obvious things. These bags are going to be littered, they're going to be on the side of the highway, the city has to clean them up, there's environmental risks due to them, animals might eat them and choke on them, and turtles might drown and whatever else because they're choking on plastic bags or whatever else. They hire some experts, and this is not an easy thing to do, but it's determined that the negative externality of these plastic bags is two cents per bag. Or another way to think of it, the cost to society and the environment above and beyond the marginal cost to the producers is two cents per bag."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Let's just say that negative externality that's coming from obvious things. These bags are going to be littered, they're going to be on the side of the highway, the city has to clean them up, there's environmental risks due to them, animals might eat them and choke on them, and turtles might drown and whatever else because they're choking on plastic bags or whatever else. They hire some experts, and this is not an easy thing to do, but it's determined that the negative externality of these plastic bags is two cents per bag. Or another way to think of it, the cost to society and the environment above and beyond the marginal cost to the producers is two cents per bag. Now given that, if we assume this statement right over here, and it's not an easy thing to come up with this number, but if we assume that this number is true, what then is the optimal amount of bags to purchase? And what are we actually doing if we, or what is the optimal amount of bags to produce? And what are we doing when we do produce this much?"}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Or another way to think of it, the cost to society and the environment above and beyond the marginal cost to the producers is two cents per bag. Now given that, if we assume this statement right over here, and it's not an easy thing to come up with this number, but if we assume that this number is true, what then is the optimal amount of bags to purchase? And what are we actually doing if we, or what is the optimal amount of bags to produce? And what are we doing when we do produce this much? And to think about that, let's create a new curve. This is a supplier's marginal cost. Let's create another curve that is the supplier plus society's marginal cost."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And what are we doing when we do produce this much? And to think about that, let's create a new curve. This is a supplier's marginal cost. Let's create another curve that is the supplier plus society's marginal cost. So that first bag, supplier, its opportunity cost is about a penny, but for society it's costing another two cents. So supplier plus society is costing almost three cents. And so we can plot out another curve, we can plot out another curve, and we can view as the supplier plus society marginal cost."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Let's create another curve that is the supplier plus society's marginal cost. So that first bag, supplier, its opportunity cost is about a penny, but for society it's costing another two cents. So supplier plus society is costing almost three cents. And so we can plot out another curve, we can plot out another curve, and we can view as the supplier plus society marginal cost. So now we can think of things in terms of total benefit, or total net benefit I guess that's happening. That very first bag, the supermarket that buys it is still getting that over five cents of benefit, but now if we think about the net benefit to society, it's not this whole height all the way down to a penny, it's only this part right over here. It's only the difference between five and three, is the marginal net benefit."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And so we can plot out another curve, we can plot out another curve, and we can view as the supplier plus society marginal cost. So now we can think of things in terms of total benefit, or total net benefit I guess that's happening. That very first bag, the supermarket that buys it is still getting that over five cents of benefit, but now if we think about the net benefit to society, it's not this whole height all the way down to a penny, it's only this part right over here. It's only the difference between five and three, is the marginal net benefit. If you take the marginal benefit and you subtract out the total marginal cost, including the externalities. And so the next bag, the total cost gets a little higher, the marginal benefit gets a little bit lower, and you keep, it makes sense for society, we'll keep getting benefit from this. If we think of the entire ecosystem, we'll keep getting benefit until we hit this other equilibrium point over here."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "It's only the difference between five and three, is the marginal net benefit. If you take the marginal benefit and you subtract out the total marginal cost, including the externalities. And so the next bag, the total cost gets a little higher, the marginal benefit gets a little bit lower, and you keep, it makes sense for society, we'll keep getting benefit from this. If we think of the entire ecosystem, we'll keep getting benefit until we hit this other equilibrium point over here. And once we get past that equilibrium point, now when we think holistically, when we think of the environment and the government and all of that, now all of a sudden the marginal cost of each incremental unit is higher than the marginal benefit. So if we were to produce beyond that, now we're incurring costs. Now we're essentially eating out all of the benefit that we would have gotten."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "If we think of the entire ecosystem, we'll keep getting benefit until we hit this other equilibrium point over here. And once we get past that equilibrium point, now when we think holistically, when we think of the environment and the government and all of that, now all of a sudden the marginal cost of each incremental unit is higher than the marginal benefit. So if we were to produce beyond that, now we're incurring costs. Now we're essentially eating out all of the benefit that we would have gotten. If we were to produce all the way to our old equilibrium point over here, we more, in the way I'm just eyeballing it, this area is more, the purple area is more than the yellow area, we're now getting a negative total benefit to society, or you could say a negative total surplus. And we haven't visualized it this way in the past. It's unusual for us to see a deadweight loss on this side of the equilibrium point, but you could also view it that way."}, {"video_title": "Negative externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Now we're essentially eating out all of the benefit that we would have gotten. If we were to produce all the way to our old equilibrium point over here, we more, in the way I'm just eyeballing it, this area is more, the purple area is more than the yellow area, we're now getting a negative total benefit to society, or you could say a negative total surplus. And we haven't visualized it this way in the past. It's unusual for us to see a deadweight loss on this side of the equilibrium point, but you could also view it that way. So this right over here is negative surplus. And so what you really want holistically, if you are the benevolent emperor of the society and you really want to factor in all of the costs and benefits of the plastic bags, the ideal thing, if you want to optimize the benefit in society, you would want the equilibrium price to be around here, that looks like about $350,000, and the equilibrium quantity to be, I don't know, this looks like about $1.8 million. And you would not want all of this excess quantity that is taking away, that is less efficient for society."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "So the first definition is that of a rival good. Now, a rival good, one way to think about it is if one person uses it, it impairs the possibility of another person using it, or it impairs the ability of another person using it. So one person, one person or party using it, using it impairs or oftentimes prevents another party, another person from using it or getting the benefit using it. And we're gonna talk a lot about some goods that are rival goods versus non-rival goods. Now, another related idea is that of excludability. And as we'll see, sometimes these things go together, but sometimes they aren't. So excludable, excludable means that you could stop someone from using it, can stop someone, someone from using it, you can exclude them using it."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "And we're gonna talk a lot about some goods that are rival goods versus non-rival goods. Now, another related idea is that of excludability. And as we'll see, sometimes these things go together, but sometimes they aren't. So excludable, excludable means that you could stop someone from using it, can stop someone, someone from using it, you can exclude them using it. So what I'm gonna do is I'm gonna set up a bit of a matrix where on one axis, I'm gonna think about whether something is a rival good or not. And then on another axis, I'm gonna think about whether it's excludable or not. So let me just do a big two by two matrix here."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "So excludable, excludable means that you could stop someone from using it, can stop someone, someone from using it, you can exclude them using it. So what I'm gonna do is I'm gonna set up a bit of a matrix where on one axis, I'm gonna think about whether something is a rival good or not. And then on another axis, I'm gonna think about whether it's excludable or not. So let me just do a big two by two matrix here. So that looks big enough for me. Then I said I would do two by two. That looks like about halfway."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "So let me just do a big two by two matrix here. So that looks big enough for me. Then I said I would do two by two. That looks like about halfway. I always underestimate. Okay, that looks about halfway. Then I will do it here as well."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "That looks like about halfway. I always underestimate. Okay, that looks about halfway. Then I will do it here as well. And so on this axis, I'm gonna think about whether something is a rival good or not. So rival good, question mark. This row is it is a rival good."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Then I will do it here as well. And so on this axis, I'm gonna think about whether something is a rival good or not. So rival good, question mark. This row is it is a rival good. This row is it is not a rival good. And then for the columns, I'm gonna think about whether something is an excludable good. So excludable, excludable, question mark."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "This row is it is a rival good. This row is it is not a rival good. And then for the columns, I'm gonna think about whether something is an excludable good. So excludable, excludable, question mark. Yes and no. So let's start in this first top left cell. So what are examples of things that are both excludable and rival goods?"}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "So excludable, excludable, question mark. Yes and no. So let's start in this first top left cell. So what are examples of things that are both excludable and rival goods? Pause this video and see if you can think of any. Well, actually, many of the things that we imagine buying or using fall into this top left category. Things like a, so let's say bananas."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "So what are examples of things that are both excludable and rival goods? Pause this video and see if you can think of any. Well, actually, many of the things that we imagine buying or using fall into this top left category. Things like a, so let's say bananas. Bananas are for sure excludable. I could prevent someone from taking my banana. You have to pay in order to have access to a banana."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Things like a, so let's say bananas. Bananas are for sure excludable. I could prevent someone from taking my banana. You have to pay in order to have access to a banana. And it for sure is a rival good. If I have a banana, especially if I eat that banana, well, that's definitely gonna impair your ability to eat that banana. Another example is clothing."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "You have to pay in order to have access to a banana. And it for sure is a rival good. If I have a banana, especially if I eat that banana, well, that's definitely gonna impair your ability to eat that banana. Another example is clothing. It's definitely a rival good. If I'm wearing this shirt, it's gonna be very difficult for you to wear that shirt as well. And like bananas, you can force someone to pay money for that clothing."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Another example is clothing. It's definitely a rival good. If I'm wearing this shirt, it's gonna be very difficult for you to wear that shirt as well. And like bananas, you can force someone to pay money for that clothing. You're not just going to get as much clothing as they want for free. You could think of housing. You can exclude someone from your house or from an arbitrary house."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "And like bananas, you can force someone to pay money for that clothing. You're not just going to get as much clothing as they want for free. You could think of housing. You can exclude someone from your house or from an arbitrary house. They have to pay for it or pay for the rent. And it's a rival good. If one person or one family is using a house, it definitely impairs the ability for another family to use the house."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "You can exclude someone from your house or from an arbitrary house. They have to pay for it or pay for the rent. And it's a rival good. If one person or one family is using a house, it definitely impairs the ability for another family to use the house. And we could keep thinking of more and more ideas in this top left. In general, goods in this top left are called private goods. Private, private goods."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "If one person or one family is using a house, it definitely impairs the ability for another family to use the house. And we could keep thinking of more and more ideas in this top left. In general, goods in this top left are called private goods. Private, private goods. Now, let's imagine going to things that are excludable but maybe not as rivalrous. And there's really a large spectrum of things. And as we'll see in the future and you can imagine, some things are kind of blurring the line or depends on what context you're using it."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Private, private goods. Now, let's imagine going to things that are excludable but maybe not as rivalrous. And there's really a large spectrum of things. And as we'll see in the future and you can imagine, some things are kind of blurring the line or depends on what context you're using it. But one example of something that is excludable but is not necessarily a rival good that one person using it doesn't prevent the other person from using it in theory, something like satellite television. Satellite, satellite TV. Why is that excludable?"}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "And as we'll see in the future and you can imagine, some things are kind of blurring the line or depends on what context you're using it. But one example of something that is excludable but is not necessarily a rival good that one person using it doesn't prevent the other person from using it in theory, something like satellite television. Satellite, satellite TV. Why is that excludable? Well, you can force someone to pay to access satellite television only if you have access to some type of a device or some code, you might be able to watch the signal. But the reason why it's not a rival good is you have these satellites in space. Here's my little satellite."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Why is that excludable? Well, you can force someone to pay to access satellite television only if you have access to some type of a device or some code, you might be able to watch the signal. But the reason why it's not a rival good is you have these satellites in space. Here's my little satellite. And it's beaming the signal down to Earth. And in theory, if I'm receiving the signal here and I'm watching satellite television, it doesn't impair someone else's ability to get to watch that satellite signal. But we have artificially made it scarce by perhaps making people pay for it."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Here's my little satellite. And it's beaming the signal down to Earth. And in theory, if I'm receiving the signal here and I'm watching satellite television, it doesn't impair someone else's ability to get to watch that satellite signal. But we have artificially made it scarce by perhaps making people pay for it. Even though everyone could use it without impairing the ability for anyone else to use it. And so that's why this category of goods is often called artificially scarce good. Artificially scarce."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "But we have artificially made it scarce by perhaps making people pay for it. Even though everyone could use it without impairing the ability for anyone else to use it. And so that's why this category of goods is often called artificially scarce good. Artificially scarce. The scarcity is artificially happening because you're making it excludable but it doesn't necessarily have to. Another example could be something like a private park. If I go buy a bunch of land and I landscape it nicely, I might say that you have to spend $1,000 to get entry to that park."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Artificially scarce. The scarcity is artificially happening because you're making it excludable but it doesn't necessarily have to. Another example could be something like a private park. If I go buy a bunch of land and I landscape it nicely, I might say that you have to spend $1,000 to get entry to that park. Well, that's very exclusive and I'm clearly excluding people from that park. But in theory, if I go and enjoy that park and if it's large enough, well, it doesn't necessarily impair the ability for someone else to enjoy the park as well. Now, if all of a sudden thousands or millions of people tried to enjoy the park, then it might become a little bit more rivalrous."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "If I go buy a bunch of land and I landscape it nicely, I might say that you have to spend $1,000 to get entry to that park. Well, that's very exclusive and I'm clearly excluding people from that park. But in theory, if I go and enjoy that park and if it's large enough, well, it doesn't necessarily impair the ability for someone else to enjoy the park as well. Now, if all of a sudden thousands or millions of people tried to enjoy the park, then it might become a little bit more rivalrous. Now, let's go on the other side, things that are not so excludable. Well, if we think about things that are rival goods but not excludable, the classic example here is fish stocks. Fish stocks."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Now, if all of a sudden thousands or millions of people tried to enjoy the park, then it might become a little bit more rivalrous. Now, let's go on the other side, things that are not so excludable. Well, if we think about things that are rival goods but not excludable, the classic example here is fish stocks. Fish stocks. When we're talking about fish stocks, we're talking about, let's imagine some body of water here and there are fish in this body of water. And let's say that everyone could, you can't exclude people from it. So anyone can go and stick their fishing rod into this pond or into this lake and get fish."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Fish stocks. When we're talking about fish stocks, we're talking about, let's imagine some body of water here and there are fish in this body of water. And let's say that everyone could, you can't exclude people from it. So anyone can go and stick their fishing rod into this pond or into this lake and get fish. But the problem is is that if I get a fish, that's going to make it hard for someone else to get fish. And you can imagine at extreme, if enough people are grabbing the fish, it is impairing the ability for other folks to get fish. And so this type of resource, or I should say this type of good, is known as a common resource."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "So anyone can go and stick their fishing rod into this pond or into this lake and get fish. But the problem is is that if I get a fish, that's going to make it hard for someone else to get fish. And you can imagine at extreme, if enough people are grabbing the fish, it is impairing the ability for other folks to get fish. And so this type of resource, or I should say this type of good, is known as a common resource. Common, common resource. And it's prone to what is known as tragedy of the commons. And we have a whole video on tragedy of the commons."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "And so this type of resource, or I should say this type of good, is known as a common resource. Common, common resource. And it's prone to what is known as tragedy of the commons. And we have a whole video on tragedy of the commons. But the tragedy of the commons, which happens for common resources, is when every individual person acts in their own best interest, they might say, hey, I'm just gonna get as much fish as I need to support my family. I could even make a business out of it. I can sell it."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "And we have a whole video on tragedy of the commons. But the tragedy of the commons, which happens for common resources, is when every individual person acts in their own best interest, they might say, hey, I'm just gonna get as much fish as I need to support my family. I could even make a business out of it. I can sell it. At the end of the day, you might do something that's not in the common interest. And it's actually not even in your own personal interest long-term, because if enough people fish in the short-term and get that benefit, you might deplete all the fish and they're not able to reproduce. And then at some point, there are no fish left."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "I can sell it. At the end of the day, you might do something that's not in the common interest. And it's actually not even in your own personal interest long-term, because if enough people fish in the short-term and get that benefit, you might deplete all the fish and they're not able to reproduce. And then at some point, there are no fish left. So in the medium to long run, you have hurt everyone, including yourself. So that would be the tragedy of the commons, which is typical for a lot of things that are common resources. Another thing that you could view as a common resource is timber or wood that's on land that anyone could access."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "And then at some point, there are no fish left. So in the medium to long run, you have hurt everyone, including yourself. So that would be the tragedy of the commons, which is typical for a lot of things that are common resources. Another thing that you could view as a common resource is timber or wood that's on land that anyone could access. In a lot of cases, clean water, fresh water, I should say, not salt water, fresh water. Now, on some level, if there's a lot of folks doing it, it's definitely going to be rivalrous. But if there's only one or two people and your source of fresh water is huge, well, then it might feel a little less rivalrous."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Another thing that you could view as a common resource is timber or wood that's on land that anyone could access. In a lot of cases, clean water, fresh water, I should say, not salt water, fresh water. Now, on some level, if there's a lot of folks doing it, it's definitely going to be rivalrous. But if there's only one or two people and your source of fresh water is huge, well, then it might feel a little less rivalrous. So once again, we can debate. It might be under different circumstances. Now, last but not least, let's think about what are examples of things that are neither rivalrous nor excludable?"}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "But if there's only one or two people and your source of fresh water is huge, well, then it might feel a little less rivalrous. So once again, we can debate. It might be under different circumstances. Now, last but not least, let's think about what are examples of things that are neither rivalrous nor excludable? And that whole category is referred to as public goods. Pause this video and see if you can think of any. Well, one thing that is often considered a public good is air."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Now, last but not least, let's think about what are examples of things that are neither rivalrous nor excludable? And that whole category is referred to as public goods. Pause this video and see if you can think of any. Well, one thing that is often considered a public good is air. Now, you could debate at some extreme level if the air is really used up or something. You might start to feel like it's rivalrous. But for most cases, when one person is breathing air, it's not impairing the ability for someone else to use the air."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Well, one thing that is often considered a public good is air. Now, you could debate at some extreme level if the air is really used up or something. You might start to feel like it's rivalrous. But for most cases, when one person is breathing air, it's not impairing the ability for someone else to use the air. And it's very hard to exclude someone from breathing. People just need to take a breath. So it sits out here in public goods."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "But for most cases, when one person is breathing air, it's not impairing the ability for someone else to use the air. And it's very hard to exclude someone from breathing. People just need to take a breath. So it sits out here in public goods. You could imagine something like national defense. National defense. If you are benefiting from national defense because of aircraft carriers and missile systems and planes and the military that the nation has, does that exclude me, your neighbor, from also benefiting from it?"}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "So it sits out here in public goods. You could imagine something like national defense. National defense. If you are benefiting from national defense because of aircraft carriers and missile systems and planes and the military that the nation has, does that exclude me, your neighbor, from also benefiting from it? No, and in fact, it would be very difficult to exclude. You would have to kick me out of the country for me to not benefit from the national defense. So in general, we would consider it to be non-excludable."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "If you are benefiting from national defense because of aircraft carriers and missile systems and planes and the military that the nation has, does that exclude me, your neighbor, from also benefiting from it? No, and in fact, it would be very difficult to exclude. You would have to kick me out of the country for me to not benefit from the national defense. So in general, we would consider it to be non-excludable. And then is it a rival good? Well, if you are feeling safe because of national defense, that doesn't impair my ability to feel safe from national defense. So it's also a non-rival good, at least in most general circumstances."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "So in general, we would consider it to be non-excludable. And then is it a rival good? Well, if you are feeling safe because of national defense, that doesn't impair my ability to feel safe from national defense. So it's also a non-rival good, at least in most general circumstances. So I would consider that a public good as well. Now, when we talk about public goods, there's the notion of the free rider problem. Free rider."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "So it's also a non-rival good, at least in most general circumstances. So I would consider that a public good as well. Now, when we talk about public goods, there's the notion of the free rider problem. Free rider. And that's because you can't exclude folks from using it. It's usually not in the incentive of any entrepreneur to try to make these public goods happen. And so this is typically the domain of government."}, {"video_title": "Rival and excludable goods.mp3", "Sentence": "Free rider. And that's because you can't exclude folks from using it. It's usually not in the incentive of any entrepreneur to try to make these public goods happen. And so this is typically the domain of government. And in general, when thinking about this whole column of things that are non-excludable, this is a domain where the government tries to get involved. So we don't have the tragedy of the commons with fish stocks or timber or fresh water. They might put some regulation in or some permitting process."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And when I talk about revenue, for simplicity, let's just think of that as really just how much total sales will I get in a given hour? So let me just write over here, total revenue. Total revenue. Well, the total revenue is going to be how much I get per burger times the number of burgers I get. So the amount that I get per burger is price. So it's going to be equal to price. And then the total number of burgers in that hour is going to be the quantity."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Well, the total revenue is going to be how much I get per burger times the number of burgers I get. So the amount that I get per burger is price. So it's going to be equal to price. And then the total number of burgers in that hour is going to be the quantity. Is going to be the quantity. Pretty straightforward. If I sell 10 things at $5, I am going to get $50 of revenue, $50 of sales in that hour."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And then the total number of burgers in that hour is going to be the quantity. Is going to be the quantity. Pretty straightforward. If I sell 10 things at $5, I am going to get $50 of revenue, $50 of sales in that hour. Now let's think about what the total revenue will look like at different points along this curve right over here. And actually, let me just make a little table right over here. So if I'll make one column price, one column quantity, and then let's make one column total revenue."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "If I sell 10 things at $5, I am going to get $50 of revenue, $50 of sales in that hour. Now let's think about what the total revenue will look like at different points along this curve right over here. And actually, let me just make a little table right over here. So if I'll make one column price, one column quantity, and then let's make one column total revenue. Total revenue. All right, so let's look at a couple of scenarios here. Well, we could actually look at some of these points that we already have defined."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So if I'll make one column price, one column quantity, and then let's make one column total revenue. Total revenue. All right, so let's look at a couple of scenarios here. Well, we could actually look at some of these points that we already have defined. At point A over here, price is nine. So I'll do it in point A's color. Price is nine, quantity is two."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Well, we could actually look at some of these points that we already have defined. At point A over here, price is nine. So I'll do it in point A's color. Price is nine, quantity is two. $9 times two burgers, $9 per burger times two burgers per hour, your total revenue is going to be 18. And you can see it visually right over here. This height, this height right over here is nine, and this width right over here is two."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Price is nine, quantity is two. $9 times two burgers, $9 per burger times two burgers per hour, your total revenue is going to be 18. And you can see it visually right over here. This height, this height right over here is nine, and this width right over here is two. And your total revenue is going to be the area, is going to be the area of this rectangle because the height is the price and the width is the quantity. So that total revenue is the area right over there. Now let's go to point, well, let me do a couple of them just to really make it clear for us."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "This height, this height right over here is nine, and this width right over here is two. And your total revenue is going to be the area, is going to be the area of this rectangle because the height is the price and the width is the quantity. So that total revenue is the area right over there. Now let's go to point, well, let me do a couple of them just to really make it clear for us. Let's try point B. So at point B, when our price is eight and our quantity is four, four burgers per hour, our total revenue is going to be eight times four, which is $32 per hour. And once again, you can see that visually."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now let's go to point, well, let me do a couple of them just to really make it clear for us. Let's try point B. So at point B, when our price is eight and our quantity is four, four burgers per hour, our total revenue is going to be eight times four, which is $32 per hour. And once again, you can see that visually. The height here is eight and the width here. So this height of this rectangle is eight and the width is four. The total revenue is going to be the area."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And once again, you can see that visually. The height here is eight and the width here. So this height of this rectangle is eight and the width is four. The total revenue is going to be the area. It's going to be the height times the width, just like that. Now let's go to a point that I haven't actually graphed here. Actually, well, let me just actually, I'll go through all the points just for fun."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "The total revenue is going to be the area. It's going to be the height times the width, just like that. Now let's go to a point that I haven't actually graphed here. Actually, well, let me just actually, I'll go through all the points just for fun. So now at point C, we have 550. 550 is the price. The quantity is nine."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Actually, well, let me just actually, I'll go through all the points just for fun. So now at point C, we have 550. 550 is the price. The quantity is nine. Nine times 550, nine times five is $45. And then you have another 450. So that is 49."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "The quantity is nine. Nine times 550, nine times five is $45. And then you have another 450. So that is 49. 49.50. So once again, it's going to be the area. It's going to be the area of this rectangle, area of that rectangle right over there."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So that is 49. 49.50. So once again, it's going to be the area. It's going to be the area of this rectangle, area of that rectangle right over there. So you might already be noticing something interesting. As we lower the price, at least in this part of our demand curve, as we lower the price, we are actually increasing not just the quantity, we're increasing the total revenue. Let's see if this keeps happening."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "It's going to be the area of this rectangle, area of that rectangle right over there. So you might already be noticing something interesting. As we lower the price, at least in this part of our demand curve, as we lower the price, we are actually increasing not just the quantity, we're increasing the total revenue. Let's see if this keeps happening. So if we go to point D, if we go to point D, I'll do it in that same color, we have 450, 450, and we are selling 11 units. So 11 times 450, let's see, that's going to be 44 plus 550. Once again, that is 49.50."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Let's see if this keeps happening. So if we go to point D, if we go to point D, I'll do it in that same color, we have 450, 450, and we are selling 11 units. So 11 times 450, let's see, that's going to be 44 plus 550. Once again, that is 49.50. So this rectangle is going to have the same area as that pink one that we just did for scenario C. And I'll actually just do one more down here just to see what happens. Because this is interesting. Now we lowered the price, and it looks like things didn't change much."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Once again, that is 49.50. So this rectangle is going to have the same area as that pink one that we just did for scenario C. And I'll actually just do one more down here just to see what happens. Because this is interesting. Now we lowered the price, and it looks like things didn't change much. And now let's just do one more point, actually, for the sake of time. Point E, and I encourage you to try other ones. Try F on your own."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now we lowered the price, and it looks like things didn't change much. And now let's just do one more point, actually, for the sake of time. Point E, and I encourage you to try other ones. Try F on your own. Point E, my price is $2 per burger. My quantity is 16 burgers per hour. I sell a total of 32 burgers."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Try F on your own. Point E, my price is $2 per burger. My quantity is 16 burgers per hour. I sell a total of 32 burgers. Actually, let's just do the last one, F, just to feel a sense of completion. So $1 per burger, I sell 18 burgers per hour. My total revenue, when you multiply them, is $18 per hour."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "I sell a total of 32 burgers. Actually, let's just do the last one, F, just to feel a sense of completion. So $1 per burger, I sell 18 burgers per hour. My total revenue, when you multiply them, is $18 per hour. And once again, that's the area of this rectangle, this short and fat rectangle right over here. And E was the area, the total revenue in E was the area of that right over there. And you could graph these just to get a sense of how total revenue actually changes with respect to price or quantity."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "My total revenue, when you multiply them, is $18 per hour. And once again, that's the area of this rectangle, this short and fat rectangle right over here. And E was the area, the total revenue in E was the area of that right over there. And you could graph these just to get a sense of how total revenue actually changes with respect to price or quantity. Let's plot total revenue with respect to quantity. So let's try it out. So if you, let me plot it out."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And you could graph these just to get a sense of how total revenue actually changes with respect to price or quantity. Let's plot total revenue with respect to quantity. So let's try it out. So if you, let me plot it out. So this is going to be total revenue, and this axis right over here is going to be quantity. And we're going to once again go from, let's see, this is zero, this is five, this is 10, this is 15, and this is 20 right over here. And then total revenue, let's see, it gets as high, it gets pretty close to 50."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So if you, let me plot it out. So this is going to be total revenue, and this axis right over here is going to be quantity. And we're going to once again go from, let's see, this is zero, this is five, this is 10, this is 15, and this is 20 right over here. And then total revenue, let's see, it gets as high, it gets pretty close to 50. So let's go, this is 10, 20, 30, 40, and 50. So that's 50, 40, 30, 20, and 10. So when our quantity is two and our price is nine, we don't have price on this axis right over here."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And then total revenue, let's see, it gets as high, it gets pretty close to 50. So let's go, this is 10, 20, 30, 40, and 50. So that's 50, 40, 30, 20, and 10. So when our quantity is two and our price is nine, we don't have price on this axis right over here. But when our quantity is two, our total revenue is 18. So it's going to be something like there. Then when our quantity is four, our total revenue is 32."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So when our quantity is two and our price is nine, we don't have price on this axis right over here. But when our quantity is two, our total revenue is 18. So it's going to be something like there. Then when our quantity is four, our total revenue is 32. When our quantity is four, our total revenue is 32, right about there. Then when our quantity is nine, our total revenue is almost 50. When our quantity is nine, our total revenue is almost 50."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Then when our quantity is four, our total revenue is 32. When our quantity is four, our total revenue is 32, right about there. Then when our quantity is nine, our total revenue is almost 50. When our quantity is nine, our total revenue is almost 50. So right over there. And then when it's 11, it's also at that same point. 11, it's also at that same point right over there."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "When our quantity is nine, our total revenue is almost 50. So right over there. And then when it's 11, it's also at that same point. 11, it's also at that same point right over there. And then when our quantity is 16, our total revenue is 32. 16, so 32 right there. And then finally, when our quantity is 18, our total revenue is 18."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "11, it's also at that same point right over there. And then when our quantity is 16, our total revenue is 32. 16, so 32 right there. And then finally, when our quantity is 18, our total revenue is 18. Quantity is 18, our total revenue is 18. And what you see is that it's plotting out a curve that looks like this. And if you remember some of your algebra two, this is a concave downwards parabola right over here."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And then finally, when our quantity is 18, our total revenue is 18. Quantity is 18, our total revenue is 18. And what you see is that it's plotting out a curve that looks like this. And if you remember some of your algebra two, this is a concave downwards parabola right over here. And you can see there was actually some point at which you can maximize your total revenue. And if you really tried all the points here, you would see that that maximum point is if you tried this point right over here, right at price five and quantity 10. At price five and quantity 10, in that hour, you would sell $50."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And if you remember some of your algebra two, this is a concave downwards parabola right over here. And you can see there was actually some point at which you can maximize your total revenue. And if you really tried all the points here, you would see that that maximum point is if you tried this point right over here, right at price five and quantity 10. At price five and quantity 10, in that hour, you would sell $50. So this is the maximum point right over there. $50. Now, the whole reason why I'm talking about this, I could have talked about this independently of any discussion of elasticity, just to see how total revenue relates to price and quantity at different points in the demand curve."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "At price five and quantity 10, in that hour, you would sell $50. So this is the maximum point right over there. $50. Now, the whole reason why I'm talking about this, I could have talked about this independently of any discussion of elasticity, just to see how total revenue relates to price and quantity at different points in the demand curve. But there is an interesting relationship. In that very first video, and we actually used this exact demand curve for it, when we explored elasticity, we saw that up here at this part of the curve, let me do this in a different color, at this point of the curve in orange, at this part of the curve in orange, for any change, when you do a change in your price, since the prices are pretty high, that is a much lower percent change in price than the impact that you get on quantity. Because over here, although they look like they're close, or I should say the absolute, for every one down we move in price, we're moving two up in quantity."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now, the whole reason why I'm talking about this, I could have talked about this independently of any discussion of elasticity, just to see how total revenue relates to price and quantity at different points in the demand curve. But there is an interesting relationship. In that very first video, and we actually used this exact demand curve for it, when we explored elasticity, we saw that up here at this part of the curve, let me do this in a different color, at this point of the curve in orange, at this part of the curve in orange, for any change, when you do a change in your price, since the prices are pretty high, that is a much lower percent change in price than the impact that you get on quantity. Because over here, although they look like they're close, or I should say the absolute, for every one down we move in price, we're moving two up in quantity. But that one down in price is a very small percentage of price, because our prices are high here. And it's a very large percentage of quantity right over here. So you get huge changes in percent quantity for very small changes in price in this part of the curve."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Because over here, although they look like they're close, or I should say the absolute, for every one down we move in price, we're moving two up in quantity. But that one down in price is a very small percentage of price, because our prices are high here. And it's a very large percentage of quantity right over here. So you get huge changes in percent quantity for very small changes in price in this part of the curve. So this part of the curve is elastic. Or you could say that its price elasticity for demand is greater than 1. You get larger changes in percent quantity for a given change in percent price."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So you get huge changes in percent quantity for very small changes in price in this part of the curve. So this part of the curve is elastic. Or you could say that its price elasticity for demand is greater than 1. You get larger changes in percent quantity for a given change in percent price. Now these parts of the curve down here we saw is the opposite happening. You move one unit down in price, you move two units to the right in quantity. But over here, price is much lower."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "You get larger changes in percent quantity for a given change in percent price. Now these parts of the curve down here we saw is the opposite happening. You move one unit down in price, you move two units to the right in quantity. But over here, price is much lower. So this is a much larger percentage change in price. And this is a much smaller percentage change in quantity. So you get large percentage changes in price for small percentage change in quantity."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "But over here, price is much lower. So this is a much larger percentage change in price. And this is a much smaller percentage change in quantity. So you get large percentage changes in price for small percentage change in quantity. That means that here you are relatively inelastic. And then right over here, right at this point, right in this region right over here, we saw that we were unit elastic right over there. So there's an interesting relationship going on."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So you get large percentage changes in price for small percentage change in quantity. That means that here you are relatively inelastic. And then right over here, right at this point, right in this region right over here, we saw that we were unit elastic right over there. So there's an interesting relationship going on. So while we were elastic, this part right over here, when we lowered price in this region, while we were elastic, when we lowered price, we got increases in revenue. So let me write this down. And this is generally true."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So there's an interesting relationship going on. So while we were elastic, this part right over here, when we lowered price in this region, while we were elastic, when we lowered price, we got increases in revenue. So let me write this down. And this is generally true. There's a couple of boundary cases on the math that make it a little bit, you can't make it absolutely true. But while we are elastic, at the elastic points of our demand curve, a decrease in price, price goes down, total revenue was going up. You do a price cut on this part of the demand curve, you get more revenue."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And this is generally true. There's a couple of boundary cases on the math that make it a little bit, you can't make it absolutely true. But while we are elastic, at the elastic points of our demand curve, a decrease in price, price goes down, total revenue was going up. You do a price cut on this part of the demand curve, you get more revenue. Then when you are at unit elasticity, what was happening? At unit elasticity, you are right at this point right over here, right at this point over here. And roughly, when you do a price cut, and I'm going to say this is roughly true, your total revenue stays constant."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "You do a price cut on this part of the demand curve, you get more revenue. Then when you are at unit elasticity, what was happening? At unit elasticity, you are right at this point right over here, right at this point over here. And roughly, when you do a price cut, and I'm going to say this is roughly true, your total revenue stays constant. But just right at that point, right when you're going through that unit elasticity point. And then finally, when you are inelastic, when large percent changes in price result in not so large percent changes in quantity demanded, then a price change going down resulted in lower total revenue, resulted in total revenue going down. And this should hopefully make a little bit of intuitive sense."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And roughly, when you do a price cut, and I'm going to say this is roughly true, your total revenue stays constant. But just right at that point, right when you're going through that unit elasticity point. And then finally, when you are inelastic, when large percent changes in price result in not so large percent changes in quantity demanded, then a price change going down resulted in lower total revenue, resulted in total revenue going down. And this should hopefully make a little bit of intuitive sense. Because over here, at this point, if given percent change in price, you're getting a larger percent change in quantity. So as the percent in price went down, your percent in quantity grew even more. So you made up any decrease in height with a increase in width, so your area increased."}, {"video_title": "Total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And this should hopefully make a little bit of intuitive sense. Because over here, at this point, if given percent change in price, you're getting a larger percent change in quantity. So as the percent in price went down, your percent in quantity grew even more. So you made up any decrease in height with a increase in width, so your area increased. Down here, your decrease in percent price wasn't made up for a decrease in percent quantity. So when you made your rectangles a little bit shorter, you weren't able to compensate by growing the width as much. And so you actually had a lower area, lower total revenue."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And it's a game theoretical concept, and game theory sounds very fancy, but it really is just the theory of games. And this prisoner's dilemma that we talked about in the previous video really is a game. The different players have different strategies, and based on their interacting strategies, you end up in different states. You end up with different outcomes. And here's a definition of Nash equilibrium from Princeton, and that's a good place to get the definition because that's where John Nash spent a good bit of his career. And it is defined, or this definition says, it's a stable state of a system that involves several interacting participants. In our prisoner's dilemma, we had two participants in which no, no participant can gain by a change of strategy as long as all the other participants remain unchanged."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "You end up with different outcomes. And here's a definition of Nash equilibrium from Princeton, and that's a good place to get the definition because that's where John Nash spent a good bit of his career. And it is defined, or this definition says, it's a stable state of a system that involves several interacting participants. In our prisoner's dilemma, we had two participants in which no, no participant can gain by a change of strategy as long as all the other participants remain unchanged. So let's think about the different states of this system right over here, and think of whether any of them meet this criteria. So let's say, let me number this one. Let's say that is state one, this is state two, this is state three, and this is state four right over here."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "In our prisoner's dilemma, we had two participants in which no, no participant can gain by a change of strategy as long as all the other participants remain unchanged. So let's think about the different states of this system right over here, and think of whether any of them meet this criteria. So let's say, let me number this one. Let's say that is state one, this is state two, this is state three, and this is state four right over here. So if we are sitting in state one, if we are sitting in state one, can any of the participants change their strategy, can gain by changing their strategy, assuming the other participant is constant? So if we are sitting here in state one right over here, so Al is denying and Bill is denying, well, Al can improve his situation by changing his strategy. He can go from denying, which is the scenario here, to confessing."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Let's say that is state one, this is state two, this is state three, and this is state four right over here. So if we are sitting in state one, if we are sitting in state one, can any of the participants change their strategy, can gain by changing their strategy, assuming the other participant is constant? So if we are sitting here in state one right over here, so Al is denying and Bill is denying, well, Al can improve his situation by changing his strategy. He can go from denying, which is the scenario here, to confessing. So Al can change his strategy and gain, or you could go the other way, assuming Bill was constant in the denial, or you could go the other way. If we're sitting here in state four, you're sitting here in state four, and we assume Al is constant, Bill can improve his situation by going from a denial to a confession. He can go from two-year to one-year."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "He can go from denying, which is the scenario here, to confessing. So Al can change his strategy and gain, or you could go the other way, assuming Bill was constant in the denial, or you could go the other way. If we're sitting here in state four, you're sitting here in state four, and we assume Al is constant, Bill can improve his situation by going from a denial to a confession. He can go from two-year to one-year. So for both of those reasons, if either of those were true, this would not be a Nash equilibrium, but both of those are true. So this is definitely not a Nash equilibrium. So not a Nash equilibrium."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "He can go from two-year to one-year. So for both of those reasons, if either of those were true, this would not be a Nash equilibrium, but both of those are true. So this is definitely not a Nash equilibrium. So not a Nash equilibrium. I gave two examples in which a participant can gain by a change of strategy as long as the other participant remains unchanged. This move was one example, and this was a move by Al with Bill's denial constant. This was a move by Bill with Al's denial constant."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So not a Nash equilibrium. I gave two examples in which a participant can gain by a change of strategy as long as the other participant remains unchanged. This move was one example, and this was a move by Al with Bill's denial constant. This was a move by Bill with Al's denial constant. Not a Nash equilibrium. Now let's think about state two. If we are sitting in state two, if we are sitting in state two, assuming Bill is constant, can Al change to improve his outcome?"}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "This was a move by Bill with Al's denial constant. Not a Nash equilibrium. Now let's think about state two. If we are sitting in state two, if we are sitting in state two, assuming Bill is constant, can Al change to improve his outcome? So can Al change to improve his outcome? In state two, Al is only getting one year. If Al goes from a confession to a denial, he's going to get two years."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If we are sitting in state two, if we are sitting in state two, assuming Bill is constant, can Al change to improve his outcome? So can Al change to improve his outcome? In state two, Al is only getting one year. If Al goes from a confession to a denial, he's going to get two years. So Al cannot change his strategy and get a gain here. So so far it's looking good, but let's think of it from Bill's point of view. So if we are in state two, if we are in state two right over here, and we assume Al is constant, can Bill do something that changes things?"}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If Al goes from a confession to a denial, he's going to get two years. So Al cannot change his strategy and get a gain here. So so far it's looking good, but let's think of it from Bill's point of view. So if we are in state two, if we are in state two right over here, and we assume Al is constant, can Bill do something that changes things? Well, sure, Bill can go from denying to confessing. If he goes from denying to confessing, he goes from 10 years in prison to three years in prison. So I've given an example of a participant who can gain by a change of strategy as long as all of the other participants remain unchanged."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So if we are in state two, if we are in state two right over here, and we assume Al is constant, can Bill do something that changes things? Well, sure, Bill can go from denying to confessing. If he goes from denying to confessing, he goes from 10 years in prison to three years in prison. So I've given an example of a participant who can gain by a change of strategy as long as all of the other participants remain unchanged. Both of them don't have to be able to do this. You just need to have one of them for it to not be a Nash equilibrium because Bill can have a gain by a change of strategy holding Al's strategy constant. So holding Al's strategy in the confession, then this is not a not Nash equilibrium."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So I've given an example of a participant who can gain by a change of strategy as long as all of the other participants remain unchanged. Both of them don't have to be able to do this. You just need to have one of them for it to not be a Nash equilibrium because Bill can have a gain by a change of strategy holding Al's strategy constant. So holding Al's strategy in the confession, then this is not a not Nash equilibrium. So this is not Nash because you have this movement can occur to a more favorable state for Bill holding Al constant. Now let's go to state three. Let's think about this."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So holding Al's strategy in the confession, then this is not a not Nash equilibrium. So this is not Nash because you have this movement can occur to a more favorable state for Bill holding Al constant. Now let's go to state three. Let's think about this. So if we're in state three, so this is Bill confessing and Al denying. So let's first think about Al's point of view. If we assume Bill is constant in his confession, can Al improve his scenario?"}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Let's think about this. So if we're in state three, so this is Bill confessing and Al denying. So let's first think about Al's point of view. If we assume Bill is constant in his confession, can Al improve his scenario? Well, sure, he can go from denying, which is what would have to be in state three, to confessing. So he could move in this direction right over here. And that by itself is enough evidence that this is not a Nash equilibrium."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If we assume Bill is constant in his confession, can Al improve his scenario? Well, sure, he can go from denying, which is what would have to be in state three, to confessing. So he could move in this direction right over here. And that by itself is enough evidence that this is not a Nash equilibrium. We don't even have to think about Bill. And it's symmetric. There's actually nothing that Bill could do in this scenario holding Al constant that could improve things."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And that by itself is enough evidence that this is not a Nash equilibrium. We don't even have to think about Bill. And it's symmetric. There's actually nothing that Bill could do in this scenario holding Al constant that could improve things. Bill would not wanna go from here to here, but just by the fact that Al could go from here to here holding Bill constant tells you that this is not, this is not a Nash equilibrium. Now let's go to scenario four. And you know where this is going because you watched the last video, but now it's a little, I'm going through it a little bit in more detail."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "There's actually nothing that Bill could do in this scenario holding Al constant that could improve things. Bill would not wanna go from here to here, but just by the fact that Al could go from here to here holding Bill constant tells you that this is not, this is not a Nash equilibrium. Now let's go to scenario four. And you know where this is going because you watched the last video, but now it's a little, I'm going through it a little bit in more detail. In state four, they are both confessing. Now let's look at it from Al's point of view. And we're gonna hold Bill constant."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And you know where this is going because you watched the last video, but now it's a little, I'm going through it a little bit in more detail. In state four, they are both confessing. Now let's look at it from Al's point of view. And we're gonna hold Bill constant. We're gonna hold Bill unchanged. So we're gonna have to stay in this column. We're gonna say that, assume that Bill's confessing."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And we're gonna hold Bill constant. We're gonna hold Bill unchanged. So we're gonna have to stay in this column. We're gonna say that, assume that Bill's confessing. From Al's point of view, if we are in state one, can he change his strategy to get a better outcome? Well, the only thing he could do is go from a confession to a denial, but that's not going to do good. He's gonna go from three years to 10 years."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "We're gonna say that, assume that Bill's confessing. From Al's point of view, if we are in state one, can he change his strategy to get a better outcome? Well, the only thing he could do is go from a confession to a denial, but that's not going to do good. He's gonna go from three years to 10 years. So Al cannot gain by a change of strategy as long as all of their participants remain unchanged. Now let's think about it from Bill's point of view. We're in this state right over here."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "He's gonna go from three years to 10 years. So Al cannot gain by a change of strategy as long as all of their participants remain unchanged. Now let's think about it from Bill's point of view. We're in this state right over here. We're going to assume that Al is constant, that Al is in the confession mode. So Bill, right now in state four, is confessing. His only option is to deny, but by doing that, he'll go from three years in prison to 10 years in prison, so he's not going to gain."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "We're in this state right over here. We're going to assume that Al is constant, that Al is in the confession mode. So Bill, right now in state four, is confessing. His only option is to deny, but by doing that, he'll go from three years in prison to 10 years in prison, so he's not going to gain. So he, too, cannot gain. So we've just found a state in state four in which no participant can gain by a change of strategy as long as all other participants remain unchanged. And this part is important, because we're not saying that both can change simultaneously."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "His only option is to deny, but by doing that, he'll go from three years in prison to 10 years in prison, so he's not going to gain. So he, too, cannot gain. So we've just found a state in state four in which no participant can gain by a change of strategy as long as all other participants remain unchanged. And this part is important, because we're not saying that both can change simultaneously. You are not, in this payoff matrix, allowing a diagonal move. And so no participant can gain, neither Al nor Bill holding the other one constant. This is a Nash equilibrium."}, {"video_title": "More on Nash equilibrium Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And this part is important, because we're not saying that both can change simultaneously. You are not, in this payoff matrix, allowing a diagonal move. And so no participant can gain, neither Al nor Bill holding the other one constant. This is a Nash equilibrium. Equilibrium. This one right here. And this is a stable state."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "And so it says, look, if I have no tennis balls and I'm not able to play tennis, so I'm pretty happy when I get that first ball. It gives me a marginal utility of 100. Now you might say, 100 what, Sal? And I would say to you, well, that's the thing about marginal utility. We're using fairly abstract units here. We're not speaking in terms of dollar or opportunity cost. We just have this abstract unit."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "And I would say to you, well, that's the thing about marginal utility. We're using fairly abstract units here. We're not speaking in terms of dollar or opportunity cost. We just have this abstract unit. We could call it utility units if we want. But what really matters is the relation between these values. So for example, that second ball, it's nice."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "We just have this abstract unit. We could call it utility units if we want. But what really matters is the relation between these values. So for example, that second ball, it's nice. Now I can lose that first ball or I don't have to chase that first ball around as frequently. But it's not as, I don't get as much incremental utility as I got from that first ball. That first ball allowed me to play tennis."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "So for example, that second ball, it's nice. Now I can lose that first ball or I don't have to chase that first ball around as frequently. But it's not as, I don't get as much incremental utility as I got from that first ball. That first ball allowed me to play tennis. Now the second ball, I was already playing tennis. Now my tennis is just going to be a little bit more pleasant. So the marginal utility, one way to think about it, this is 80 and this is 100."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "That first ball allowed me to play tennis. Now the second ball, I was already playing tennis. Now my tennis is just going to be a little bit more pleasant. So the marginal utility, one way to think about it, this is 80 and this is 100. The marginal utility of that second ball is 80% of what that first ball is. Now I promised that I would graph these. So let's get a graph out here."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "So the marginal utility, one way to think about it, this is 80 and this is 100. The marginal utility of that second ball is 80% of what that first ball is. Now I promised that I would graph these. So let's get a graph out here. So there we go. And let's start plotting these and see what it looks like. Well, that first ball gave me a utility of 100."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "So let's get a graph out here. So there we go. And let's start plotting these and see what it looks like. Well, that first ball gave me a utility of 100. The second ball gives me a utility of 80. Third ball, you see the trend. This is a downward sloping, if this was a line, these are discrete values here, but if I cared about half of a tennis ball or 3 1\u20444 of a tennis ball, then I could connect the dots here as well."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "Well, that first ball gave me a utility of 100. The second ball gives me a utility of 80. Third ball, you see the trend. This is a downward sloping, if this was a line, these are discrete values here, but if I cared about half of a tennis ball or 3 1\u20444 of a tennis ball, then I could connect the dots here as well. But you can see that it is a downward sloping line if you were to connect the dots. So three balls, utility of 60. If I have four balls, it's a utility of 40."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "This is a downward sloping, if this was a line, these are discrete values here, but if I cared about half of a tennis ball or 3 1\u20444 of a tennis ball, then I could connect the dots here as well. But you can see that it is a downward sloping line if you were to connect the dots. So three balls, utility of 60. If I have four balls, it's a utility of 40. Five balls, utility of 20. And once again, when I get that fifth ball, yeah, it's nice, but now my pockets are getting pretty full and it's hard to play tennis with those full pockets. By the time I get that sixth ball, I get no marginal utility from that."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "If I have four balls, it's a utility of 40. Five balls, utility of 20. And once again, when I get that fifth ball, yeah, it's nice, but now my pockets are getting pretty full and it's hard to play tennis with those full pockets. By the time I get that sixth ball, I get no marginal utility from that. I don't have a place to store it. I'm not really into it. And then that seventh ball, I actually view it as a negative."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "By the time I get that sixth ball, I get no marginal utility from that. I don't have a place to store it. I'm not really into it. And then that seventh ball, I actually view it as a negative. It's one extra ball to worry about, no place to store it. It's taking up space in my life. And so if you were to connect the dots, we're talking about a discrete case, but oftentimes you could think about something that's a little bit more continuous where the quantity is more granular, if you said pounds of chocolate or something like that."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "And then that seventh ball, I actually view it as a negative. It's one extra ball to worry about, no place to store it. It's taking up space in my life. And so if you were to connect the dots, we're talking about a discrete case, but oftentimes you could think about something that's a little bit more continuous where the quantity is more granular, if you said pounds of chocolate or something like that. Then you could imagine, in general, for a marginal utility curve, to be able to connect these dots. And you see, in this case, it is downward sloping. So this is the marginal utility, the marginal utility curve."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "And so if you were to connect the dots, we're talking about a discrete case, but oftentimes you could think about something that's a little bit more continuous where the quantity is more granular, if you said pounds of chocolate or something like that. Then you could imagine, in general, for a marginal utility curve, to be able to connect these dots. And you see, in this case, it is downward sloping. So this is the marginal utility, the marginal utility curve. Notice that it is slopes down, slopes down. And you're generally going to see this for any marginal utility curve because the incremental benefit of that next amount, that next unit, is seldom as good as the benefit of getting it before. You get tired of the thing."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "So this is the marginal utility, the marginal utility curve. Notice that it is slopes down, slopes down. And you're generally going to see this for any marginal utility curve because the incremental benefit of that next amount, that next unit, is seldom as good as the benefit of getting it before. You get tired of the thing. You start running out of space. You've already consumed more than you need of it. And this is consistent with what we know from the law of demand."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "You get tired of the thing. You start running out of space. You've already consumed more than you need of it. And this is consistent with what we know from the law of demand. In the law of demand, every incremental amount of quantity, people are like, well, I already have some. And this might not be, the law of demand is not talking about just an individual. It's talking about a market."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "And this is consistent with what we know from the law of demand. In the law of demand, every incremental amount of quantity, people are like, well, I already have some. And this might not be, the law of demand is not talking about just an individual. It's talking about a market. But the market as a whole is made up of individuals. And if each individual is saying, hey, that first unit really matters to me, but the next unit, it's nice, but not as good, so I'd pay less for it. And then the unit after that is nice, so I might pay less for it."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "It's talking about a market. But the market as a whole is made up of individuals. And if each individual is saying, hey, that first unit really matters to me, but the next unit, it's nice, but not as good, so I'd pay less for it. And then the unit after that is nice, so I might pay less for it. And so if you aggregate all those individuals, that's where that law of demand comes from. These are consistent ideas. And that's why the demand curve, you are also, it is sloping down."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "And then the unit after that is nice, so I might pay less for it. And so if you aggregate all those individuals, that's where that law of demand comes from. These are consistent ideas. And that's why the demand curve, you are also, it is sloping down. Price is usually on this axis instead of utility. And you could imagine price as being a proxy for utility. And quantity, of course, is on this axis right over here."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "And that's why the demand curve, you are also, it is sloping down. Price is usually on this axis instead of utility. And you could imagine price as being a proxy for utility. And quantity, of course, is on this axis right over here. So this is quantity of balls. So that's our marginal utility curve. What about total utility?"}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "And quantity, of course, is on this axis right over here. So this is quantity of balls. So that's our marginal utility curve. What about total utility? So let me have a table here that shows total utility. And total utility from marginal utility is pretty straightforward. All you do is say, okay, well, that first ball, when I have one ball, my total utility is the same as my marginal utility."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "What about total utility? So let me have a table here that shows total utility. And total utility from marginal utility is pretty straightforward. All you do is say, okay, well, that first ball, when I have one ball, my total utility is the same as my marginal utility. And so you're going to have that same starting place at when your consumption is just beginning. But then your total utility from two balls, well, I had 100 utility units from the first ball, and then I get 80 more from that second ball, so it's gonna be 180. So for two balls, my total utility is 180."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "All you do is say, okay, well, that first ball, when I have one ball, my total utility is the same as my marginal utility. And so you're going to have that same starting place at when your consumption is just beginning. But then your total utility from two balls, well, I had 100 utility units from the first ball, and then I get 80 more from that second ball, so it's gonna be 180. So for two balls, my total utility is 180. All I'm doing is I just added that to that. Now, for three balls, I add that to that to that. I take 180, and I add the 60 extra utility units I get for that third ball, and now I'm at 240."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "So for two balls, my total utility is 180. All I'm doing is I just added that to that. Now, for three balls, I add that to that to that. I take 180, and I add the 60 extra utility units I get for that third ball, and now I'm at 240. So that third ball gets me to 240 right over there. Now, the fourth ball, once again, I'm just gonna take 240 and add the incremental utility of that fourth ball, the marginal utility of that fourth ball. That gets me to 280."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "I take 180, and I add the 60 extra utility units I get for that third ball, and now I'm at 240. So that third ball gets me to 240 right over there. Now, the fourth ball, once again, I'm just gonna take 240 and add the incremental utility of that fourth ball, the marginal utility of that fourth ball. That gets me to 280. So that gets me to 280, which is right over, let's see, 20, 40, 60, 80. So this is right over there. Now, that fifth ball, I'm just gonna take the 280, and then the marginal utility of the fifth ball, add 20, gets me to 300."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "That gets me to 280. So that gets me to 280, which is right over, let's see, 20, 40, 60, 80. So this is right over there. Now, that fifth ball, I'm just gonna take the 280, and then the marginal utility of the fifth ball, add 20, gets me to 300. Fifth ball gets me to 300, which would be right around there. Now, the sixth ball gave me no incremental, no marginal utility. So my total utility when I have six balls stays the same."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "Now, that fifth ball, I'm just gonna take the 280, and then the marginal utility of the fifth ball, add 20, gets me to 300. Fifth ball gets me to 300, which would be right around there. Now, the sixth ball gave me no incremental, no marginal utility. So my total utility when I have six balls stays the same. I'm indifferent as to whether I have five or six balls. So the sixth ball, it is now flat right over here. And now the seventh ball, I'm tired of these tennis balls."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "So my total utility when I have six balls stays the same. I'm indifferent as to whether I have five or six balls. So the sixth ball, it is now flat right over here. And now the seventh ball, I'm tired of these tennis balls. I'm being overwhelmed by them. I'm finding it stressful. And so it actually has a negative marginal utility."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "And now the seventh ball, I'm tired of these tennis balls. I'm being overwhelmed by them. I'm finding it stressful. And so it actually has a negative marginal utility. And so my total utility, if someone forced me to have seven balls, my total utility would now go down by 20. And so my total utility now would be 280, right over here. And you could see the marginal utilities here if you just say, look, this is plus 80, this is plus 60, this is plus 40, this is plus 20, this is plus zero, and then this is minus 20."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "And so it actually has a negative marginal utility. And so my total utility, if someone forced me to have seven balls, my total utility would now go down by 20. And so my total utility now would be 280, right over here. And you could see the marginal utilities here if you just say, look, this is plus 80, this is plus 60, this is plus 40, this is plus 20, this is plus zero, and then this is minus 20. And so you see the numbers right over there. Now this tennis ball example, this would be a discrete case. You wouldn't have half a tennis ball or pi tennis balls or something like that."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "And you could see the marginal utilities here if you just say, look, this is plus 80, this is plus 60, this is plus 40, this is plus 20, this is plus zero, and then this is minus 20. And so you see the numbers right over there. Now this tennis ball example, this would be a discrete case. You wouldn't have half a tennis ball or pi tennis balls or something like that. But if we wanna speak in general terms, you could think about connecting the dots if you had a more continuous example. And your total utility curve might look something like this. Now what's interesting is right when you're beginning consumption, you're starting at the same place."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "You wouldn't have half a tennis ball or pi tennis balls or something like that. But if we wanna speak in general terms, you could think about connecting the dots if you had a more continuous example. And your total utility curve might look something like this. Now what's interesting is right when you're beginning consumption, you're starting at the same place. Well, that makes sense. Your first unit, you got marginal utility, that's gonna be your total utility. And this is upward sloping as long as you're getting some positive marginal utility from each increment."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "Now what's interesting is right when you're beginning consumption, you're starting at the same place. Well, that makes sense. Your first unit, you got marginal utility, that's gonna be your total utility. And this is upward sloping as long as you're getting some positive marginal utility from each increment. So as long as my marginal utilities were positive, well, this graph is going to be increasing. But notice, because the marginal utilities are decreasing right over here, the rate of increase for total utility is decreasing. The slope here is decreasing."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "And this is upward sloping as long as you're getting some positive marginal utility from each increment. So as long as my marginal utilities were positive, well, this graph is going to be increasing. But notice, because the marginal utilities are decreasing right over here, the rate of increase for total utility is decreasing. The slope here is decreasing. You can view the marginal utility as the slope of the total utility curve. And then notice, the total utility curve has a maximum value. It's starting to hit a maximum value right over there when the marginal utility curve is hitting zero."}, {"video_title": "Visualizing marginal utility MU and total utility TU functions.mp3", "Sentence": "The slope here is decreasing. You can view the marginal utility as the slope of the total utility curve. And then notice, the total utility curve has a maximum value. It's starting to hit a maximum value right over there when the marginal utility curve is hitting zero. Because beyond that point, where at least in this example, we had negative marginal utility. And so when you add that seventh unit, well, that's gonna make your total utility curve go down. And so you're gonna have a negative slope in this particular example."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "We're going to think about it in terms of an accounting profit, which is really the type of profit that most of us associate with a business or a firm. And we're also going to think about it in terms of economic profit, which we'll see is a little bit different. And instead of telling us whether a business is producing income, it tells us whether it makes sense to even run the business in the way that we're actually running it. First, let's focus on the traditional way of calculating profit. Let's say my firm, my restaurant, my firm is a restaurant. In year one, it brings in in revenue, in revenue it brings in $500,000. Revenue literally is the amount of money the customers pay me to eat at the restaurant."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "First, let's focus on the traditional way of calculating profit. Let's say my firm, my restaurant, my firm is a restaurant. In year one, it brings in in revenue, in revenue it brings in $500,000. Revenue literally is the amount of money the customers pay me to eat at the restaurant. They are paying for their dinners. This is literally the money that's coming in the door. Sometimes people call it the top line because it's literally the top line of our income statement."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "Revenue literally is the amount of money the customers pay me to eat at the restaurant. They are paying for their dinners. This is literally the money that's coming in the door. Sometimes people call it the top line because it's literally the top line of our income statement. I just wrote it. It's the top line. Now we have to think about our expenses."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "Sometimes people call it the top line because it's literally the top line of our income statement. I just wrote it. It's the top line. Now we have to think about our expenses. Now, when you're running a restaurant, one of the obvious expenses is going to be the cost of food. So food, we're going to say, costs us $100,000. Then you have the cost of labor."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "Now we have to think about our expenses. Now, when you're running a restaurant, one of the obvious expenses is going to be the cost of food. So food, we're going to say, costs us $100,000. Then you have the cost of labor. I have the wait staff, and I have the chefs, and the busboy, and all those people. In this past year, I spent $100,000. Then I have, and I'm going to assume that I don't own the building, that I rent the building."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "Then you have the cost of labor. I have the wait staff, and I have the chefs, and the busboy, and all those people. In this past year, I spent $100,000. Then I have, and I'm going to assume that I don't own the building, that I rent the building. So building rent. I'm assuming this is on the building. Let's say that that was $200,000."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "Then I have, and I'm going to assume that I don't own the building, that I rent the building. So building rent. I'm assuming this is on the building. Let's say that that was $200,000. Then finally, I really just rented everything. I also rented the equipment, all of the stoves, the fridges, and all of that stuff. None of this is stuff that I own, so the equipment rent."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "Let's say that that was $200,000. Then finally, I really just rented everything. I also rented the equipment, all of the stoves, the fridges, and all of that stuff. None of this is stuff that I own, so the equipment rent. Equipment rent. I spent another $50,000. So how much profit do I have here?"}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "None of this is stuff that I own, so the equipment rent. Equipment rent. I spent another $50,000. So how much profit do I have here? Those are all my expenses. I didn't borrow any money, so I didn't have any interest expense or anything like that. How much profit do I have before paying tax, or essentially my pre-tax profit?"}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "So how much profit do I have here? Those are all my expenses. I didn't borrow any money, so I didn't have any interest expense or anything like that. How much profit do I have before paying tax, or essentially my pre-tax profit? The reason why we think of those terms is because the amount you pay in tax is usually derived from your pre-tax profit. That depends on where this business is, what country, what state, what type of business it is. The easy way to calculate pre-tax profit, and this is pre-tax, and we're thinking in terms of accounting profit right over here, is we take how much money comes through the door, and then we subtract out all of the payments we essentially have to make to other people."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "How much profit do I have before paying tax, or essentially my pre-tax profit? The reason why we think of those terms is because the amount you pay in tax is usually derived from your pre-tax profit. That depends on where this business is, what country, what state, what type of business it is. The easy way to calculate pre-tax profit, and this is pre-tax, and we're thinking in terms of accounting profit right over here, is we take how much money comes through the door, and then we subtract out all of the payments we essentially have to make to other people. What we have left is our pre-tax profit. $500,000 minus 450 gives us a pre-tax profit of $50,000. I'm assuming that I'm the only owner of this business, so I can essentially take it all out for myself, and maybe help pay my own personal rent or whatever else, or I could take some of this or all of this and reinvest it back in the business."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "The easy way to calculate pre-tax profit, and this is pre-tax, and we're thinking in terms of accounting profit right over here, is we take how much money comes through the door, and then we subtract out all of the payments we essentially have to make to other people. What we have left is our pre-tax profit. $500,000 minus 450 gives us a pre-tax profit of $50,000. I'm assuming that I'm the only owner of this business, so I can essentially take it all out for myself, and maybe help pay my own personal rent or whatever else, or I could take some of this or all of this and reinvest it back in the business. Maybe I start buying my equipment or I expand in some way. Who knows what I might do with that money? This is just traditional accounting profit."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "I'm assuming that I'm the only owner of this business, so I can essentially take it all out for myself, and maybe help pay my own personal rent or whatever else, or I could take some of this or all of this and reinvest it back in the business. Maybe I start buying my equipment or I expand in some way. Who knows what I might do with that money? This is just traditional accounting profit. This is how profit is calculated. This is a super simple example. In the future, I'd like to do more nuanced examples in the accounting world."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "This is just traditional accounting profit. This is how profit is calculated. This is a super simple example. In the future, I'd like to do more nuanced examples in the accounting world. This you would refer to as just accounting profit. When people in the everyday world talk about profit, this is normally what they're talking about. When economists talk about profit, they're talking about something slightly different."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "In the future, I'd like to do more nuanced examples in the accounting world. This you would refer to as just accounting profit. When people in the everyday world talk about profit, this is normally what they're talking about. When economists talk about profit, they're talking about something slightly different. The best way to realize that is to just calculate economic profit for this exact same business or this firm, as an economist would call it. A firm really is a general idea for an organization that is trying to maximize profit. Once again, it's year one."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "When economists talk about profit, they're talking about something slightly different. The best way to realize that is to just calculate economic profit for this exact same business or this firm, as an economist would call it. A firm really is a general idea for an organization that is trying to maximize profit. Once again, it's year one. Actually, let me just copy and paste it. It's year one. That's our revenue."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "Once again, it's year one. Actually, let me just copy and paste it. It's year one. That's our revenue. I'm going to copy and I'm going to paste it. This right over here, so far so good. It looks pretty similar."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "That's our revenue. I'm going to copy and I'm going to paste it. This right over here, so far so good. It looks pretty similar. Now, we're going to think about things in a slightly different way. Economists view costs in terms of opportunity costs. As we'll see, some of the opportunity costs you can measure in terms of dollars."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "It looks pretty similar. Now, we're going to think about things in a slightly different way. Economists view costs in terms of opportunity costs. As we'll see, some of the opportunity costs you can measure in terms of dollars. Some are less explicit. I'm going to write here, just so we can get in the economist frame of mind, opportunity costs. Within opportunity costs, there are going to be explicit opportunity costs and implicit opportunity costs."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "As we'll see, some of the opportunity costs you can measure in terms of dollars. Some are less explicit. I'm going to write here, just so we can get in the economist frame of mind, opportunity costs. Within opportunity costs, there are going to be explicit opportunity costs and implicit opportunity costs. First, let's do the explicit opportunity costs. Actually, all of these are explicit opportunity costs. Let me just copy and paste that."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "Within opportunity costs, there are going to be explicit opportunity costs and implicit opportunity costs. First, let's do the explicit opportunity costs. Actually, all of these are explicit opportunity costs. Let me just copy and paste that. I will copy and paste. All of these are explicit opportunity costs. The reason why they are explicit is I'm actually paying money for all of these things, even the equipment and the rent of the apartment."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "Let me just copy and paste that. I will copy and paste. All of these are explicit opportunity costs. The reason why they are explicit is I'm actually paying money for all of these things, even the equipment and the rent of the apartment. I don't own it. I'm actually paying whoever does own it. These are direct outlays out of the business."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "The reason why they are explicit is I'm actually paying money for all of these things, even the equipment and the rent of the apartment. I don't own it. I'm actually paying whoever does own it. These are direct outlays out of the business. I'm explicitly making these payments. The reason why we can think of them as opportunity costs, even though they're given in dollar terms, is that if I'm spending $100,000 on food, that's $100,000 that I couldn't spend on something else. If I'm spending $100,000 on labor, that's $100,000 that I couldn't spend on something else."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "These are direct outlays out of the business. I'm explicitly making these payments. The reason why we can think of them as opportunity costs, even though they're given in dollar terms, is that if I'm spending $100,000 on food, that's $100,000 that I couldn't spend on something else. If I'm spending $100,000 on labor, that's $100,000 that I couldn't spend on something else. I'm just measuring the opportunity costs in terms of dollars, but dollars that I could have spent on other things. So far, it looks pretty much identical. I'm just viewing it with a slightly different lens."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "If I'm spending $100,000 on labor, that's $100,000 that I couldn't spend on something else. I'm just measuring the opportunity costs in terms of dollars, but dollars that I could have spent on other things. So far, it looks pretty much identical. I'm just viewing it with a slightly different lens. You're like, well, what's the big deal here? We're going to see a little bit of divergence when we start thinking about the implicit costs that really weren't taken into account here, the implicit opportunity costs especially. Implicit costs."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "I'm just viewing it with a slightly different lens. You're like, well, what's the big deal here? We're going to see a little bit of divergence when we start thinking about the implicit costs that really weren't taken into account here, the implicit opportunity costs especially. Implicit costs. If I'm running this business, and let's say that in order to run it, I actually had to focus on it full time. I couldn't have actually quit my job. Then there's an implicit opportunity cost of the job that I gave up or my wages foregone."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "Implicit costs. If I'm running this business, and let's say that in order to run it, I actually had to focus on it full time. I couldn't have actually quit my job. Then there's an implicit opportunity cost of the job that I gave up or my wages foregone. Let me write this down. Wages foregone. This will depend on who we're talking about, but let's say I was a doctor, and I was making a nice, steady, risk-free $150,000 a year."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "Then there's an implicit opportunity cost of the job that I gave up or my wages foregone. Let me write this down. Wages foregone. This will depend on who we're talking about, but let's say I was a doctor, and I was making a nice, steady, risk-free $150,000 a year. I was giving up $150,000 a year. Now we've listed all the explicit and the implicit opportunity costs. Now we're ready to calculate our economic profit."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "This will depend on who we're talking about, but let's say I was a doctor, and I was making a nice, steady, risk-free $150,000 a year. I was giving up $150,000 a year. Now we've listed all the explicit and the implicit opportunity costs. Now we're ready to calculate our economic profit. Let me draw a line over here. Our economic profit is going to be our revenue that we're taking in minus all of these expenses. That gives us positive $50,000, but now we have to subtract the wages foregone."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "Now we're ready to calculate our economic profit. Let me draw a line over here. Our economic profit is going to be our revenue that we're taking in minus all of these expenses. That gives us positive $50,000, but now we have to subtract the wages foregone. Then I get to negative $100,000. Now this is interesting. This is kind of a big discrepancy here."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "That gives us positive $50,000, but now we have to subtract the wages foregone. Then I get to negative $100,000. Now this is interesting. This is kind of a big discrepancy here. One, in accounting terms, I'm profitable. In economic terms, I'm not profitable. The important thing to realize is economic profit, when it's negative, isn't saying, or you could say that we have a $100,000 economic loss or an economic profit of negative $100,000."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "This is kind of a big discrepancy here. One, in accounting terms, I'm profitable. In economic terms, I'm not profitable. The important thing to realize is economic profit, when it's negative, isn't saying, or you could say that we have a $100,000 economic loss or an economic profit of negative $100,000. This isn't saying that the business or the firm isn't spitting out money. What it is saying is it probably doesn't make sense to run this business or at least run this business in this way. If this was zero, that means it's probably making money, but you're kind of neutral whether it makes sense to run it this way or not."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "The important thing to realize is economic profit, when it's negative, isn't saying, or you could say that we have a $100,000 economic loss or an economic profit of negative $100,000. This isn't saying that the business or the firm isn't spitting out money. What it is saying is it probably doesn't make sense to run this business or at least run this business in this way. If this was zero, that means it's probably making money, but you're kind of neutral whether it makes sense to run it this way or not. If it's positive, that means it definitely does make sense to run the firm in this way and that it is definitely doing better than all of the alternatives. This right over here is saying, look, you're making $50,000 a year. That's the $50,000 that you have to spend if you're the owner or reinvest in the firm."}, {"video_title": "Economic profit vs accounting profit Microeconomics Khan Academy.mp3", "Sentence": "If this was zero, that means it's probably making money, but you're kind of neutral whether it makes sense to run it this way or not. If it's positive, that means it definitely does make sense to run the firm in this way and that it is definitely doing better than all of the alternatives. This right over here is saying, look, you're making $50,000 a year. That's the $50,000 that you have to spend if you're the owner or reinvest in the firm. This is saying, essentially, look, you could have been making more money than that $150,000. Instead of making $50,000 doing this, you could have been making $100,000 more doing something else. You are essentially giving up $100,000 to do this restaurant."}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "And in this video, we're going to focus on the demand curve for labor. So let's imagine that we're talking about a market for people who work in the pant-making industry. So each of these firms right over here, they produce pants. Let's say they produce bell bottoms. So this is my quick drawing of bell bottoms. These are someone's pants right over here. They flare out at the bottom."}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "Let's say they produce bell bottoms. So this is my quick drawing of bell bottoms. These are someone's pants right over here. They flare out at the bottom. And let's say for some strange reason, bell bottoms all of a sudden go back in style. So if bell bottoms are going back in style, the firm is, at least in the short run, is able to get more per unit for its bell bottoms. So its marginal revenue goes up."}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "They flare out at the bottom. And let's say for some strange reason, bell bottoms all of a sudden go back in style. So if bell bottoms are going back in style, the firm is, at least in the short run, is able to get more per unit for its bell bottoms. So its marginal revenue goes up. And if its marginal revenue goes up, its marginal revenue product is going to go up. And so we would have a shift to the right of the marginal revenue product curve. Or you could even view that as a shift up for a given quantity of labor."}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "So its marginal revenue goes up. And if its marginal revenue goes up, its marginal revenue product is going to go up. And so we would have a shift to the right of the marginal revenue product curve. Or you could even view that as a shift up for a given quantity of labor. You're going to have a higher marginal revenue product. So we could call this marginal revenue product curve two. Now what was likely to happen in the market?"}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "Or you could even view that as a shift up for a given quantity of labor. You're going to have a higher marginal revenue product. So we could call this marginal revenue product curve two. Now what was likely to happen in the market? Well, if it's a general fashion trend, it's not just for this firm's goods or product, but it's for everyone, all of the pant producers, well then they're all going to want a lot more people who can work in the pant-producing industry. Or another way to think about it is the market labor demand curve is just a sum of the marginal revenue product curves for all of the various firms. And if all of them have shifted to the right or shifted up, well the same thing is going to happen to the market labor demand curve."}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "Now what was likely to happen in the market? Well, if it's a general fashion trend, it's not just for this firm's goods or product, but it's for everyone, all of the pant producers, well then they're all going to want a lot more people who can work in the pant-producing industry. Or another way to think about it is the market labor demand curve is just a sum of the marginal revenue product curves for all of the various firms. And if all of them have shifted to the right or shifted up, well the same thing is going to happen to the market labor demand curve. And so the market labor demand curve might now look like this. So market labor demand curve sub two. Now what does that do to the equilibrium wages and quantities?"}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "And if all of them have shifted to the right or shifted up, well the same thing is going to happen to the market labor demand curve. And so the market labor demand curve might now look like this. So market labor demand curve sub two. Now what does that do to the equilibrium wages and quantities? Well, our equilibrium wage has gone up, which seems reasonable, because the demand curve has shifted to the right. And our equilibrium quantity has also gone up. I'll put a Q sub two."}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "Now what does that do to the equilibrium wages and quantities? Well, our equilibrium wage has gone up, which seems reasonable, because the demand curve has shifted to the right. And our equilibrium quantity has also gone up. I'll put a Q sub two. Now what does that do to the marginal factor cost for the firms operating in this market, the ones that are hiring this labor? Well, the wages have gone up, so so has the marginal factor cost. So in this situation, we now have a marginal factor cost sub two."}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "I'll put a Q sub two. Now what does that do to the marginal factor cost for the firms operating in this market, the ones that are hiring this labor? Well, the wages have gone up, so so has the marginal factor cost. So in this situation, we now have a marginal factor cost sub two. And now we have a new quantity that is rational for this firm to actually go out and hire. And you can imagine things going the other way. So here we saw things shift to the right, both the marginal revenue product curves and the market labor demand curve."}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "So in this situation, we now have a marginal factor cost sub two. And now we have a new quantity that is rational for this firm to actually go out and hire. And you can imagine things going the other way. So here we saw things shift to the right, both the marginal revenue product curves and the market labor demand curve. But maybe things aren't going well, and the marginal revenue goes down for these firms. Well, then you could imagine a situation where on the firm level, your marginal revenue product curve shifts down and to the left. Maybe it does something like that, marginal revenue product three."}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "So here we saw things shift to the right, both the marginal revenue product curves and the market labor demand curve. But maybe things aren't going well, and the marginal revenue goes down for these firms. Well, then you could imagine a situation where on the firm level, your marginal revenue product curve shifts down and to the left. Maybe it does something like that, marginal revenue product three. And in aggregate, that would cause the market labor demand curve to shift to the left. And you would see the opposite happen. You would see a lower equilibrium wage."}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "Maybe it does something like that, marginal revenue product three. And in aggregate, that would cause the market labor demand curve to shift to the left. And you would see the opposite happen. You would see a lower equilibrium wage. Let me just label this. Market labor demand curve three. You would have a lower equilibrium wage now."}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "You would see a lower equilibrium wage. Let me just label this. Market labor demand curve three. You would have a lower equilibrium wage now. And you would have a lower quantity of labor, equilibrium quantity of labor in that market, sub three. And then you would have a lower, a lower marginal factor cost, assuming a perfectly competitive labor market. And so this might be the equilibrium quantity right over there."}, {"video_title": "Shifts in demand for labor Microeconomics Khan Academy.mp3", "Sentence": "You would have a lower equilibrium wage now. And you would have a lower quantity of labor, equilibrium quantity of labor in that market, sub three. And then you would have a lower, a lower marginal factor cost, assuming a perfectly competitive labor market. And so this might be the equilibrium quantity right over there. Q for the firm, sub three with a star. Once again, not counterintuitive. This is what we've seen in other markets when we talked about what would cause shifts in demand."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "In this video, we're going to dig a little bit deeper into the notion of perfectly competitive markets. So we're gonna think about under what scenarios a firm would make an economic profit or an economic loss in them. Now as a reminder, these perfectly competitive markets are something of a theoretical ideal. There's few markets in the real world that are truly perfectly competitive. Some might get close, but most markets are someplace in a spectrum between perfectly competitive and at the other extreme, say something like a monopoly. But here we're talking about perfect competition. And in perfect competition, the firm's products aren't differentiated."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "There's few markets in the real world that are truly perfectly competitive. Some might get close, but most markets are someplace in a spectrum between perfectly competitive and at the other extreme, say something like a monopoly. But here we're talking about perfect competition. And in perfect competition, the firm's products aren't differentiated. There's no barriers to entry or exit. And so in that situation, the market supply and demand curves are going to define the price in the market, which are also going to define the marginal revenue for these firms. They're all going to be price takers."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And in perfect competition, the firm's products aren't differentiated. There's no barriers to entry or exit. And so in that situation, the market supply and demand curves are going to define the price in the market, which are also going to define the marginal revenue for these firms. They're all going to be price takers. They're gonna be passive in terms of price. Whatever the market price is, that's the price that they are going to sell their products for. And their decision is really what quantity to produce and sell, and whether to enter or exit the market."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "They're all going to be price takers. They're gonna be passive in terms of price. Whatever the market price is, that's the price that they are going to sell their products for. And their decision is really what quantity to produce and sell, and whether to enter or exit the market. So let's look at that a little bit. So these are just your classic and supply and demand curves you might see for a market. The first few units in the market, there's a huge marginal benefit, so people are willing to pay a lot."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And their decision is really what quantity to produce and sell, and whether to enter or exit the market. So let's look at that a little bit. So these are just your classic and supply and demand curves you might see for a market. The first few units in the market, there's a huge marginal benefit, so people are willing to pay a lot. But then each incremental unit, the marginal benefit's a little bit lower and lower and lower and lower, and that's why we have that downward sloping demand curve. And then on the supply curve, the first unit in the market might be fairly inexpensive to produce, but then the marginal cost gets higher and higher and higher. And where they meet, where the supply and demand meet, that tells us the equilibrium price and equilibrium quantity in the market."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "The first few units in the market, there's a huge marginal benefit, so people are willing to pay a lot. But then each incremental unit, the marginal benefit's a little bit lower and lower and lower and lower, and that's why we have that downward sloping demand curve. And then on the supply curve, the first unit in the market might be fairly inexpensive to produce, but then the marginal cost gets higher and higher and higher. And where they meet, where the supply and demand meet, that tells us the equilibrium price and equilibrium quantity in the market. And we can show that with that line, and let's just say that equilibrium price is $10. And as I just mentioned, that's going to have to be the price that all of the firms, and these might not be all of the firms in the market, but all of the firms in the market, if we're talking about a perfectly competitive market, would just have to take that price. So given that, what quantity would firms A, B, and C produce, and which of these firms would be profitable or not?"}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And where they meet, where the supply and demand meet, that tells us the equilibrium price and equilibrium quantity in the market. And we can show that with that line, and let's just say that equilibrium price is $10. And as I just mentioned, that's going to have to be the price that all of the firms, and these might not be all of the firms in the market, but all of the firms in the market, if we're talking about a perfectly competitive market, would just have to take that price. So given that, what quantity would firms A, B, and C produce, and which of these firms would be profitable or not? I encourage you to pause the video and think about those two questions. If you could just answer which of these firms would be profitable or not, and we're talking about economic profit in this context. All right, well, let's look at firm A first."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "So given that, what quantity would firms A, B, and C produce, and which of these firms would be profitable or not? I encourage you to pause the video and think about those two questions. If you could just answer which of these firms would be profitable or not, and we're talking about economic profit in this context. All right, well, let's look at firm A first. Well, firm A, for any of them, it is not rational to produce a quantity where the marginal cost is higher than the marginal revenue that the firm's getting. And remember, this line right over here, this line right here, which is the price line, that's also, that is price, which is equal to marginal revenue. And so for that extra unit, if you can't sell it for more than you're producing, then you wouldn't produce that extra unit."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "All right, well, let's look at firm A first. Well, firm A, for any of them, it is not rational to produce a quantity where the marginal cost is higher than the marginal revenue that the firm's getting. And remember, this line right over here, this line right here, which is the price line, that's also, that is price, which is equal to marginal revenue. And so for that extra unit, if you can't sell it for more than you're producing, then you wouldn't produce that extra unit. So it's rational for them to produce more and more and more. The marginal cost goes higher and higher until right at the point that marginal cost is equal to marginal revenue, which is equal to price, the market price, which they're just going to take. So it's rational for this firm to produce this quantity right over here."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And so for that extra unit, if you can't sell it for more than you're producing, then you wouldn't produce that extra unit. So it's rational for them to produce more and more and more. The marginal cost goes higher and higher until right at the point that marginal cost is equal to marginal revenue, which is equal to price, the market price, which they're just going to take. So it's rational for this firm to produce this quantity right over here. So I'll just go quantity, I'll say quantity for that firm. Now, is this firm going to be profitable or not? Well, this quantity, what's its average total cost?"}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "So it's rational for this firm to produce this quantity right over here. So I'll just go quantity, I'll say quantity for that firm. Now, is this firm going to be profitable or not? Well, this quantity, what's its average total cost? Well, its average total cost is right over there. And so for every unit, it's going to make this difference between the price or the marginal revenue it's getting and its average total cost. And so one way to think about the profit of this firm is, and we're talking about economic profit, it's going to be the area of this rectangle right over here."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "Well, this quantity, what's its average total cost? Well, its average total cost is right over there. And so for every unit, it's going to make this difference between the price or the marginal revenue it's getting and its average total cost. And so one way to think about the profit of this firm is, and we're talking about economic profit, it's going to be the area of this rectangle right over here. So let's say if the average total cost at that quantity is, let's say that this is $8, then this height of the rectangle is 10 minus eight. The height right over here, let me do this in a different color, this height right over here is $2. And then the width is going to be the quantity of that firm."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And so one way to think about the profit of this firm is, and we're talking about economic profit, it's going to be the area of this rectangle right over here. So let's say if the average total cost at that quantity is, let's say that this is $8, then this height of the rectangle is 10 minus eight. The height right over here, let me do this in a different color, this height right over here is $2. And then the width is going to be the quantity of that firm. And so let's say the quantity of that firm, let's say it's 10,000 units a year, 10,000, 10,000 units per year. And so the area right over here would be $2 times 10,000. It would be $20,000."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And then the width is going to be the quantity of that firm. And so let's say the quantity of that firm, let's say it's 10,000 units a year, 10,000, 10,000 units per year. And so the area right over here would be $2 times 10,000. It would be $20,000. $20,000 per time unit, if we're talking all of this is, say, per year. Now let's go to firm B. Using that same analysis, is firm B making an economic profit or is it not making an economic profit?"}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "It would be $20,000. $20,000 per time unit, if we're talking all of this is, say, per year. Now let's go to firm B. Using that same analysis, is firm B making an economic profit or is it not making an economic profit? Well, firm B is once again going to be a price taker. And so the price right over here, the equilibrium price in the market, is going to be equal to the price that that firm has to take, which is going to be its marginal revenue curve. And that's why it's a flat marginal revenue curve, because no matter what quantity they produce, they're gonna get that same price."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "Using that same analysis, is firm B making an economic profit or is it not making an economic profit? Well, firm B is once again going to be a price taker. And so the price right over here, the equilibrium price in the market, is going to be equal to the price that that firm has to take, which is going to be its marginal revenue curve. And that's why it's a flat marginal revenue curve, because no matter what quantity they produce, they're gonna get that same price. And it wouldn't be rational for them to produce a quantity where marginal cost is higher than marginal revenue. And so they would produce right over there. Now what is their economic profit at this quantity?"}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And that's why it's a flat marginal revenue curve, because no matter what quantity they produce, they're gonna get that same price. And it wouldn't be rational for them to produce a quantity where marginal cost is higher than marginal revenue. And so they would produce right over there. Now what is their economic profit at this quantity? So this is quantity of the second firm, firm B. I'll write it like that. Maybe that is firm A. And maybe this is also, it looks about the same."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "Now what is their economic profit at this quantity? So this is quantity of the second firm, firm B. I'll write it like that. Maybe that is firm A. And maybe this is also, it looks about the same. I'll make them a little bit different. Let's say that's 9,500 units per time period. Well, here the average total cost at that quantity is equal to the marginal cost, which is equal to the marginal revenue."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And maybe this is also, it looks about the same. I'll make them a little bit different. Let's say that's 9,500 units per time period. Well, here the average total cost at that quantity is equal to the marginal cost, which is equal to the marginal revenue. So at that quantity, whatever that $10 they're getting per unit, they're also spending on average $10 per unit. Another way to think about it, the area of that rectangle is going to be zero because it has no height. So this situation right over here, the firm has zero economic, I'll write zero dollars of economic profit."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "Well, here the average total cost at that quantity is equal to the marginal cost, which is equal to the marginal revenue. So at that quantity, whatever that $10 they're getting per unit, they're also spending on average $10 per unit. Another way to think about it, the area of that rectangle is going to be zero because it has no height. So this situation right over here, the firm has zero economic, I'll write zero dollars of economic profit. And then last but not least, let's think about firm C. Pause this video and think about what its economic profit would be. Well, like we've seen, it would be rational for it to produce the quantity where marginal cost is equal to marginal revenue, which is equal to the market price. So it would produce this quantity right over here."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "So this situation right over here, the firm has zero economic, I'll write zero dollars of economic profit. And then last but not least, let's think about firm C. Pause this video and think about what its economic profit would be. Well, like we've seen, it would be rational for it to produce the quantity where marginal cost is equal to marginal revenue, which is equal to the market price. So it would produce this quantity right over here. And let's say that that quantity is 9,000 units. And what's its average total cost then? So at 9,000 units, its average total cost, let's say that that is $12 right over there."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "So it would produce this quantity right over here. And let's say that that quantity is 9,000 units. And what's its average total cost then? So at 9,000 units, its average total cost, let's say that that is $12 right over there. So what's its economic profit? So for every unit it's selling, it's getting $10 and it's costing $12 on average to produce it. So it's taking an economic loss of $2 per unit."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "So at 9,000 units, its average total cost, let's say that that is $12 right over there. So what's its economic profit? So for every unit it's selling, it's getting $10 and it's costing $12 on average to produce it. So it's taking an economic loss of $2 per unit. So $2 per unit, so this height right over here is $2, times the units, times 9,000, you're going to have two times 9,000, you're going to have an $18,000 not economic profit, but economic, economic loss. Now one thing to think about is, why would any firm be in this situation? Well, it's important to think about things in the short run versus the long run."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "So it's taking an economic loss of $2 per unit. So $2 per unit, so this height right over here is $2, times the units, times 9,000, you're going to have two times 9,000, you're going to have an $18,000 not economic profit, but economic, economic loss. Now one thing to think about is, why would any firm be in this situation? Well, it's important to think about things in the short run versus the long run. In the short run, we've talked about this analysis right over here, where a firm can decide what quantity it would produce that is rational. Its fixed costs are fixed in the short run. We've studied that in multiple videos."}, {"video_title": "Economic profit for firms in perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "Well, it's important to think about things in the short run versus the long run. In the short run, we've talked about this analysis right over here, where a firm can decide what quantity it would produce that is rational. Its fixed costs are fixed in the short run. We've studied that in multiple videos. But in the long run, its fixed costs aren't fixed, and so the firm could decide to enter or exit the market. And so for firm C, while they've already put in those fixed costs, it is actually rational for them to do it because they're actually able to make the marginal revenue they get up to that quantity, it's at least, they're able to more than cover their marginal costs, and then they're able to eat up, or I guess you could say, take care of some of their fixed costs, but they're still not able to run an economic profit. So in the long run, it wouldn't be rational for this firm to stay in the market."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "Typically, consumption taxes are a percentage of the actual price of the goods. So for example, sales taxes might be 8% or 9% of whatever you are buying. So let's think about how the supply curve, as perceived by the consumers, would look if we had a percentage tax. So now our government, instead of charging, instead of taxing $1 per hamburger, let's say that their tax is, and I'll make it big just to make it clear so that we can see the result of it. Let's say their tax is 20% of the price, 20% of the price of the hamburger. So let's think what's going to happen. Just like we saw in the last video, in order for producers to even think about producing that first hamburger, they need to get $2 per hamburger for it because that's their opportunity cost."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "So now our government, instead of charging, instead of taxing $1 per hamburger, let's say that their tax is, and I'll make it big just to make it clear so that we can see the result of it. Let's say their tax is 20% of the price, 20% of the price of the hamburger. So let's think what's going to happen. Just like we saw in the last video, in order for producers to even think about producing that first hamburger, they need to get $2 per hamburger for it because that's their opportunity cost. Using those same inputs, that same labor and resources, they could produce, their other opportunity would give them at least $2. So you have to give them at least $2 in order to focus on hamburgers. And every incremental hamburger after that, the opportunity cost goes more because now they'll be using things that are slightly less suited for making hamburgers and maybe slightly more suited for making other things."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "Just like we saw in the last video, in order for producers to even think about producing that first hamburger, they need to get $2 per hamburger for it because that's their opportunity cost. Using those same inputs, that same labor and resources, they could produce, their other opportunity would give them at least $2. So you have to give them at least $2 in order to focus on hamburgers. And every incremental hamburger after that, the opportunity cost goes more because now they'll be using things that are slightly less suited for making hamburgers and maybe slightly more suited for making other things. Now, that very first hamburger, you need to get $2 for it from the supplier point of view. But from the consumer point of view, they can't just pay $2 for it. They're going to have to pay $2 plus 20% of the $2."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "And every incremental hamburger after that, the opportunity cost goes more because now they'll be using things that are slightly less suited for making hamburgers and maybe slightly more suited for making other things. Now, that very first hamburger, you need to get $2 for it from the supplier point of view. But from the consumer point of view, they can't just pay $2 for it. They're going to have to pay $2 plus 20% of the $2. So 20% of $2 is 40 cents. So from the consumer's point of view, I'll do it in blue, they're going to have to pay about $2.40. And instead of, and right over here, if you want to get the suppliers to produce about 2.5 million hamburgers per day, they're going to have to get, especially for those incremental hamburgers, in order to get the 2.5 millionth hamburger produced, you're going to have to give $3 per hamburger for the supplier, but the consumer's not going to be able to pay $3."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "They're going to have to pay $2 plus 20% of the $2. So 20% of $2 is 40 cents. So from the consumer's point of view, I'll do it in blue, they're going to have to pay about $2.40. And instead of, and right over here, if you want to get the suppliers to produce about 2.5 million hamburgers per day, they're going to have to get, especially for those incremental hamburgers, in order to get the 2.5 millionth hamburger produced, you're going to have to give $3 per hamburger for the supplier, but the consumer's not going to be able to pay $3. They're going to have to pay $3 plus 20%. So that's $3.60. So that will put us right about there."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "And instead of, and right over here, if you want to get the suppliers to produce about 2.5 million hamburgers per day, they're going to have to get, especially for those incremental hamburgers, in order to get the 2.5 millionth hamburger produced, you're going to have to give $3 per hamburger for the supplier, but the consumer's not going to be able to pay $3. They're going to have to pay $3 plus 20%. So that's $3.60. So that will put us right about there. And if you go further, instead of $4, so if you want the producers to produce right around 4 million hamburgers per day, you'd have to pay them $4, but the consumers would have to pay 20% more than that. So they're going to have to pay $4.80. And so what you're going to see is, from the consumer's point of view, the supply curve, I should say, is going to look something like this."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "So that will put us right about there. And if you go further, instead of $4, so if you want the producers to produce right around 4 million hamburgers per day, you'd have to pay them $4, but the consumers would have to pay 20% more than that. So they're going to have to pay $4.80. And so what you're going to see is, from the consumer's point of view, the supply curve, I should say, is going to look something like this. It's not going to shift a fixed amount up, it's going to shift 20% up. So let me do that. So it's going to shift something like that."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "And so what you're going to see is, from the consumer's point of view, the supply curve, I should say, is going to look something like this. It's not going to shift a fixed amount up, it's going to shift 20% up. So let me do that. So it's going to shift something like that. So for lower values, it's going to shift a less absolute amount, because 20% of $2 is less than 20% of $3, which is less than 20% of $4. So as we have more quantity and more price, it'll shift up more and more, because 20% will then become a larger absolute amount. So the shift would look something like this."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "So it's going to shift something like that. So for lower values, it's going to shift a less absolute amount, because 20% of $2 is less than 20% of $3, which is less than 20% of $4. So as we have more quantity and more price, it'll shift up more and more, because 20% will then become a larger absolute amount. So the shift would look something like this. But at any given point, that is 20%. 20%, it's 20% higher than the price that the suppliers, than the producers would see. So it's going to be 20% higher than, say, $6 there."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "So the shift would look something like this. But at any given point, that is 20%. 20%, it's 20% higher than the price that the suppliers, than the producers would see. So it's going to be 20% higher than, say, $6 there. So this is going to be $1.20 higher. But you have the same exact phenomenon that we saw in the previous video. In the previous video, this entire area, this entire area was the surplus that both the consumers and the producers share."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "So it's going to be 20% higher than, say, $6 there. So this is going to be $1.20 higher. But you have the same exact phenomenon that we saw in the previous video. In the previous video, this entire area, this entire area was the surplus that both the consumers and the producers share. Now, the equilibrium quantity is less. Now the equilibrium quantity is less. It's going to move right over there, because we have this new curve."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "In the previous video, this entire area, this entire area was the surplus that both the consumers and the producers share. Now, the equilibrium quantity is less. Now the equilibrium quantity is less. It's going to move right over there, because we have this new curve. So our new equilibrium quantity is over here. So neither the consumers nor the government, nor the producers are going to be able to take advantage of this surplus, which was there when you didn't have the taxation. So this is why taxation is generally considered inefficient."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "It's going to move right over there, because we have this new curve. So our new equilibrium quantity is over here. So neither the consumers nor the government, nor the producers are going to be able to take advantage of this surplus, which was there when you didn't have the taxation. So this is why taxation is generally considered inefficient. Obviously, you have to do some of it, but it's generally inefficient. It reduces some level of economic activity, at least if you make all the assumptions in this model. And you have this deadweight loss, this surplus that can't be had by anyone."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "So this is why taxation is generally considered inefficient. Obviously, you have to do some of it, but it's generally inefficient. It reduces some level of economic activity, at least if you make all the assumptions in this model. And you have this deadweight loss, this surplus that can't be had by anyone. So there you still have a deadweight loss. And if you look at the revenue that the government will now have, it will still be this quantity. So it looks like our equilibrium quantity is now 3 million hamburgers per day, which is about what we got in the last one."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "And you have this deadweight loss, this surplus that can't be had by anyone. So there you still have a deadweight loss. And if you look at the revenue that the government will now have, it will still be this quantity. So it looks like our equilibrium quantity is now 3 million hamburgers per day, which is about what we got in the last one. And obviously, I'm not doing this very precisely. And it's going to be 60 cents. So 20% times $3 is 60 cents."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "So it looks like our equilibrium quantity is now 3 million hamburgers per day, which is about what we got in the last one. And obviously, I'm not doing this very precisely. And it's going to be 60 cents. So 20% times $3 is 60 cents. So the height is going to be 60 cents. So this height right over here is 60 cents. And the width right over here is 3 million hamburgers."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "So 20% times $3 is 60 cents. So the height is going to be 60 cents. So this height right over here is 60 cents. And the width right over here is 3 million hamburgers. So it's going to be 60 cents per hamburger, which is 20% of its price per hamburger, per hamburger times 3 million hamburgers. 3 million hamburgers gives us $1.8 million per day. And just like the previous one, now the producer's surplus has shrunken."}, {"video_title": "Percentage tax on hamburgers Microeconomics Khan Academy.mp3", "Sentence": "And the width right over here is 3 million hamburgers. So it's going to be 60 cents per hamburger, which is 20% of its price per hamburger, per hamburger times 3 million hamburgers. 3 million hamburgers gives us $1.8 million per day. And just like the previous one, now the producer's surplus has shrunken. The producer's surplus is now just going to be this area right over here. The producer's surplus is just going to be that area right over there. And the consumer surplus has also been shrunken."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "What we're going to do in this video is dig a little bit deeper into labor markets. It's really not going to be any fundamentally new concepts. We're really just going to reapply concepts that we've already seen before and maybe use slightly different words. But the reason why labor is interesting is labor is one of the factors of production. It's one of the inputs you need for firms to produce whatever they do produce. Unlike in most markets, if we're talking about the computer markets, let me write it over here. In the computer market, the demand is coming from individuals."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "But the reason why labor is interesting is labor is one of the factors of production. It's one of the inputs you need for firms to produce whatever they do produce. Unlike in most markets, if we're talking about the computer markets, let me write it over here. In the computer market, the demand is coming from individuals. I'll just call it individual people, while the supply is coming from firms. In the labor market, it's the other way around. In the labor market, the demand is coming from firms."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "In the computer market, the demand is coming from individuals. I'll just call it individual people, while the supply is coming from firms. In the labor market, it's the other way around. In the labor market, the demand is coming from firms. These are the people who need labor, who are hiring the labor. This is coming from firms, and the supply is coming from individual people. What's interesting about that is because the demand is coming from firms, in the past, when the supply was coming from firms, we could look at a firm's cost structure and we could come up with a supply curve from that."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "In the labor market, the demand is coming from firms. These are the people who need labor, who are hiring the labor. This is coming from firms, and the supply is coming from individual people. What's interesting about that is because the demand is coming from firms, in the past, when the supply was coming from firms, we could look at a firm's cost structure and we could come up with a supply curve from that. Now that the demand is coming from firms, we can look at a firm's revenue structure, the incremental revenue that they get per extra employee, and we can actually generate a demand curve, their marginal benefit curve, by looking at their business a little bit closer. That's essentially what we're going to be doing in this video. These aren't any fundamentally new ideas."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "What's interesting about that is because the demand is coming from firms, in the past, when the supply was coming from firms, we could look at a firm's cost structure and we could come up with a supply curve from that. Now that the demand is coming from firms, we can look at a firm's revenue structure, the incremental revenue that they get per extra employee, and we can actually generate a demand curve, their marginal benefit curve, by looking at their business a little bit closer. That's essentially what we're going to be doing in this video. These aren't any fundamentally new ideas. We're just applying them in a slightly different way, and we'll use slightly different words. Let's assume, for the sake of this video, that I run a car wash. It is a competitive car wash."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "These aren't any fundamentally new ideas. We're just applying them in a slightly different way, and we'll use slightly different words. Let's assume, for the sake of this video, that I run a car wash. It is a competitive car wash. I have to be a price taker. I do not have a monopoly or an oligopoly. I'm not even a monopolistic competitor."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "It is a competitive car wash. I have to be a price taker. I do not have a monopoly or an oligopoly. I'm not even a monopolistic competitor. There are many car washes in the city. We are undifferentiated. We are all offering the same surface."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "I'm not even a monopolistic competitor. There are many car washes in the city. We are undifferentiated. We are all offering the same surface. I'm going to be a price taker. Let's say the equilibrium price in this market for competitive car washes is $5 per car wash. Just as a little bit of review, that also means, remember, this is a competitive firm, not a monopoly, that my marginal revenue is equal to a constant $5 per car wash. If I do one car wash, I'll get $5."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "We are all offering the same surface. I'm going to be a price taker. Let's say the equilibrium price in this market for competitive car washes is $5 per car wash. Just as a little bit of review, that also means, remember, this is a competitive firm, not a monopoly, that my marginal revenue is equal to a constant $5 per car wash. If I do one car wash, I'll get $5. Two car washes, $10. Three car washes, $15. In a monopoly, the marginal revenue would change."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "If I do one car wash, I'll get $5. Two car washes, $10. Three car washes, $15. In a monopoly, the marginal revenue would change. Let's think about how much benefit I would get from each incremental employee. First, I'll do a... Let's make this column right over here. Let's take this L for labor."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "In a monopoly, the marginal revenue would change. Let's think about how much benefit I would get from each incremental employee. First, I'll do a... Let's make this column right over here. Let's take this L for labor. This is going to be the quantity of labor. I'm going to think what I hire. I'm going to hire zero people, one, two, three, four, or five people."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Let's take this L for labor. This is going to be the quantity of labor. I'm going to think what I hire. I'm going to hire zero people, one, two, three, four, or five people. Then let's think about how much that we can produce when I hire these amounts of people. I'll call that total product, or we could call that total product of labor. It's essentially saying how many cars can I wash?"}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "I'm going to hire zero people, one, two, three, four, or five people. Then let's think about how much that we can produce when I hire these amounts of people. I'll call that total product, or we could call that total product of labor. It's essentially saying how many cars can I wash? This is going to be car washes per hour. So cars washed per hour. How many cars can I wash per hour with a different number of people here?"}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "It's essentially saying how many cars can I wash? This is going to be car washes per hour. So cars washed per hour. How many cars can I wash per hour with a different number of people here? If I have zero people, I'm going to wash zero cars. Let's say that I find if I have one person, that that person can wash five cars per hour by him or herself. Two people can wash nine cars together."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "How many cars can I wash per hour with a different number of people here? If I have zero people, I'm going to wash zero cars. Let's say that I find if I have one person, that that person can wash five cars per hour by him or herself. Two people can wash nine cars together. Three people can do 12 cars. Four people can do 14. Five people can do 15 cars together."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Two people can wash nine cars together. Three people can do 12 cars. Four people can do 14. Five people can do 15 cars together. We can plot this. Let's plot this on a graph just to see what's going on. It always helps to visualize things."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Five people can do 15 cars together. We can plot this. Let's plot this on a graph just to see what's going on. It always helps to visualize things. That is going to be our total product. This is going to be our quantity of labor. The quantity of labor, we can have one, two, three, four, or five people."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "It always helps to visualize things. That is going to be our total product. This is going to be our quantity of labor. The quantity of labor, we can have one, two, three, four, or five people. This is actually zero people right over here. My total product goes all the way up to 15. Let's say that this is 15, this would be 10, and this would be 5."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "The quantity of labor, we can have one, two, three, four, or five people. This is actually zero people right over here. My total product goes all the way up to 15. Let's say that this is 15, this would be 10, and this would be 5. 5, 10, and 15. We can plot these points right over here. What is the total product?"}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Let's say that this is 15, this would be 10, and this would be 5. 5, 10, and 15. We can plot these points right over here. What is the total product? This is zero people. I'm not washing any cars per hour. Total product isn't cars washed per hour."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "What is the total product? This is zero people. I'm not washing any cars per hour. Total product isn't cars washed per hour. If I have one person, I can wash five cars per hour. If I have two people, I can wash nine cars per hour. Three people, I can wash 12 cars per hour."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Total product isn't cars washed per hour. If I have one person, I can wash five cars per hour. If I have two people, I can wash nine cars per hour. Three people, I can wash 12 cars per hour. Four people, I can wash 14 cars per hour. Finally, I can wash 15 cars per hour. Total product as a function of quantity of labor will look like a curve."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Three people, I can wash 12 cars per hour. Four people, I can wash 14 cars per hour. Finally, I can wash 15 cars per hour. Total product as a function of quantity of labor will look like a curve. I could just connect the dots or make it look a little bit more curvy. It's going to look something like that. One way that we should think about it, as you'll see in economics, is you always want to think about how much you want to produce or hire."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Total product as a function of quantity of labor will look like a curve. I could just connect the dots or make it look a little bit more curvy. It's going to look something like that. One way that we should think about it, as you'll see in economics, is you always want to think about how much you want to produce or hire. You always want to think about how much benefit you're getting for that incremental thing. When you're thinking about your cost structure, how much cost for that incremental unit. When you're thinking about your benefits or your demand, you're thinking how much benefit am I getting from that incremental unit."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "One way that we should think about it, as you'll see in economics, is you always want to think about how much you want to produce or hire. You always want to think about how much benefit you're getting for that incremental thing. When you're thinking about your cost structure, how much cost for that incremental unit. When you're thinking about your benefits or your demand, you're thinking how much benefit am I getting from that incremental unit. Let's view this as the marginal product, MP. Sometimes in some economics textbooks, I've seen this referred to as MPL, marginal product of labor. I'm going to put the L there to make it clear."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "When you're thinking about your benefits or your demand, you're thinking how much benefit am I getting from that incremental unit. Let's view this as the marginal product, MP. Sometimes in some economics textbooks, I've seen this referred to as MPL, marginal product of labor. I'm going to put the L there to make it clear. This is the marginal product of labor. When we go from zero people to one person, on average between those two points over there, we're able to, our delta, our change, delta is just the Greek letter that symbolizes change, our change in total product is five. We can view that as the average marginal product, or you could say view that as the marginal product halfway between these, that is the average marginal product between those two points right over there."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "I'm going to put the L there to make it clear. This is the marginal product of labor. When we go from zero people to one person, on average between those two points over there, we're able to, our delta, our change, delta is just the Greek letter that symbolizes change, our change in total product is five. We can view that as the average marginal product, or you could say view that as the marginal product halfway between these, that is the average marginal product between those two points right over there. That's why I wrote it in a row, that is in between these two points. It's taking us from zero to one. Actually, let me plot these while I draw them, while I calculate what they are."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "We can view that as the average marginal product, or you could say view that as the marginal product halfway between these, that is the average marginal product between those two points right over there. That's why I wrote it in a row, that is in between these two points. It's taking us from zero to one. Actually, let me plot these while I draw them, while I calculate what they are. I'll draw this one a little bit more flat so I have space, which I can scroll down a little bit. In this axis, I'm going to do marginal product of labor. Then on this axis, I'm going to have the quantity of labor."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Actually, let me plot these while I draw them, while I calculate what they are. I'll draw this one a little bit more flat so I have space, which I can scroll down a little bit. In this axis, I'm going to do marginal product of labor. Then on this axis, I'm going to have the quantity of labor. This is one, this is two, this is three, four people, and five people. This point right over here, that's the marginal product of labor halfway. You could view this as the slope halfway between zero and one, or you could view this as the average slope from zero to one."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Then on this axis, I'm going to have the quantity of labor. This is one, this is two, this is three, four people, and five people. This point right over here, that's the marginal product of labor halfway. You could view this as the slope halfway between zero and one, or you could view this as the average slope from zero to one. I'll plot it right over here. I'll view it, and actually I labeled these axes. Let's call this five, four, three, two, one."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "You could view this as the slope halfway between zero and one, or you could view this as the average slope from zero to one. I'll plot it right over here. I'll view it, and actually I labeled these axes. Let's call this five, four, three, two, one. Halfway between zero and one, my marginal product of labor is five, right over there. Then halfway between one and two, my marginal product of labor, I go from five cars washed per hour to nine, so my marginal product of labor is four. Between one and two, my marginal product of labor is four."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Let's call this five, four, three, two, one. Halfway between zero and one, my marginal product of labor is five, right over there. Then halfway between one and two, my marginal product of labor, I go from five cars washed per hour to nine, so my marginal product of labor is four. Between one and two, my marginal product of labor is four. Then between two and three, my marginal product of labor, I go from nine cars washed per hour to 12. I have three incremental cars washed by adding that third person. The average you could view as the slope right over there is going to be three."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Between one and two, my marginal product of labor is four. Then between two and three, my marginal product of labor, I go from nine cars washed per hour to 12. I have three incremental cars washed by adding that third person. The average you could view as the slope right over there is going to be three. The slope right over there is going to be three. I didn't make this completely to scale. Then, these are a little bit more bunched up down here, so let's just keep going."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "The average you could view as the slope right over there is going to be three. The slope right over there is going to be three. I didn't make this completely to scale. Then, these are a little bit more bunched up down here, so let's just keep going. Then, going from three to four, the marginal product of labor, I will go from 12 cars washed to 14, so I get two extra cars washed by adding that fourth person. Between three and four, I get an incremental on average, two cars for that extra person. Then finally, between four and five, I get one extra car."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Then, these are a little bit more bunched up down here, so let's just keep going. Then, going from three to four, the marginal product of labor, I will go from 12 cars washed to 14, so I get two extra cars washed by adding that fourth person. Between three and four, I get an incremental on average, two cars for that extra person. Then finally, between four and five, I get one extra car. Between four and five, I get exactly one extra car. I'm going to get, and it looks a little bit like a curve here because I bunched up the measurements, but this really should be a line. This really should be a line."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Then finally, between four and five, I get one extra car. Between four and five, I get exactly one extra car. I'm going to get, and it looks a little bit like a curve here because I bunched up the measurements, but this really should be a line. This really should be a line. Maybe I'll, well, that's my best. I don't want to have to re-plot all the points, but this should be a line like that. Every time we moved up one, we went down one."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "This really should be a line. Maybe I'll, well, that's my best. I don't want to have to re-plot all the points, but this should be a line like that. Every time we moved up one, we went down one. Every time we moved up one, we moved down one. We see that over here. When we went to five, four, three, two, one."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Every time we moved up one, we went down one. Every time we moved up one, we moved down one. We see that over here. When we went to five, four, three, two, one. Five, four, three, two, one. This really should be a straight line. This is essentially plotting the slope of this curve at any point."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "When we went to five, four, three, two, one. Five, four, three, two, one. This really should be a straight line. This is essentially plotting the slope of this curve at any point. Now, what we can think about is, because this by itself, this is telling us the marginal benefit in terms of cars washed, but this doesn't tell us the marginal benefit in terms of dollars. To do that, we need the marginal product revenue, or you could call it the value of the marginal product of labor. Let me write that over here."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "This is essentially plotting the slope of this curve at any point. Now, what we can think about is, because this by itself, this is telling us the marginal benefit in terms of cars washed, but this doesn't tell us the marginal benefit in terms of dollars. To do that, we need the marginal product revenue, or you could call it the value of the marginal product of labor. Let me write that over here. We could call this the MPR, MPR for marginal product revenue, or we could view that as the value of the marginal product of labor. Essentially, we're just saying, if we're washing five extra cars from that first person and I'm going to get $5 per car wash, I have a constant marginal revenue, I am a price taker, then I'm going to make $25 on those incremental five cars. If I wash four more cars, I'm going to, four times five, I'm going to make $20 extra."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Let me write that over here. We could call this the MPR, MPR for marginal product revenue, or we could view that as the value of the marginal product of labor. Essentially, we're just saying, if we're washing five extra cars from that first person and I'm going to get $5 per car wash, I have a constant marginal revenue, I am a price taker, then I'm going to make $25 on those incremental five cars. If I wash four more cars, I'm going to, four times five, I'm going to make $20 extra. If I wash three extra cars, I'm going to make $15 extra. Two extra cars, $10 extra. I'm just multiplying by five every time."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "If I wash four more cars, I'm going to, four times five, I'm going to make $20 extra. If I wash three extra cars, I'm going to make $15 extra. Two extra cars, $10 extra. I'm just multiplying by five every time. This is times five, times five, times five, times five. If I wash one extra car, times $5 per car, I'm going to make $5 extra. Essentially, we could take every point on this curve and we could multiply it by five to get our marginal product of revenue, or marginal product revenue."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "I'm just multiplying by five every time. This is times five, times five, times five, times five. If I wash one extra car, times $5 per car, I'm going to make $5 extra. Essentially, we could take every point on this curve and we could multiply it by five to get our marginal product of revenue, or marginal product revenue. Be careful where I say the of's. Let me plot that. I'll try to plot that a little bit neater so it's clear that this is a line."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Essentially, we could take every point on this curve and we could multiply it by five to get our marginal product of revenue, or marginal product revenue. Be careful where I say the of's. Let me plot that. I'll try to plot that a little bit neater so it's clear that this is a line. That's my marginal product revenue. You could also view that as the marginal benefit calculated in terms of dollars. You could view this as the marginal benefit in terms of cars washed."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "I'll try to plot that a little bit neater so it's clear that this is a line. That's my marginal product revenue. You could also view that as the marginal benefit calculated in terms of dollars. You could view this as the marginal benefit in terms of cars washed. This is the marginal benefit in terms of dollars. Right over here, we're going to have the quantity of labor. One, two, three."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "You could view this as the marginal benefit in terms of cars washed. This is the marginal benefit in terms of dollars. Right over here, we're going to have the quantity of labor. One, two, three. Actually, I want them to line up a little bit better. One is right over there, two is right over there, three is there, four is there, five is there. One, two, three, four, five."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "One, two, three. Actually, I want them to line up a little bit better. One is right over there, two is right over there, three is there, four is there, five is there. One, two, three, four, five. Let me scroll down a little bit. This is my quantity of labor. The marginal product revenue goes up to 25."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "One, two, three, four, five. Let me scroll down a little bit. This is my quantity of labor. The marginal product revenue goes up to 25. Let's say this is five, 10, 15, 20, and 25. Halfway between zero and one person, this is 25 right over here, I am producing $25 or I get an incremental revenue of $25 halfway on average. You can view this point right over here."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "The marginal product revenue goes up to 25. Let's say this is five, 10, 15, 20, and 25. Halfway between zero and one person, this is 25 right over here, I am producing $25 or I get an incremental revenue of $25 halfway on average. You can view this point right over here. Multiply it by five. I'm getting to $25 on average for that incremental person. Then when we go to this point right over here, we're getting $20."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "You can view this point right over here. Multiply it by five. I'm getting to $25 on average for that incremental person. Then when we go to this point right over here, we're getting $20. We're getting $20. That's this right over there. Then when we go to this point in orange, if we multiply it times five, we get $15."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Then when we go to this point right over here, we're getting $20. We're getting $20. That's this right over there. Then when we go to this point in orange, if we multiply it times five, we get $15. This is five, 10, 15. That's halfway between two and three. Our marginal product revenue is $15."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Then when we go to this point in orange, if we multiply it times five, we get $15. This is five, 10, 15. That's halfway between two and three. Our marginal product revenue is $15. Let me make it clear. This is 15 right over there. Then halfway between three and four people, it's $10."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Our marginal product revenue is $15. Let me make it clear. This is 15 right over there. Then halfway between three and four people, it's $10. Halfway between three and four, it is $10. It's going to look something like this. Then halfway between four and five, it is $5."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Then halfway between three and four people, it's $10. Halfway between three and four, it is $10. It's going to look something like this. Then halfway between four and five, it is $5. We're just picking points along here. We picked the midpoint, the slope at those points, or the average slope between zero and one. If you assume this curve has a continuous slope, that the slope changes continuously, then this will be a line, and then this will be a line as well."}, {"video_title": "A firm's marginal product revenue curve Microeconomics Khan Academy.mp3", "Sentence": "Then halfway between four and five, it is $5. We're just picking points along here. We picked the midpoint, the slope at those points, or the average slope between zero and one. If you assume this curve has a continuous slope, that the slope changes continuously, then this will be a line, and then this will be a line as well. Our line would look something like that. What's neat about this line is essentially this is the marginal benefit curve for this firm as it gets more and more labor. It's essentially the demand curve for this firm."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "So what does scarcity mean? Well, think about it, what does it mean in everyday life? It means that there's not enough of something to go around. If we're talking about scarce goods, scarce services, scarce resources, we're talking about things where if there was no cost associated with them, people would use far more of that than there actually is around. And in this video, we're gonna think about different types of goods and services, or just resources, and think about whether they are scarce or not. So a related idea to scarce resources is its opposite, which is the notion of a free resource. So this is something that you could argue is infinitely abundant, or at least in a certain context, is so abundant that it feels like people can have as much of it as they want."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "If we're talking about scarce goods, scarce services, scarce resources, we're talking about things where if there was no cost associated with them, people would use far more of that than there actually is around. And in this video, we're gonna think about different types of goods and services, or just resources, and think about whether they are scarce or not. So a related idea to scarce resources is its opposite, which is the notion of a free resource. So this is something that you could argue is infinitely abundant, or at least in a certain context, is so abundant that it feels like people can have as much of it as they want. The more that one person has of it, it doesn't take away from someone else. And the reason why scarcity is essential to economics is because economics is the study of how do you allocate these scarce resources. If there's more demand for it than the amount of thing that there is, well, who gets it?"}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "So this is something that you could argue is infinitely abundant, or at least in a certain context, is so abundant that it feels like people can have as much of it as they want. The more that one person has of it, it doesn't take away from someone else. And the reason why scarcity is essential to economics is because economics is the study of how do you allocate these scarce resources. If there's more demand for it than the amount of thing that there is, well, who gets it? How much of it do they get? And what do they have to give up in exchange to get those scarce resources? But for the sake of this video, let's just first make sure we understand and have a good idea of what resources are scarce and which ones aren't and why."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "If there's more demand for it than the amount of thing that there is, well, who gets it? How much of it do they get? And what do they have to give up in exchange to get those scarce resources? But for the sake of this video, let's just first make sure we understand and have a good idea of what resources are scarce and which ones aren't and why. So this is a picture of caviar, which is essentially fish eggs. And it's not easy to get. The fish eggs are deep in the water."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "But for the sake of this video, let's just first make sure we understand and have a good idea of what resources are scarce and which ones aren't and why. So this is a picture of caviar, which is essentially fish eggs. And it's not easy to get. The fish eggs are deep in the water. Someone has to get to them, and then they have to package it in some way, and they have to get it to your plate. And so do you think that caviar is a scarce resource or a free resource? Well, if it was a free resource, that means that we're just swimming in caviar, that it's so abundant that I could just have as much caviar as I want, and there's still as much as you want, and that everyone gets as much caviar as they like."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "The fish eggs are deep in the water. Someone has to get to them, and then they have to package it in some way, and they have to get it to your plate. And so do you think that caviar is a scarce resource or a free resource? Well, if it was a free resource, that means that we're just swimming in caviar, that it's so abundant that I could just have as much caviar as I want, and there's still as much as you want, and that everyone gets as much caviar as they like. Well, that's clearly not the case. Caviar is a scarce resource. In fact, it is a quite scarce resource."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "Well, if it was a free resource, that means that we're just swimming in caviar, that it's so abundant that I could just have as much caviar as I want, and there's still as much as you want, and that everyone gets as much caviar as they like. Well, that's clearly not the case. Caviar is a scarce resource. In fact, it is a quite scarce resource. And because of that, if you want it, you have to give up a good bit to get it. This is a picture of some people working in a factory. And the resource that jumps out here is that of labor."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "In fact, it is a quite scarce resource. And because of that, if you want it, you have to give up a good bit to get it. This is a picture of some people working in a factory. And the resource that jumps out here is that of labor. And labor's interesting because it's not as tangible as something like caviar, but it is a resource. And one could even argue that the caviar on your plate, some of its scarcity comes from the labor involved of getting it to your plate. But here, these are clearly, it looks like these are gentlemen who are putting together some type of fabric."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "And the resource that jumps out here is that of labor. And labor's interesting because it's not as tangible as something like caviar, but it is a resource. And one could even argue that the caviar on your plate, some of its scarcity comes from the labor involved of getting it to your plate. But here, these are clearly, it looks like these are gentlemen who are putting together some type of fabric. And so would you consider labor, would you consider that a scarce resource or a free resource? Well, it would be a free resource if people were willing to just do as much work for other people, actually willing to do an infinite amount of work for other people, which isn't even humanly possible. And even if it was humanly possible, people aren't willing to do that."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "But here, these are clearly, it looks like these are gentlemen who are putting together some type of fabric. And so would you consider labor, would you consider that a scarce resource or a free resource? Well, it would be a free resource if people were willing to just do as much work for other people, actually willing to do an infinite amount of work for other people, which isn't even humanly possible. And even if it was humanly possible, people aren't willing to do that. They want something in return. And so once again, it is a scarce resource. There's many resources that are pictured right here."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "And even if it was humanly possible, people aren't willing to do that. They want something in return. And so once again, it is a scarce resource. There's many resources that are pictured right here. You have this beautiful town next to this alpine lake. And so some clear scarce resources are here. Many people would love to have a view like you would get from this house or hotel right over here."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "There's many resources that are pictured right here. You have this beautiful town next to this alpine lake. And so some clear scarce resources are here. Many people would love to have a view like you would get from this house or hotel right over here. But not everyone, and many people would love to live there because of the view, but not everyone can live there. So that is a scarce resource. The water here is an interesting one."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "Many people would love to have a view like you would get from this house or hotel right over here. But not everyone, and many people would love to live there because of the view, but not everyone can live there. So that is a scarce resource. The water here is an interesting one. I could imagine in earlier times, if before there was a town here, if there was just a primitive village living next to this fresh water, they would probably view it as a free resource. If someone was thirsty, they would just go up to the lake and they would just drink from the lake. They would not have to give up anything to drink from that."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "The water here is an interesting one. I could imagine in earlier times, if before there was a town here, if there was just a primitive village living next to this fresh water, they would probably view it as a free resource. If someone was thirsty, they would just go up to the lake and they would just drink from the lake. They would not have to give up anything to drink from that. But now the town, it might be a little bit more of a scarce resource. They might wanna preserve it for various reasons. In order to get the water to your sink in your house, there might be some services or goods or labor involved."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "They would not have to give up anything to drink from that. But now the town, it might be a little bit more of a scarce resource. They might wanna preserve it for various reasons. In order to get the water to your sink in your house, there might be some services or goods or labor involved. Someone has to set up the pipes. Maybe it has to be cleaned in some way. Well, then it might become a little bit more of a scarce resource."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "In order to get the water to your sink in your house, there might be some services or goods or labor involved. Someone has to set up the pipes. Maybe it has to be cleaned in some way. Well, then it might become a little bit more of a scarce resource. Air, for most of human history, has been considered a free resource. And even today, I'd argue that something like oxygen, at least on our planet, is considered a free resource. When I take a deep breath, it does not affect your ability to take a deep breath."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "Well, then it might become a little bit more of a scarce resource. Air, for most of human history, has been considered a free resource. And even today, I'd argue that something like oxygen, at least on our planet, is considered a free resource. When I take a deep breath, it does not affect your ability to take a deep breath. It does not take oxygen away from you. Now, is there an infinite amount of oxygen in our atmosphere? No, but for our purposes, it feels like there's an infinite amount."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "When I take a deep breath, it does not affect your ability to take a deep breath. It does not take oxygen away from you. Now, is there an infinite amount of oxygen in our atmosphere? No, but for our purposes, it feels like there's an infinite amount. Now, if the photosynthetic plants were to disappear and all of a sudden the oxygen started to get diminished, or if we were in a space station where there isn't a seemingly infinite amount of oxygen, well, then you could imagine a world where it could become a scarce resource. You could imagine a colony on the moon or on Mars or in the space station where it had some type of economic system to decide who gets how much oxygen. So I will leave you there."}, {"video_title": "Scarcity Basic economics concepts Economics Khan Academy.mp3", "Sentence": "No, but for our purposes, it feels like there's an infinite amount. Now, if the photosynthetic plants were to disappear and all of a sudden the oxygen started to get diminished, or if we were in a space station where there isn't a seemingly infinite amount of oxygen, well, then you could imagine a world where it could become a scarce resource. You could imagine a colony on the moon or on Mars or in the space station where it had some type of economic system to decide who gets how much oxygen. So I will leave you there. As already mentioned, scarcity is the central idea in all of economics. It's the reason why we even need a field called economics. And as you go forward in your study of both micro and macro economics, we'll be looking at ways to allocate these scarce resources."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "Let's look a little bit at the market for hamburgers. So this is the supply and the demand curve for the price and the quantity of hamburgers sold per day. And so if we have a completely unfettered market, no intervention, no taxes, nothing like that, then we see we have an equilibrium price and an equilibrium quantity. The equilibrium price looks like it's about $3.75 per hamburger. The equilibrium quantity looks like it's about a little bit more. Excuse me if I draw that line a little bit differently. The equilibrium quantity looks like it's about $3.00, or sorry, it's about 3 and 1 1 half million hamburgers per day."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "The equilibrium price looks like it's about $3.75 per hamburger. The equilibrium quantity looks like it's about a little bit more. Excuse me if I draw that line a little bit differently. The equilibrium quantity looks like it's about $3.00, or sorry, it's about 3 and 1 1 half million hamburgers per day. And just to review what we've talked about before, up here, below the demand curve and above the price, use a price equals $3.75 line right over here, this is how much value, this is how much benefit the consumers are getting above and beyond what they have to pay. So that is the consumer surplus. And then between this price equals $3.75 line and the supply curve, you have your producer surplus."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "The equilibrium quantity looks like it's about $3.00, or sorry, it's about 3 and 1 1 half million hamburgers per day. And just to review what we've talked about before, up here, below the demand curve and above the price, use a price equals $3.75 line right over here, this is how much value, this is how much benefit the consumers are getting above and beyond what they have to pay. So that is the consumer surplus. And then between this price equals $3.75 line and the supply curve, you have your producer surplus. So this is how much more the producers are getting for each hamburger relative to what their opportunity cost of producing that incremental hamburger was. So this right over here is the producer surplus. Now let's say, and actually these numbers are quasi-realistic."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "And then between this price equals $3.75 line and the supply curve, you have your producer surplus. So this is how much more the producers are getting for each hamburger relative to what their opportunity cost of producing that incremental hamburger was. So this right over here is the producer surplus. Now let's say, and actually these numbers are quasi-realistic. I have 3 and 1 half million hamburgers per day. I actually looked it up before this video. It looks like McDonald's, at least based on the information I got, sells a little bit over 4 million hamburgers per day in the United States."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "Now let's say, and actually these numbers are quasi-realistic. I have 3 and 1 half million hamburgers per day. I actually looked it up before this video. It looks like McDonald's, at least based on the information I got, sells a little bit over 4 million hamburgers per day in the United States. So I didn't clarify whether this is just hamburgers from one vendor or multiple vendors, but it's not a crazy number of hamburgers to sell in a fairly large country. But for the sake of this, it's not necessarily McDonald's hamburgers. We're just talking about this is the total market for hamburgers in a country."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "It looks like McDonald's, at least based on the information I got, sells a little bit over 4 million hamburgers per day in the United States. So I didn't clarify whether this is just hamburgers from one vendor or multiple vendors, but it's not a crazy number of hamburgers to sell in a fairly large country. But for the sake of this, it's not necessarily McDonald's hamburgers. We're just talking about this is the total market for hamburgers in a country. We're making the kind of simplifying assumption that all hamburgers are created equal, which we know is not true. Now the government in this hypothetical civilization says, wow, a lot of hamburgers are being sold. We need more revenue for the government to do other things or maybe to pay off their debt or whatever they need to do."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "We're just talking about this is the total market for hamburgers in a country. We're making the kind of simplifying assumption that all hamburgers are created equal, which we know is not true. Now the government in this hypothetical civilization says, wow, a lot of hamburgers are being sold. We need more revenue for the government to do other things or maybe to pay off their debt or whatever they need to do. And so they decide to tax hamburgers. They want to tax hamburgers. And they're going to make it very simple."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "We need more revenue for the government to do other things or maybe to pay off their debt or whatever they need to do. And so they decide to tax hamburgers. They want to tax hamburgers. And they're going to make it very simple. They're not going to do a percentage. Most sales taxes tend to be a percentage of the price. But instead, they're just going to do a tax of $1 per hamburger."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "And they're going to make it very simple. They're not going to do a percentage. Most sales taxes tend to be a percentage of the price. But instead, they're just going to do a tax of $1 per hamburger. So let's think about what this does to the surplus, to the price at which transactions will go on and what people will have to pay versus what they will have to get. So at any given point, so if we look at the supply curve right over here, in order to get someone to produce that very first hamburger, they have to get at least $2 for it. Because that's their opportunity cost."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "But instead, they're just going to do a tax of $1 per hamburger. So let's think about what this does to the surplus, to the price at which transactions will go on and what people will have to pay versus what they will have to get. So at any given point, so if we look at the supply curve right over here, in order to get someone to produce that very first hamburger, they have to get at least $2 for it. Because that's their opportunity cost. They could use those exact same resources, the land, the labor, whatever else, to produce something else that has $2 of value. So you have to pay them at least $2 in order for them to produce hamburgers. And the more hamburgers you want the suppliers to produce, you have to pay them more and more for those incremental hamburgers because they're going to start using resources that might have been better and better used for other things and that are not as efficiently used for hamburgers."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "Because that's their opportunity cost. They could use those exact same resources, the land, the labor, whatever else, to produce something else that has $2 of value. So you have to pay them at least $2 in order for them to produce hamburgers. And the more hamburgers you want the suppliers to produce, you have to pay them more and more for those incremental hamburgers because they're going to start using resources that might have been better and better used for other things and that are not as efficiently used for hamburgers. You have to pay them more and more and more. So this is what the supply curve that I originally drew right over here in magenta is what the suppliers need to see in order to produce a certain quantity. If you want them to produce 3 million hamburgers, you have to be willing to pay $3 per hamburger because that's their opportunity cost of those incremental hamburgers up here."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "And the more hamburgers you want the suppliers to produce, you have to pay them more and more for those incremental hamburgers because they're going to start using resources that might have been better and better used for other things and that are not as efficiently used for hamburgers. You have to pay them more and more and more. So this is what the supply curve that I originally drew right over here in magenta is what the suppliers need to see in order to produce a certain quantity. If you want them to produce 3 million hamburgers, you have to be willing to pay $3 per hamburger because that's their opportunity cost of those incremental hamburgers up here. Now let's think about what happens when you add the tax. This is what the suppliers are going to get or the producers are going to get. But when you put a tax, the consumers are going to have to pay $1 more."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "If you want them to produce 3 million hamburgers, you have to be willing to pay $3 per hamburger because that's their opportunity cost of those incremental hamburgers up here. Now let's think about what happens when you add the tax. This is what the suppliers are going to get or the producers are going to get. But when you put a tax, the consumers are going to have to pay $1 more. So over here, in order to produce this much, the suppliers are going to have to get $3 per hamburger, but then the consumers are going to have to pay $1 more. So they're going to have to pay $1 more. In order to get the suppliers to produce 2 million hamburgers, you're going to have to pay them this much."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "But when you put a tax, the consumers are going to have to pay $1 more. So over here, in order to produce this much, the suppliers are going to have to get $3 per hamburger, but then the consumers are going to have to pay $1 more. So they're going to have to pay $1 more. In order to get the suppliers to produce 2 million hamburgers, you're going to have to pay them this much. You're going to have to pay them about $2.50. But then the consumers are going to pay $1 more So they're going to have to pay that much. In order to get them to produce at all, you're going to have to pay at least $2."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "In order to get the suppliers to produce 2 million hamburgers, you're going to have to pay them this much. You're going to have to pay them about $2.50. But then the consumers are going to pay $1 more So they're going to have to pay that much. In order to get them to produce at all, you're going to have to pay at least $2. But then if the suppliers, if the producers are getting $2, the consumers are going to have to pay $1 more for the tax. So they're going to have to pay $1 more. So one way to think about it is the supply curve from the consumer's point of view is going to be shifted $1 more than the supply curve from the producer's point of view."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "In order to get them to produce at all, you're going to have to pay at least $2. But then if the suppliers, if the producers are getting $2, the consumers are going to have to pay $1 more for the tax. So they're going to have to pay $1 more. So one way to think about it is the supply curve from the consumer's point of view is going to be shifted $1 more than the supply curve from the producer's point of view. So it's going to be shifted up $1. So it's going to look something... I could do a better job than that."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "So one way to think about it is the supply curve from the consumer's point of view is going to be shifted $1 more than the supply curve from the producer's point of view. So it's going to be shifted up $1. So it's going to look something... I could do a better job than that. It's going to look something like that. Where at every point, because this is a fixed dollar, it's not a percentage, at every point this distance right over here is going to be $1. So what happens there?"}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "I could do a better job than that. It's going to look something like that. Where at every point, because this is a fixed dollar, it's not a percentage, at every point this distance right over here is going to be $1. So what happens there? From the consumer's point of view, what we have is now a new price that they're willing to consume at. Because now this reality is not possible anymore. There's no way for the consumers to pay $3.50 and for the producers to see $3.50 as well."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "So what happens there? From the consumer's point of view, what we have is now a new price that they're willing to consume at. Because now this reality is not possible anymore. There's no way for the consumers to pay $3.50 and for the producers to see $3.50 as well. So we get to a new equilibrium price and equilibrium quantity now. Because now, since this is from the consumer's point of view, the point at which they intersect is right over there, which is a little bit over $4 per burger, and it's a slightly lower quantity. Let's just say, just for round numbers, that's about 3 million burgers per day."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "There's no way for the consumers to pay $3.50 and for the producers to see $3.50 as well. So we get to a new equilibrium price and equilibrium quantity now. Because now, since this is from the consumer's point of view, the point at which they intersect is right over there, which is a little bit over $4 per burger, and it's a slightly lower quantity. Let's just say, just for round numbers, that's about 3 million burgers per day. So what happened there? Before, this whole area was a total surplus. Below this green line was the producer surplus, above the green line, and below this curve right here was the consumer surplus."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "Let's just say, just for round numbers, that's about 3 million burgers per day. So what happened there? Before, this whole area was a total surplus. Below this green line was the producer surplus, above the green line, and below this curve right here was the consumer surplus. Now we've lost part of it. We've lost this part right over here. So this is our deadweight loss."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "Below this green line was the producer surplus, above the green line, and below this curve right here was the consumer surplus. Now we've lost part of it. We've lost this part right over here. So this is our deadweight loss. This is no longer part of the total consumer and producer surplus. So that is deadweight loss. So the taxation got us from an efficient situation where we had that kind of maximum consumer and producer surplus."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "So this is our deadweight loss. This is no longer part of the total consumer and producer surplus. So that is deadweight loss. So the taxation got us from an efficient situation where we had that kind of maximum consumer and producer surplus. This is our deadweight loss over here. And how much revenue is the government going to get now? Well, if we assume that this is 3 million, they're going to have 3 million burgers."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "So the taxation got us from an efficient situation where we had that kind of maximum consumer and producer surplus. This is our deadweight loss over here. And how much revenue is the government going to get now? Well, if we assume that this is 3 million, they're going to have 3 million burgers. So this is 3 million right over here. They're going to have 3 million burgers times $1 per burger. So let me do it this way."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "Well, if we assume that this is 3 million, they're going to have 3 million burgers. So this is 3 million right over here. They're going to have 3 million burgers times $1 per burger. So let me do it this way. So this length right over here is going to be the area of this rectangle that I'm doing in orange. So this length right over here is 3. That length right over there is 3 million."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "So let me do it this way. So this length right over here is going to be the area of this rectangle that I'm doing in orange. So this length right over here is 3. That length right over there is 3 million. And then the height is that dollar. The height is the dollar. So let me shade it in."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "That length right over there is 3 million. And then the height is that dollar. The height is the dollar. So let me shade it in. The height is that dollar right over there. So this is going to be $1 in height. So the tax revenue that the government is going to get is 3 million times $1, or 3 million burgers times $1, which is going to be $3 million per day."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "So let me shade it in. The height is that dollar right over there. So this is going to be $1 in height. So the tax revenue that the government is going to get is 3 million times $1, or 3 million burgers times $1, which is going to be $3 million per day. Which is interesting because maybe the government official thought they were going to get more because they look at the projections. They said, wait, there's going to be 3.5 million burgers sold per day, so I'm going to get $3.5 million. But what they didn't realize is that they're making the burgers more expensive."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "So the tax revenue that the government is going to get is 3 million times $1, or 3 million burgers times $1, which is going to be $3 million per day. Which is interesting because maybe the government official thought they were going to get more because they look at the projections. They said, wait, there's going to be 3.5 million burgers sold per day, so I'm going to get $3.5 million. But what they didn't realize is that they're making the burgers more expensive. So there's going to be a lower quantity demanded. The actual clearing quantity or the actual equilibrium quantity now is only going to be 3 million. And the way we see it, it removed this surplus here from both the consumer surplus and the producer surplus."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "But what they didn't realize is that they're making the burgers more expensive. So there's going to be a lower quantity demanded. The actual clearing quantity or the actual equilibrium quantity now is only going to be 3 million. And the way we see it, it removed this surplus here from both the consumer surplus and the producer surplus. And no one's getting that. Not even the government's getting that. So no one's getting that white part right over there."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "And the way we see it, it removed this surplus here from both the consumer surplus and the producer surplus. And no one's getting that. Not even the government's getting that. So no one's getting that white part right over there. And this orange part right over here is eating into the consumer surplus. So now they're paying more than they're... Or another way to think about it is the difference between the benefit they're getting and what they're paying at any given point for any given incremental consumer is now less, and the producer surplus is less. The excess of what they're getting for each hamburger versus their opportunity cost is now less."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "So no one's getting that white part right over there. And this orange part right over here is eating into the consumer surplus. So now they're paying more than they're... Or another way to think about it is the difference between the benefit they're getting and what they're paying at any given point for any given incremental consumer is now less, and the producer surplus is less. The excess of what they're getting for each hamburger versus their opportunity cost is now less. So the producer surplus has now been shrunken back to this area right over here. And these are curves here, so we can't just do simple geometry to figure out the area of triangles. You would actually have to do a little calculus to figure out the area of these curves."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "The excess of what they're getting for each hamburger versus their opportunity cost is now less. So the producer surplus has now been shrunken back to this area right over here. And these are curves here, so we can't just do simple geometry to figure out the area of triangles. You would actually have to do a little calculus to figure out the area of these curves. And then the consumer surplus has been pushed back to this area above the orange right over here. So you see, governments, for the most part, have to do some type of taxation in order to get revenue. And it could be income tax or it could be a sales tax like this right over here."}, {"video_title": "Taxation and dead weight loss Microeconomics Khan Academy.mp3", "Sentence": "You would actually have to do a little calculus to figure out the area of these curves. And then the consumer surplus has been pushed back to this area above the orange right over here. So you see, governments, for the most part, have to do some type of taxation in order to get revenue. And it could be income tax or it could be a sales tax like this right over here. But when they do it, it gets us into a non-efficient state. And it does cause some, depending on how these curves are shaped, it does cause some deadweight loss, some benefit in excess of what had to be paid. Some of that disappears, but it allows at least the government to get revenue, depending on whether you think that's a good thing or not."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "So it might look like that, that's one indifference curve, then another indifference curve would look like that, and I could keep drawing indifference curves. And this is what an indifference curve would look like for two normal goods. Let me write that down, normal, these are normal goods. And the reason why normal goods and indifference curves would look like that, or when I'm trying to figure out the combinations of two normal goods, is because if I have a lot of one good, so this point right over here, I have a lot of good A and I have very little of good B, I would be willing to trade off a lot of A to get one extra B. But if all of a sudden I have a lot of B and a lot less A, I would be willing to trade off very little A to get an incremental B. So that's why we have kind of this inward bow-shaped curve right over here, or mathematically it looks like it's part of a hyperbola. And so that's what normal goods, the indifference curves, if you're trading off between normal goods would look like."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "And the reason why normal goods and indifference curves would look like that, or when I'm trying to figure out the combinations of two normal goods, is because if I have a lot of one good, so this point right over here, I have a lot of good A and I have very little of good B, I would be willing to trade off a lot of A to get one extra B. But if all of a sudden I have a lot of B and a lot less A, I would be willing to trade off very little A to get an incremental B. So that's why we have kind of this inward bow-shaped curve right over here, or mathematically it looks like it's part of a hyperbola. And so that's what normal goods, the indifference curves, if you're trading off between normal goods would look like. Now let's think about the indifference curves, so it would be this kind of curve thing, the marginal rate of substitution would constantly be changing. Now let's think about different types of goods. Let's say that this is the quantity of $5 bills, and let's say that this is the quantity of $10 bills."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "And so that's what normal goods, the indifference curves, if you're trading off between normal goods would look like. Now let's think about the indifference curves, so it would be this kind of curve thing, the marginal rate of substitution would constantly be changing. Now let's think about different types of goods. Let's say that this is the quantity of $5 bills, and let's say that this is the quantity of $10 bills. And we're talking about the actual, the good now is actually the dollar bills. So let's say that this right over here is $10, $5 bills, well that's $50, I'd be indifferent between that and 5 $10 bills. So this is 5 right over here."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "Let's say that this is the quantity of $5 bills, and let's say that this is the quantity of $10 bills. And we're talking about the actual, the good now is actually the dollar bills. So let's say that this right over here is $10, $5 bills, well that's $50, I'd be indifferent between that and 5 $10 bills. So this is 5 right over here. And any point in between I would be indifferent because I'm always willing to trade off 2 $5 bills for 1 $10 bill. So it would look, my indifference curve would be linear in this case. My indifference curve would be linear."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "So this is 5 right over here. And any point in between I would be indifferent because I'm always willing to trade off 2 $5 bills for 1 $10 bill. So it would look, my indifference curve would be linear in this case. My indifference curve would be linear. So no matter what, on this indifference curve, I'm always willing, if I want to get 1 extra $10 bill, I'm always willing to give up 2 $5 bills, which makes complete sense because 2 $5 bills are completely equivalent to 1 $10 bill. And we could take it to another extreme. Let's say I have an indifference, let me draw the quantity, the quantity of, I don't know, the quantity of M&M's, quantity of M&M's, let's say red M&M's, red M&M's, and I should have done that in red, but I won't."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "My indifference curve would be linear. So no matter what, on this indifference curve, I'm always willing, if I want to get 1 extra $10 bill, I'm always willing to give up 2 $5 bills, which makes complete sense because 2 $5 bills are completely equivalent to 1 $10 bill. And we could take it to another extreme. Let's say I have an indifference, let me draw the quantity, the quantity of, I don't know, the quantity of M&M's, quantity of M&M's, let's say red M&M's, red M&M's, and I should have done that in red, but I won't. And then let's say this is the quantity of blue M&M's. And let's say that I actually am indifferent between red and blue M&M's. Some people aren't."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "Let's say I have an indifference, let me draw the quantity, the quantity of, I don't know, the quantity of M&M's, quantity of M&M's, let's say red M&M's, red M&M's, and I should have done that in red, but I won't. And then let's say this is the quantity of blue M&M's. And let's say that I actually am indifferent between red and blue M&M's. Some people aren't. Red M&M's and blue M&M's. So having 10 red M&M's is to me is completely equivalent of having 10 blue M&M's. So I'm willing to trade them off 1 for 1."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "Some people aren't. Red M&M's and blue M&M's. So having 10 red M&M's is to me is completely equivalent of having 10 blue M&M's. So I'm willing to trade them off 1 for 1. I don't care. I get the same total utility. I get the same total utility."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "So I'm willing to trade them off 1 for 1. I don't care. I get the same total utility. I get the same total utility. So in this case, assuming that I really don't care about the color of my M&M, I'm completely indifferent as I swap them out. And so this is a case of perfect substitutes. Perfect substitutes."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "I get the same total utility. So in this case, assuming that I really don't care about the color of my M&M, I'm completely indifferent as I swap them out. And so this is a case of perfect substitutes. Perfect substitutes. Now, I'd always be happy to have more M&M's, so another indifference curve might look something like this, but it's always going to have a slope of negative 1. I'm always giving up one red M&M to get one blue M&M, then I would be indifferent. And likewise, over here you could have another indifference curve between $5 bills and $10 bills that looks like this."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "Perfect substitutes. Now, I'd always be happy to have more M&M's, so another indifference curve might look something like this, but it's always going to have a slope of negative 1. I'm always giving up one red M&M to get one blue M&M, then I would be indifferent. And likewise, over here you could have another indifference curve between $5 bills and $10 bills that looks like this. But the slope would be the exact same thing. Now, the last situation I want to think about is what we'll call perfect complements. So goods that if you have one of them, you really need the other one."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "And likewise, over here you could have another indifference curve between $5 bills and $10 bills that looks like this. But the slope would be the exact same thing. Now, the last situation I want to think about is what we'll call perfect complements. So goods that if you have one of them, you really need the other one. Otherwise, one of the two is somewhat useful. And maybe the most pure version of perfect complements, let me write it over here, perfect complements. So let's say that this is the quantity of right shoes."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "So goods that if you have one of them, you really need the other one. Otherwise, one of the two is somewhat useful. And maybe the most pure version of perfect complements, let me write it over here, perfect complements. So let's say that this is the quantity of right shoes. So the quantity of right shoes, and this is the quantity of left shoes. So obviously, if we're talking about just one pair, you have one of each. Now, do you care if you really get more left shoes?"}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "So let's say that this is the quantity of right shoes. So the quantity of right shoes, and this is the quantity of left shoes. So obviously, if we're talking about just one pair, you have one of each. Now, do you care if you really get more left shoes? No, you have the exact same preference. It doesn't really change your life. You have the same total utility."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "Now, do you care if you really get more left shoes? No, you have the exact same preference. It doesn't really change your life. You have the same total utility. In fact, it might even be negative because you have to store them all. But let's just assume you have the same total utility and you don't get any benefit of having those spare shoes in case your shoe gets destroyed or anything like that. In terms of what you can get out of it, what you can wear, you get the same utility."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "You have the same total utility. In fact, it might even be negative because you have to store them all. But let's just assume you have the same total utility and you don't get any benefit of having those spare shoes in case your shoe gets destroyed or anything like that. In terms of what you can get out of it, what you can wear, you get the same utility. And so you're really indifferent no matter how many extra left shoes someone gives you. And you'd also be indifferent no matter how many extra right shoes someone gives you. Now, you would be happier if you had maybe two right shoes and two left shoes because now you have two pairs."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "In terms of what you can get out of it, what you can wear, you get the same utility. And so you're really indifferent no matter how many extra left shoes someone gives you. And you'd also be indifferent no matter how many extra right shoes someone gives you. Now, you would be happier if you had maybe two right shoes and two left shoes because now you have two pairs. So this would be another indifference curve. And once again, if you have two right shoes, you really don't care how many more than two left shoes you get. And if you have two left shoes, you really don't care how many more than two right shoes you get."}, {"video_title": "Types of indifference curves Microeconomics Khan Academy.mp3", "Sentence": "Now, you would be happier if you had maybe two right shoes and two left shoes because now you have two pairs. So this would be another indifference curve. And once again, if you have two right shoes, you really don't care how many more than two left shoes you get. And if you have two left shoes, you really don't care how many more than two right shoes you get. So this indifference curve in green is clearly preferable to the one in white. But along each indifference curve, it doesn't benefit you to have three left shoes and only two right shoes. So this is what perfect complements would look like."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "Now in other videos, we do a deep dive into what scarcity is, but just as a review, in everyday language, you could think of something is scarce, a good or a service is scarce if there's not enough for everyone. Another way to think about it is a scarce resource is one that is limited. It is a limited resource, and there's not enough to go around because there are potentially unlimited wants from people. So potentially, potentially unlimited, unlimited wants. And we could think of a lot of scarce resources. Oil would be a scarce resource. There's a limited supply of oil, and potentially, if oil were free, there's an unlimited amount of people who would want to use that oil."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "So potentially, potentially unlimited, unlimited wants. And we could think of a lot of scarce resources. Oil would be a scarce resource. There's a limited supply of oil, and potentially, if oil were free, there's an unlimited amount of people who would want to use that oil. And so a lot of economics is, well, when you have a scarce resource, like oil or land or housing, how do you allocate those resources amongst people, people who are demanding those resources? Now rivalry is a related idea. When we think about the everyday word rival or rivalry, you imagine multiple parties competing for something, and that's essentially getting pretty close to the economics definition of it."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "There's a limited supply of oil, and potentially, if oil were free, there's an unlimited amount of people who would want to use that oil. And so a lot of economics is, well, when you have a scarce resource, like oil or land or housing, how do you allocate those resources amongst people, people who are demanding those resources? Now rivalry is a related idea. When we think about the everyday word rival or rivalry, you imagine multiple parties competing for something, and that's essentially getting pretty close to the economics definition of it. Something is a rival good or a rival resource. I'll just call it a rival good right now if when one person uses it, it limits the ability for other people to use it. So one person consuming it or using it, consuming it, limits ability, ability for others, for others to use."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "When we think about the everyday word rival or rivalry, you imagine multiple parties competing for something, and that's essentially getting pretty close to the economics definition of it. Something is a rival good or a rival resource. I'll just call it a rival good right now if when one person uses it, it limits the ability for other people to use it. So one person consuming it or using it, consuming it, limits ability, ability for others, for others to use. And there's a lot of examples of rival goods and things that are both scarce and rival goods. For example, if I were to put a nice, delicious cake that could only serve four people in our office here at Khan Academy where we have 80 or 90 folks work, well, you can imagine that cake's going to be a rival good. It's also a scarce good because many people, many more people are gonna want that cake than the amount of cake we have."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "So one person consuming it or using it, consuming it, limits ability, ability for others, for others to use. And there's a lot of examples of rival goods and things that are both scarce and rival goods. For example, if I were to put a nice, delicious cake that could only serve four people in our office here at Khan Academy where we have 80 or 90 folks work, well, you can imagine that cake's going to be a rival good. It's also a scarce good because many people, many more people are gonna want that cake than the amount of cake we have. But when you look at what the definition of a rival good is, every time if I eat the whole cake, that's going to limit other people's ability to use it. And economists will sometimes create a spectrum of how rivalrous a good is. So for example, let me draw a spectrum right over here."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "It's also a scarce good because many people, many more people are gonna want that cake than the amount of cake we have. But when you look at what the definition of a rival good is, every time if I eat the whole cake, that's going to limit other people's ability to use it. And economists will sometimes create a spectrum of how rivalrous a good is. So for example, let me draw a spectrum right over here. So on this line, so on the left-hand side, I will call this highly rivalrous, which is, they'll actually use that word, but I'll just call this rival goods. And then at the other extreme here, I'll say non-rival, non-rival good. And at the left end, it's pretty easy to come up with a bunch of rival goods."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "So for example, let me draw a spectrum right over here. So on this line, so on the left-hand side, I will call this highly rivalrous, which is, they'll actually use that word, but I'll just call this rival goods. And then at the other extreme here, I'll say non-rival, non-rival good. And at the left end, it's pretty easy to come up with a bunch of rival goods. If you're living in a place where housing is tight, where all of the housing is taken up, housing is often a rival good. I live in the San Francisco Bay Area, and when a house goes on rent, you'll have multiple people who are competing for that house or if it's going for sale. And so when one person gets it and gets to live there, well, that's gonna make it hard for other people to use it."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "And at the left end, it's pretty easy to come up with a bunch of rival goods. If you're living in a place where housing is tight, where all of the housing is taken up, housing is often a rival good. I live in the San Francisco Bay Area, and when a house goes on rent, you'll have multiple people who are competing for that house or if it's going for sale. And so when one person gets it and gets to live there, well, that's gonna make it hard for other people to use it. You could imagine, you know, land in a lot of urban areas is a rival good. You could imagine something like, you know, a cake, especially if there's not a lot of cake to go around at a birthday party. Now, what would be the other extreme?"}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "And so when one person gets it and gets to live there, well, that's gonna make it hard for other people to use it. You could imagine, you know, land in a lot of urban areas is a rival good. You could imagine something like, you know, a cake, especially if there's not a lot of cake to go around at a birthday party. Now, what would be the other extreme? What would be a non-rival good? Well, there are very few perfectly non-rival goods, but there are things that are close to it because at least relative to where people's, where people are trying to use it today, it seems like there's almost an unlimited supply of it. One example might be something that's close."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "Now, what would be the other extreme? What would be a non-rival good? Well, there are very few perfectly non-rival goods, but there are things that are close to it because at least relative to where people's, where people are trying to use it today, it seems like there's almost an unlimited supply of it. One example might be something that's close. I'm not gonna put it all the way at the end. I'm gonna put air, air to breathe on earth. Now, right now, it's a non-rival good."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "One example might be something that's close. I'm not gonna put it all the way at the end. I'm gonna put air, air to breathe on earth. Now, right now, it's a non-rival good. When I take a deep breath, it doesn't make it hard for you to take another simultaneous deep breath. And actually, let me put a little qualifier here, simultaneously, simultaneously. That's actually a key qualifier for a rival good."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "Now, right now, it's a non-rival good. When I take a deep breath, it doesn't make it hard for you to take another simultaneous deep breath. And actually, let me put a little qualifier here, simultaneously, simultaneously. That's actually a key qualifier for a rival good. So for example, a hammer is also a rival good because if I'm using it right now, it becomes very hard for you to use it simultaneously. Now, as I mentioned, air to breathe, if I take a deep breath right now, it doesn't make it any harder for you to take a deep breath. But if you were to take an extreme circumstance, let's say that if we were in a closed room with a limited supply of oxygen, well, then the air might become something closer to a rival good."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "That's actually a key qualifier for a rival good. So for example, a hammer is also a rival good because if I'm using it right now, it becomes very hard for you to use it simultaneously. Now, as I mentioned, air to breathe, if I take a deep breath right now, it doesn't make it any harder for you to take a deep breath. But if you were to take an extreme circumstance, let's say that if we were in a closed room with a limited supply of oxygen, well, then the air might become something closer to a rival good. So let me put it this way. Air to breathe outside, while here I'll put air in airtight, let me put oxygen in an airtight container or airtight room. Oxygen in airtight room, or maybe a room that is running out of oxygen."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "But if you were to take an extreme circumstance, let's say that if we were in a closed room with a limited supply of oxygen, well, then the air might become something closer to a rival good. So let me put it this way. Air to breathe outside, while here I'll put air in airtight, let me put oxygen in an airtight container or airtight room. Oxygen in airtight room, or maybe a room that is running out of oxygen. Well, then every time I take a breath, it's gonna make it harder for you to take a breath and vice versa. There's other things like, well, roads are rival goods, especially if we're talking about rush hour. So let me put this right over here."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "Oxygen in airtight room, or maybe a room that is running out of oxygen. Well, then every time I take a breath, it's gonna make it harder for you to take a breath and vice versa. There's other things like, well, roads are rival goods, especially if we're talking about rush hour. So let me put this right over here. So let's call this the roads during rush hour. Roads during rush hour. The more people that are on the roads, it's gonna make it harder for other people to use it simultaneously."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "So let me put this right over here. So let's call this the roads during rush hour. Roads during rush hour. The more people that are on the roads, it's gonna make it harder for other people to use it simultaneously. It will get all this traffic. People won't even be able to get on the highway because there's so much gridlock. But then you could imagine roads in the middle of the night are non-rival goods."}, {"video_title": "Scarcity and rivalry Basic Economic Concepts Microeconomics Khan Academy.mp3", "Sentence": "The more people that are on the roads, it's gonna make it harder for other people to use it simultaneously. It will get all this traffic. People won't even be able to get on the highway because there's so much gridlock. But then you could imagine roads in the middle of the night are non-rival goods. If I decide to take a drive at three in the morning on most highways, it doesn't make it any harder for another person to take a drive on that highway simultaneously. So let me put it over here. Roads at 3 a.m. in most places is closer to being a non-rival good."}, {"video_title": "Substitution and income effects and the Law of Demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In other videos, we have already talked about the law of demand, which tells us, and this is probably already somewhat intuitive for you, that if a certain good is currently at a higher price, that the quantity demanded will be quite low, and then as the price were to decrease, the quantity demanded would increase. So if we were to graph demand, and so this right over here is our demand curve, where price is on our vertical axis and quantity is on our horizontal axis, which is the standard convention for most economists, you would have a downward-sloping demand curve. What we're going to do in this video is dig a little bit deeper into why we have that downward-sloping demand curve. And I know what some of y'all are saying, well, it kind of makes common sense. If the price goes down, I would want more of that, and so would everyone else. But let's dig into why you would want more of something as the price goes down. So one category of reasons why you might want more of it as the price goes down, economists will call the substitution effect."}, {"video_title": "Substitution and income effects and the Law of Demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And I know what some of y'all are saying, well, it kind of makes common sense. If the price goes down, I would want more of that, and so would everyone else. But let's dig into why you would want more of something as the price goes down. So one category of reasons why you might want more of it as the price goes down, economists will call the substitution effect. Substitution. Substitution effect. And this is the idea that if we're looking at the price versus quantity, say, of candy, and let's say at first the price is right over here at $4, and at $4, the quantity demanded in the market would be, let's say, that is 100 units of the candy, maybe it's 100 pounds of the candy, that if the price were to then go to $2 for some reason, so let's say the price is at $2, well, then a lot of folks could say, gee, that candy is looking a lot better relative to other things that I might buy with my money."}, {"video_title": "Substitution and income effects and the Law of Demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So one category of reasons why you might want more of it as the price goes down, economists will call the substitution effect. Substitution. Substitution effect. And this is the idea that if we're looking at the price versus quantity, say, of candy, and let's say at first the price is right over here at $4, and at $4, the quantity demanded in the market would be, let's say, that is 100 units of the candy, maybe it's 100 pounds of the candy, that if the price were to then go to $2 for some reason, so let's say the price is at $2, well, then a lot of folks could say, gee, that candy is looking a lot better relative to other things that I might buy with my money. So for example, people might be picking between candy and fruit. And maybe at first they were both $4 a pound, but now all of a sudden if the candy is $2 a pound or $2 per unit, well, then it's looking a lot better relative to the fruit. So some of that quantity of fruit people would have bought, they'll say, hey, now candy is a better deal."}, {"video_title": "Substitution and income effects and the Law of Demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And this is the idea that if we're looking at the price versus quantity, say, of candy, and let's say at first the price is right over here at $4, and at $4, the quantity demanded in the market would be, let's say, that is 100 units of the candy, maybe it's 100 pounds of the candy, that if the price were to then go to $2 for some reason, so let's say the price is at $2, well, then a lot of folks could say, gee, that candy is looking a lot better relative to other things that I might buy with my money. So for example, people might be picking between candy and fruit. And maybe at first they were both $4 a pound, but now all of a sudden if the candy is $2 a pound or $2 per unit, well, then it's looking a lot better relative to the fruit. So some of that quantity of fruit people would have bought, they'll say, hey, now candy is a better deal. I'm going to substitute the fruit with candy. And so that's why you have a higher quantity of candy demanded. This might maybe be now 250 units."}, {"video_title": "Substitution and income effects and the Law of Demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So some of that quantity of fruit people would have bought, they'll say, hey, now candy is a better deal. I'm going to substitute the fruit with candy. And so that's why you have a higher quantity of candy demanded. This might maybe be now 250 units. Another major category why you would expect this downward sloping demand curve for normal goods, and we'll talk about things like inferior goods in future videos, is the income effect, income effect. And in some ways, this might be the most intuitive. Well, if the price went from $4 to $2, well, the cost of those 100 units would now be half as much."}, {"video_title": "Substitution and income effects and the Law of Demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "This might maybe be now 250 units. Another major category why you would expect this downward sloping demand curve for normal goods, and we'll talk about things like inferior goods in future videos, is the income effect, income effect. And in some ways, this might be the most intuitive. Well, if the price went from $4 to $2, well, the cost of those 100 units would now be half as much. It would go from $400 to $200. And so the market would have an extra $200 to use to buy things with, and some of that extra $200, they'll buy more candy with it, and they might also buy other things with that. Now, the last dimension that economists will often talk about for why the law of demand is downward sloping like this, and we talk about this in other videos, is this idea of decreasing, decreasing marginal utility."}, {"video_title": "Substitution and income effects and the Law of Demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, if the price went from $4 to $2, well, the cost of those 100 units would now be half as much. It would go from $400 to $200. And so the market would have an extra $200 to use to buy things with, and some of that extra $200, they'll buy more candy with it, and they might also buy other things with that. Now, the last dimension that economists will often talk about for why the law of demand is downward sloping like this, and we talk about this in other videos, is this idea of decreasing, decreasing marginal utility. And that's that idea that that first, if you're just that first amount of candy, there's gonna be people in the market who take a lot of value from it. They are just addicted to candy. Their bodies are dependent on that candy."}, {"video_title": "Substitution and income effects and the Law of Demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, the last dimension that economists will often talk about for why the law of demand is downward sloping like this, and we talk about this in other videos, is this idea of decreasing, decreasing marginal utility. And that's that idea that that first, if you're just that first amount of candy, there's gonna be people in the market who take a lot of value from it. They are just addicted to candy. Their bodies are dependent on that candy. But as soon as those folks are satiated, that next incremental amount, that next marginal amount, the utility might be a little bit lower. And so as you have more and more candy, the marginal utility goes down. And so that's another way of thinking about why we have a downward sloping demand curve."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "And this is from his The Wealth of Nations, published in 1776, coincidentally, the same year as the American Declaration of Independence. And it's one of the most famous excerpts. He generally, indeed, he being an economic actor, neither intends to promote the public interest nor knows how much he is promoting it. By directing that industry, so the industry in control of that individual actor in such a manner as its produce may be of the greatest value, he intends only his own gain. He intends only his own gain. And he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. And this term, invisible hand, is famous."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "By directing that industry, so the industry in control of that individual actor in such a manner as its produce may be of the greatest value, he intends only his own gain. He intends only his own gain. And he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. And this term, invisible hand, is famous. Led by an invisible hand to promote an end which was no part of his intention. He's saying, look, when individual actors just act in their own self-interest, that often an aggregate leads to things that each of those individual actors did not intend. And then he says, nor is it always the worst for society that it was no part of it."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "And this term, invisible hand, is famous. Led by an invisible hand to promote an end which was no part of his intention. He's saying, look, when individual actors just act in their own self-interest, that often an aggregate leads to things that each of those individual actors did not intend. And then he says, nor is it always the worst for society that it was no part of it. So it's not always necessarily a bad thing. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. So this is a pretty strong statement."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "And then he says, nor is it always the worst for society that it was no part of it. So it's not always necessarily a bad thing. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. So this is a pretty strong statement. It's really at the core of capitalism. And that's why I point out that it was published the same year as the American Declaration of Independence because obviously, America, the founding fathers, they wrote the Declaration of Independence, the Constitution. It really talks about what it means to be a democratic country."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "So this is a pretty strong statement. It's really at the core of capitalism. And that's why I point out that it was published the same year as the American Declaration of Independence because obviously, America, the founding fathers, they wrote the Declaration of Independence, the Constitution. It really talks about what it means to be a democratic country. What are the rights of its citizens? But the United States, in its overall, the overall experience of an American is at least as influenced by the work of Adam Smith, by these kind of foundational ideas of capitalism. And they just both happened to happen around the same time."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "It really talks about what it means to be a democratic country. What are the rights of its citizens? But the United States, in its overall, the overall experience of an American is at least as influenced by the work of Adam Smith, by these kind of foundational ideas of capitalism. And they just both happened to happen around the same time. But this idea, it's not always that intuitive. Individual actors, by essentially pursuing their own self-interested ends, might be doing more for society than if any of them actually tried to promote the overall well-being of society. And I don't think Adam Smith would say that it's always good for someone to act self-interested or that it's never good for people to actually think about the implications of what they're doing in an aggregate sense."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "And they just both happened to happen around the same time. But this idea, it's not always that intuitive. Individual actors, by essentially pursuing their own self-interested ends, might be doing more for society than if any of them actually tried to promote the overall well-being of society. And I don't think Adam Smith would say that it's always good for someone to act self-interested or that it's never good for people to actually think about the implications of what they're doing in an aggregate sense. But he's saying that frequently, this self-interested action could lead to the greater good, could lead to more innovation, could lead to better investment, could lead to more productivity, could lead to more wealth, a larger pie for everyone. And now, economics is frequently, and when he makes a statement, he's actually making a mix of a microeconomic and a macroeconomic statement. Micro is that individual actors are acting in their own self-interest."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "And I don't think Adam Smith would say that it's always good for someone to act self-interested or that it's never good for people to actually think about the implications of what they're doing in an aggregate sense. But he's saying that frequently, this self-interested action could lead to the greater good, could lead to more innovation, could lead to better investment, could lead to more productivity, could lead to more wealth, a larger pie for everyone. And now, economics is frequently, and when he makes a statement, he's actually making a mix of a microeconomic and a macroeconomic statement. Micro is that individual actors are acting in their own self-interest. And the macro is that it might be good for the economy or for the nation as a whole. And so now, modern economists tend to divide themselves into these two schools or into these two subjects. Microeconomics, which is the study of individual actors, and those actors could be firms, it could be people, it could be households."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "Micro is that individual actors are acting in their own self-interest. And the macro is that it might be good for the economy or for the nation as a whole. And so now, modern economists tend to divide themselves into these two schools or into these two subjects. Microeconomics, which is the study of individual actors, and those actors could be firms, it could be people, it could be households. And you have macroeconomics, which is the study of the economy in aggregate. And you get it from their words. Micro, the prefix, refers to very small things."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "Microeconomics, which is the study of individual actors, and those actors could be firms, it could be people, it could be households. And you have macroeconomics, which is the study of the economy in aggregate. And you get it from their words. Micro, the prefix, refers to very small things. Macro refers to the larger, the bigger picture. And so microeconomics, just to restate it, is essentially how actors make decisions, or I guess we could say allocations, decisions slash allocations of scarce resources. And you're going to hear the word scarce resources a lot when people talk about economics."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "Micro, the prefix, refers to very small things. Macro refers to the larger, the bigger picture. And so microeconomics, just to restate it, is essentially how actors make decisions, or I guess we could say allocations, decisions slash allocations of scarce resources. And you're going to hear the word scarce resources a lot when people talk about economics. And a scarce resource is one that you don't have an infinite amount of. For example, love might not be a scarce resource. You might have an infinite amount of love."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "And you're going to hear the word scarce resources a lot when people talk about economics. And a scarce resource is one that you don't have an infinite amount of. For example, love might not be a scarce resource. You might have an infinite amount of love. But a resource that would be scarce is something like food or water or money or time or labor. These are all scarce resources. And so microeconomics is, well, how do people decide where to put those scarce resources?"}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "You might have an infinite amount of love. But a resource that would be scarce is something like food or water or money or time or labor. These are all scarce resources. And so microeconomics is, well, how do people decide where to put those scarce resources? How do they decide where to deploy them? And how does that affect prices and markets and whatever else? Macroeconomics is the study of what happens in aggregate to an economy."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "And so microeconomics is, well, how do people decide where to put those scarce resources? How do they decide where to deploy them? And how does that affect prices and markets and whatever else? Macroeconomics is the study of what happens in aggregate to an economy. From the millions of individual actors. We now have millions of actors. And it often focuses on policy-related questions."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "Macroeconomics is the study of what happens in aggregate to an economy. From the millions of individual actors. We now have millions of actors. And it often focuses on policy-related questions. So do you raise or lower taxes? Or what's going to happen when you raise or lower taxes? Do you regulate or deregulate?"}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "And it often focuses on policy-related questions. So do you raise or lower taxes? Or what's going to happen when you raise or lower taxes? Do you regulate or deregulate? How does that affect the overall productivity when you do these? So it's policy, top, top, down, top, down questions. And in both macro and microeconomics, especially in the modern sense of it, there's an attempt to make them rigorous, to make them mathematical."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "Do you regulate or deregulate? How does that affect the overall productivity when you do these? So it's policy, top, top, down, top, down questions. And in both macro and microeconomics, especially in the modern sense of it, there's an attempt to make them rigorous, to make them mathematical. So in either case, you can start with some of the ideas, some of the philosophical ideas or the logical ideas that, say, someone like an Adam Smith might have. So you have these. And there are basic ideas about how people think, how people make decisions."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "And in both macro and microeconomics, especially in the modern sense of it, there's an attempt to make them rigorous, to make them mathematical. So in either case, you can start with some of the ideas, some of the philosophical ideas or the logical ideas that, say, someone like an Adam Smith might have. So you have these. And there are basic ideas about how people think, how people make decisions. So philosophy of people of decision-making, in the case of microeconomics, decision-making. And then you make some assumptions about it, or you simplify it. So I'll do the right this."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "And there are basic ideas about how people think, how people make decisions. So philosophy of people of decision-making, in the case of microeconomics, decision-making. And then you make some assumptions about it, or you simplify it. So I'll do the right this. You simplify it. And you really are simplifying. You say, oh, all people are rational, or all people are going to act in their own self-interest, or all people are going to maximize their gain, which isn't true."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "So I'll do the right this. You simplify it. And you really are simplifying. You say, oh, all people are rational, or all people are going to act in their own self-interest, or all people are going to maximize their gain, which isn't true. Human beings are motivated by a whole bunch of things. But you simplify these things so that you can start to deal with it in kind of a mathematical way. So you simplify it so you can start dealing with it in a mathematical sense."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "You say, oh, all people are rational, or all people are going to act in their own self-interest, or all people are going to maximize their gain, which isn't true. Human beings are motivated by a whole bunch of things. But you simplify these things so that you can start to deal with it in kind of a mathematical way. So you simplify it so you can start dealing with it in a mathematical sense. And this is valuable. It can clarify your thinking. It can allow you to prove things based on your assumptions."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "So you simplify it so you can start dealing with it in a mathematical sense. And this is valuable. It can clarify your thinking. It can allow you to prove things based on your assumptions. And so you can start to visualize things mathematically with charts and graphs and think about what will actually happen with the markets. So it's very, very valuable to have this mathematical rigorous thinking. But at the same time, it can be a little bit dangerous because you're making these huge simplifications."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "It can allow you to prove things based on your assumptions. And so you can start to visualize things mathematically with charts and graphs and think about what will actually happen with the markets. So it's very, very valuable to have this mathematical rigorous thinking. But at the same time, it can be a little bit dangerous because you're making these huge simplifications. And sometimes the math might lead you to some very strong conclusions, which you might feel very strongly about because it looks like you've proven them the same way that you might prove relativity. But they were based on some assumptions that either might be wrong or might be oversimplifications or might not be relevant to the context that you're trying to make conclusions about. So it's very, very, very important to take it all with a grain of salt to remember that it's all based on some simplifying assumptions."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "But at the same time, it can be a little bit dangerous because you're making these huge simplifications. And sometimes the math might lead you to some very strong conclusions, which you might feel very strongly about because it looks like you've proven them the same way that you might prove relativity. But they were based on some assumptions that either might be wrong or might be oversimplifications or might not be relevant to the context that you're trying to make conclusions about. So it's very, very, very important to take it all with a grain of salt to remember that it's all based on some simplifying assumptions. And macroeconomics is probably even more guilty of it. In microeconomics, you're taking these deeply complicated things, the human brain, how people act and respond to each other, and then you're aggregating it over millions of people. So it's ultra complicated."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "So it's very, very, very important to take it all with a grain of salt to remember that it's all based on some simplifying assumptions. And macroeconomics is probably even more guilty of it. In microeconomics, you're taking these deeply complicated things, the human brain, how people act and respond to each other, and then you're aggregating it over millions of people. So it's ultra complicated. You have millions of these infinitely complicated people all interacting with each other. So it's very complicated. Many millions of interactions and fundamentally unpredictable interactions, and then trying to make assumptions on those, and then doing math with that, that could lead you to some conclusions or might lead you to some predictions."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "So it's ultra complicated. You have millions of these infinitely complicated people all interacting with each other. So it's very complicated. Many millions of interactions and fundamentally unpredictable interactions, and then trying to make assumptions on those, and then doing math with that, that could lead you to some conclusions or might lead you to some predictions. And once again, it's very important. This is valuable. It's valuable to make these mathematical models, to make these mathematical assumptions, these mathematical conclusions."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "Many millions of interactions and fundamentally unpredictable interactions, and then trying to make assumptions on those, and then doing math with that, that could lead you to some conclusions or might lead you to some predictions. And once again, it's very important. This is valuable. It's valuable to make these mathematical models, to make these mathematical assumptions, these mathematical conclusions. But it always needs to be taken with a grain of salt. And so that you have a proper grain of salt and so that you are always focused on the true intuition, and that's really the most important thing to get from a course of economics so that you can truly reason through what's likely to happen, maybe even without the mathematics. I'll leave you with two quotes."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "It's valuable to make these mathematical models, to make these mathematical assumptions, these mathematical conclusions. But it always needs to be taken with a grain of salt. And so that you have a proper grain of salt and so that you are always focused on the true intuition, and that's really the most important thing to get from a course of economics so that you can truly reason through what's likely to happen, maybe even without the mathematics. I'll leave you with two quotes. And these quotes are a little bit funny. But they really, I think, are helpful things to keep in mind as you start to especially go deep into the mathematical side of economics. So this right over here is a quote by Alfred Knopf, who was a publisher in the 1900s."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "I'll leave you with two quotes. And these quotes are a little bit funny. But they really, I think, are helpful things to keep in mind as you start to especially go deep into the mathematical side of economics. So this right over here is a quote by Alfred Knopf, who was a publisher in the 1900s. An economist is a man who states the obvious in terms of the incomprehensible. And I'm assuming when he's talking about the incomprehensible, he's referring to some of the math-y stuff that you see in economics. And hopefully we'll make this as comprehensible as possible and see that there is value in this."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "So this right over here is a quote by Alfred Knopf, who was a publisher in the 1900s. An economist is a man who states the obvious in terms of the incomprehensible. And I'm assuming when he's talking about the incomprehensible, he's referring to some of the math-y stuff that you see in economics. And hopefully we'll make this as comprehensible as possible and see that there is value in this. But it's a very important statement he's making. Oftentimes, it's stating a common sense thing. It's stating something that's obvious."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "And hopefully we'll make this as comprehensible as possible and see that there is value in this. But it's a very important statement he's making. Oftentimes, it's stating a common sense thing. It's stating something that's obvious. And it's very important to always keep that in mind, to always make sure that you have the intuition for what's happening in the math, or to know when the math is going in a direction that might be strange based on oversimplifications or wrong assumptions. And then you have this quote over here by Lawrence J. Peter, most famous for Peter's Principles, professor at USC. An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "It's stating something that's obvious. And it's very important to always keep that in mind, to always make sure that you have the intuition for what's happening in the math, or to know when the math is going in a direction that might be strange based on oversimplifications or wrong assumptions. And then you have this quote over here by Lawrence J. Peter, most famous for Peter's Principles, professor at USC. An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today. And once again, important to keep in the back of one's mind. And this is especially relevant to macroeconomics. Because in macroeconomics, there's all sorts of predictions about the state of the economy, what needs to be done, how long will the recession last, what will be the economic growth next year, what will inflation do."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today. And once again, important to keep in the back of one's mind. And this is especially relevant to macroeconomics. Because in macroeconomics, there's all sorts of predictions about the state of the economy, what needs to be done, how long will the recession last, what will be the economic growth next year, what will inflation do. And they often prove to be wrong. In fact, few economists even tend to agree on many of these things. And it's very important to realize that."}, {"video_title": "Introduction to economics Supply, demand, and market equilibrium Economics Khan Academy.mp3", "Sentence": "Because in macroeconomics, there's all sorts of predictions about the state of the economy, what needs to be done, how long will the recession last, what will be the economic growth next year, what will inflation do. And they often prove to be wrong. In fact, few economists even tend to agree on many of these things. And it's very important to realize that. Because oftentimes, when you're deep in the mathematics of the economics, it might seem to be a science like physics. But it's not a science like physics. It is open to subjectivity."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And we already touch on this in other videos, the video on rent control, the video on minimum wages. And so this is to make sure that we are taking away some of the big ideas. So right over here, I have my classic demand and supply curves for, say, the rental market. At a high price, the quantity demanded is low, and the quantity that people would be willing to supply is quite high. And at a low price, the quantity that people would be willing to supply is low, while the quantity demanded would be quite high. And we've seen from many videos so far in our journey through economics that we have our equilibrium price and our equilibrium quantity, where these two curves or lines intersect. So I'll call this Q sub zero, and this is price sub zero."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "At a high price, the quantity demanded is low, and the quantity that people would be willing to supply is quite high. And at a low price, the quantity that people would be willing to supply is low, while the quantity demanded would be quite high. And we've seen from many videos so far in our journey through economics that we have our equilibrium price and our equilibrium quantity, where these two curves or lines intersect. So I'll call this Q sub zero, and this is price sub zero. But let's say for whatever reason, city officials in this city where this rental market that this chart describes the rental market for, they decide that P sub zero is too high, that their voters are complaining that rents are too high in the market. And so the city decides to put in a price control. And in this case, they try to implement a price ceiling."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So I'll call this Q sub zero, and this is price sub zero. But let's say for whatever reason, city officials in this city where this rental market that this chart describes the rental market for, they decide that P sub zero is too high, that their voters are complaining that rents are too high in the market. And so the city decides to put in a price control. And in this case, they try to implement a price ceiling. So they say, look, the price of rent per square foot per month cannot go above this level right over here. So this is the price ceiling, price ceiling right over there. Now, what's going to happen here?"}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And in this case, they try to implement a price ceiling. So they say, look, the price of rent per square foot per month cannot go above this level right over here. So this is the price ceiling, price ceiling right over there. Now, what's going to happen here? Well, if this is the price ceiling, then right over here, this is the total amount of square footage, the quantity of, I guess, square footage, that is being willing, that people are willing to supply, that, I guess you could say, landlords or building owners are willing to supply. But at this price, you have a much higher quantity that is being demanded. So this right over here is the quantity demanded."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, what's going to happen here? Well, if this is the price ceiling, then right over here, this is the total amount of square footage, the quantity of, I guess, square footage, that is being willing, that people are willing to supply, that, I guess you could say, landlords or building owners are willing to supply. But at this price, you have a much higher quantity that is being demanded. So this right over here is the quantity demanded. And when the quantity demanded at a price is higher than the quantity supplied, well, then you have a shortage. So this right over here is describing a shortage. And we talk about that in other videos."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is the quantity demanded. And when the quantity demanded at a price is higher than the quantity supplied, well, then you have a shortage. So this right over here is describing a shortage. And we talk about that in other videos. But let's think about what's happening to the total surplus. So when we let the market just get to an equilibrium price and quantity, the total surplus, actually, let me just draw separately the consumer and the producer surplus. So this was the consumer surplus right over here before the government intervention."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And we talk about that in other videos. But let's think about what's happening to the total surplus. So when we let the market just get to an equilibrium price and quantity, the total surplus, actually, let me just draw separately the consumer and the producer surplus. So this was the consumer surplus right over here before the government intervention. And then this is the producer surplus. We've talked about this in other videos. But now what happens when we have this price control?"}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this was the consumer surplus right over here before the government intervention. And then this is the producer surplus. We've talked about this in other videos. But now what happens when we have this price control? Well, if this is the quantity supplied, now all of a sudden, the total surplus shrinks. The total surplus is now being depicted by this white trapezoid. And also think about how things have shifted."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But now what happens when we have this price control? Well, if this is the quantity supplied, now all of a sudden, the total surplus shrinks. The total surplus is now being depicted by this white trapezoid. And also think about how things have shifted. So one thing that you see clearly, what is the producer surplus now? The producer surplus is only this little yellow, I don't know my colors, this little blue triangle at the bottom. So you see very clearly that all producers suffer here."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And also think about how things have shifted. So one thing that you see clearly, what is the producer surplus now? The producer surplus is only this little yellow, I don't know my colors, this little blue triangle at the bottom. So you see very clearly that all producers suffer here. All producers, all producers suffer. Now you might say, well, of course, this is a rent control, but surely the consumers will benefit here. Well, it is the case, it is the case that some consumers, the ones that are able to get into a unit, they might benefit."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So you see very clearly that all producers suffer here. All producers, all producers suffer. Now you might say, well, of course, this is a rent control, but surely the consumers will benefit here. Well, it is the case, it is the case that some consumers, the ones that are able to get into a unit, they might benefit. So this right over here, some demanders, or you could say some consumers, consumers benefit. But not all of the consumers benefit. In fact, you have a shortage now."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, it is the case, it is the case that some consumers, the ones that are able to get into a unit, they might benefit. So this right over here, some demanders, or you could say some consumers, consumers benefit. But not all of the consumers benefit. In fact, you have a shortage now. Before, you had more people who were able to get housing. Now these folks are not going to get the housing. And as in all of economics, you should take a grain of salt in any type of oversimplified model like this, or simplified, this is actually a very useful model for thinking about certain things."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In fact, you have a shortage now. Before, you had more people who were able to get housing. Now these folks are not going to get the housing. And as in all of economics, you should take a grain of salt in any type of oversimplified model like this, or simplified, this is actually a very useful model for thinking about certain things. Because even these consumers that are benefiting, according to this model, for these consumers, it looks like their surplus has grown, or if you're this kind of marginal renter right over here, let me draw it over here, if you were the marginal renter that was before getting this much benefit, now you're able to get that plus all of that. But think about the things that this model is not capturing. What's the incentive for the landlord now?"}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And as in all of economics, you should take a grain of salt in any type of oversimplified model like this, or simplified, this is actually a very useful model for thinking about certain things. Because even these consumers that are benefiting, according to this model, for these consumers, it looks like their surplus has grown, or if you're this kind of marginal renter right over here, let me draw it over here, if you were the marginal renter that was before getting this much benefit, now you're able to get that plus all of that. But think about the things that this model is not capturing. What's the incentive for the landlord now? Would they want to invest in the building as much? Would they, or would they maybe let the building kind of suffer a little bit? And there's also particular quirks for how rent control is implemented that might also change behavior."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "What's the incentive for the landlord now? Would they want to invest in the building as much? Would they, or would they maybe let the building kind of suffer a little bit? And there's also particular quirks for how rent control is implemented that might also change behavior. So always keep in mind that what's not captured by the model. But in broad brush terms, you put in a price control, in this case, you put in a price ceiling, you're going to create a shortage, all the producers are going to suffer, some of the consumers benefit according to this model, but not all of them, because not all of them are now going to be able to get a place to rent. Now let's move over to another market, let's say the corn market."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And there's also particular quirks for how rent control is implemented that might also change behavior. So always keep in mind that what's not captured by the model. But in broad brush terms, you put in a price control, in this case, you put in a price ceiling, you're going to create a shortage, all the producers are going to suffer, some of the consumers benefit according to this model, but not all of them, because not all of them are now going to be able to get a place to rent. Now let's move over to another market, let's say the corn market. And let's say, once again, we have our equilibrium price and our equilibrium quantity, so price sub equilibrium, and this is our quantity sub equilibrium. But let's say in this situation, the government, let's say the farmer, the corn farmers are able to organize and they're able to lobby the government and say, hey, we really suffer when there's low corn prices, so we want to institute a price control, we want you to institute a price control, we want a price floor. So the government says, okay, corn farmers, you seem to be pretty serious about it, so we are going to institute a price floor."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now let's move over to another market, let's say the corn market. And let's say, once again, we have our equilibrium price and our equilibrium quantity, so price sub equilibrium, and this is our quantity sub equilibrium. But let's say in this situation, the government, let's say the farmer, the corn farmers are able to organize and they're able to lobby the government and say, hey, we really suffer when there's low corn prices, so we want to institute a price control, we want you to institute a price control, we want a price floor. So the government says, okay, corn farmers, you seem to be pretty serious about it, so we are going to institute a price floor. So the price cannot go below this level. So this is a price floor. Well, what's going to happen now?"}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So the government says, okay, corn farmers, you seem to be pretty serious about it, so we are going to institute a price floor. So the price cannot go below this level. So this is a price floor. Well, what's going to happen now? Well, let's think about the quantity demanded and the quantity supplied. So that right over there is the quantity demanded, we see where the price intersects the demand curve, and this right over here is the quantity supplied, where we're intersecting the supply curve. Quantity supplied."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, what's going to happen now? Well, let's think about the quantity demanded and the quantity supplied. So that right over there is the quantity demanded, we see where the price intersects the demand curve, and this right over here is the quantity supplied, where we're intersecting the supply curve. Quantity supplied. So in this situation, your demand is less, the quantity demanded is less than the quantity supplied, so in this case, you have a surplus. The farmers would want to produce more than people would want at that price. And now let's think about what happens to the total surplus, and in particular, the consumer and the producer surpluses."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Quantity supplied. So in this situation, your demand is less, the quantity demanded is less than the quantity supplied, so in this case, you have a surplus. The farmers would want to produce more than people would want at that price. And now let's think about what happens to the total surplus, and in particular, the consumer and the producer surpluses. So in the old world, this was the consumer surplus, and this right over here is the producer surplus. In the new world, the total surplus shrinks, the sum of the two. We're now talking about this, the area of this trapezoid, right over here, this sideways trapezoid, and you see that all consumers suffer, because now the consumer surplus has been shrunk right over, the consumer surplus is right over here."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And now let's think about what happens to the total surplus, and in particular, the consumer and the producer surpluses. So in the old world, this was the consumer surplus, and this right over here is the producer surplus. In the new world, the total surplus shrinks, the sum of the two. We're now talking about this, the area of this trapezoid, right over here, this sideways trapezoid, and you see that all consumers suffer, because now the consumer surplus has been shrunk right over, the consumer surplus is right over here. There's consumers who are now not even consuming corn, and even the ones that are consuming corn, before, let's say this marginal consumer right over here was getting all of this benefit, now they are getting a smaller benefit. So we could say all, all consumers suffer. Now what about the producers?"}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "We're now talking about this, the area of this trapezoid, right over here, this sideways trapezoid, and you see that all consumers suffer, because now the consumer surplus has been shrunk right over, the consumer surplus is right over here. There's consumers who are now not even consuming corn, and even the ones that are consuming corn, before, let's say this marginal consumer right over here was getting all of this benefit, now they are getting a smaller benefit. So we could say all, all consumers suffer. Now what about the producers? Well, the producers who are able to sell their corn definitely get a benefit. So if you were this marginal producer right over here, your surplus right over here would have been like that, but now you get even a higher price for it. And so one way to think about it is some producers, some producers for sure benefit according to this model."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now what about the producers? Well, the producers who are able to sell their corn definitely get a benefit. So if you were this marginal producer right over here, your surplus right over here would have been like that, but now you get even a higher price for it. And so one way to think about it is some producers, some producers for sure benefit according to this model. So let me write that. So some producers, producers benefit, but it's important to realize once again that not all of the producers benefit, because once again we have a surplus. If it's implemented this way, well you might have a lot of farmers who aren't even able to sell their corn at that price."}, {"video_title": "How price controls reallocate surplus AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so one way to think about it is some producers, some producers for sure benefit according to this model. So let me write that. So some producers, producers benefit, but it's important to realize once again that not all of the producers benefit, because once again we have a surplus. If it's implemented this way, well you might have a lot of farmers who aren't even able to sell their corn at that price. So it's an interesting thing to think about. You should always take models with a grain of salt, but it is a pretty interesting framework where governments often will try to do some type of knee-jerk solution to try to make something look good or feel good to their constituents, but the end effect is that people might suffer more than they expect. It might cause a shortage when you put a price ceiling or it might cause a surplus when you have a price floor."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "And we're assuming, and we assumed in that video, that we were able to calculate the actual external cost of a plastic bag. This two cents a bag is the impact on litter and the environment. And then we were able to figure out that if we factor this in, instead of just having the regular marginal cost curve of the suppliers, if we added that marginal cost curve to the external cost, we would get a supplier plus external cost marginal cost curve. And then we get what is actually the optimal price and quantity of plastic bags, so that we actually do not eat into our surplus by creating all of this negative surplus where the total cost of the bags are higher than the total benefit. But one thing that we did not touch on in that video is how does this actually happen? If we just let things be and we just had the suppliers marginal cost curve and we have the consumers demand curve, and in this case the consumers were the supermarkets, then the equilibrium price that'll be reached will be right over here. Because although we're theoretically saying that there's this cost over here, the cost won't be factored in into the markets."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "And then we get what is actually the optimal price and quantity of plastic bags, so that we actually do not eat into our surplus by creating all of this negative surplus where the total cost of the bags are higher than the total benefit. But one thing that we did not touch on in that video is how does this actually happen? If we just let things be and we just had the suppliers marginal cost curve and we have the consumers demand curve, and in this case the consumers were the supermarkets, then the equilibrium price that'll be reached will be right over here. Because although we're theoretically saying that there's this cost over here, the cost won't be factored in into the markets. So if you are the benevolent emperor in this society, what do you do? What do you do to get the quantity closer to this point right over here than what the equilibrium quantity will be when you don't factor in the external cost? And there is a bunch of options here."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "Because although we're theoretically saying that there's this cost over here, the cost won't be factored in into the markets. So if you are the benevolent emperor in this society, what do you do? What do you do to get the quantity closer to this point right over here than what the equilibrium quantity will be when you don't factor in the external cost? And there is a bunch of options here. You could just ban plastic bags. Ban plastic bags. You could put a quota on plastic bags."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "And there is a bunch of options here. You could just ban plastic bags. Ban plastic bags. You could put a quota on plastic bags. You could put a quota, quota, so saying that more than a certain amount of bags cannot be produced, or you could tax plastic bags. Or you could tax plastic bags. And let's think about which of these will result in the most surplus, the most benefit to society in aggregate."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "You could put a quota on plastic bags. You could put a quota, quota, so saying that more than a certain amount of bags cannot be produced, or you could tax plastic bags. Or you could tax plastic bags. And let's think about which of these will result in the most surplus, the most benefit to society in aggregate. And one core assumption we're going to make is that this is an accurate assessment of the external cost per bag. So if you were to just ban plastic bags, as this benevolent emperor, or maybe seemingly or hopefully benevolent emperor of this society right here, if you just banned plastic bags, what would happen? Well, then this market just won't exist."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "And let's think about which of these will result in the most surplus, the most benefit to society in aggregate. And one core assumption we're going to make is that this is an accurate assessment of the external cost per bag. So if you were to just ban plastic bags, as this benevolent emperor, or maybe seemingly or hopefully benevolent emperor of this society right here, if you just banned plastic bags, what would happen? Well, then this market just won't exist. And all of this surplus that could have existed won't exist anymore. So you would actually be destroying surplus. Now, you could say, no, no, no, plastic bags are horrible."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "Well, then this market just won't exist. And all of this surplus that could have existed won't exist anymore. So you would actually be destroying surplus. Now, you could say, no, no, no, plastic bags are horrible. They should just be outright banned. There's no amount of benefit for which plastic bags are worth using. But in that case, you're actually arguing this point right over here."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "Now, you could say, no, no, no, plastic bags are horrible. They should just be outright banned. There's no amount of benefit for which plastic bags are worth using. But in that case, you're actually arguing this point right over here. You'd be arguing that, no, it's not 2 cents a bag, it's 10 cents a bag of negative externality. And because of that, then you would have this curve shift up even more, and then there's no positive quantity there, and then maybe a ban would be all right. But if the 2 cents is the externality, the negative externality, and if you were to ban plastic bags, then you would actually be removing this surplus from society."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "But in that case, you're actually arguing this point right over here. You'd be arguing that, no, it's not 2 cents a bag, it's 10 cents a bag of negative externality. And because of that, then you would have this curve shift up even more, and then there's no positive quantity there, and then maybe a ban would be all right. But if the 2 cents is the externality, the negative externality, and if you were to ban plastic bags, then you would actually be removing this surplus from society. So that doesn't seem like a good option. Now, what about a quota? A quota."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "But if the 2 cents is the externality, the negative externality, and if you were to ban plastic bags, then you would actually be removing this surplus from society. So that doesn't seem like a good option. Now, what about a quota? A quota. You kind of look at the study right over here, and you say, look, the optimal amount of plastic bags is 1.9 million bags per week, so I will just say that that's the most that the market can produce. But when you say that, that's assuming that you really do understand what this demand curve looks like. I just drew a straight line here just out of simplicity, assuming you really do understand what this marginal cost curve looks like."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "A quota. You kind of look at the study right over here, and you say, look, the optimal amount of plastic bags is 1.9 million bags per week, so I will just say that that's the most that the market can produce. But when you say that, that's assuming that you really do understand what this demand curve looks like. I just drew a straight line here just out of simplicity, assuming you really do understand what this marginal cost curve looks like. And throughout this playlist, we've been assuming that we kind of do understand those things, but in the real world, it's actually very hard to know exactly what the marginal cost curve looks like, and it's also hard to know exactly what the marginal benefit curve or the demand curve looks like, especially because they're always changing. There's always more competitors, less competitors, more substitute products, more R&D. Things are getting more efficient, less efficient."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "I just drew a straight line here just out of simplicity, assuming you really do understand what this marginal cost curve looks like. And throughout this playlist, we've been assuming that we kind of do understand those things, but in the real world, it's actually very hard to know exactly what the marginal cost curve looks like, and it's also hard to know exactly what the marginal benefit curve or the demand curve looks like, especially because they're always changing. There's always more competitors, less competitors, more substitute products, more R&D. Things are getting more efficient, less efficient. And so it's very hard to know what the true equilibrium quantity should be. So a quota is difficult. You don't have quite the right information."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "Things are getting more efficient, less efficient. And so it's very hard to know what the true equilibrium quantity should be. So a quota is difficult. You don't have quite the right information. A tax is interesting, because a tax says, look, regardless of what the marginal cost curve really is, we are just going to shift it up by 2 cents. We saw that when we first talked about taxes. And when we first talked about taxes, we talked about, hey, they're introducing a deadweight loss because you're not producing as much quantity as you would otherwise, or as much quantity isn't being consumed."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "You don't have quite the right information. A tax is interesting, because a tax says, look, regardless of what the marginal cost curve really is, we are just going to shift it up by 2 cents. We saw that when we first talked about taxes. And when we first talked about taxes, we talked about, hey, they're introducing a deadweight loss because you're not producing as much quantity as you would otherwise, or as much quantity isn't being consumed. But here, a tax could actually prevent a deadweight loss because if you have a 2 cent tax, essentially adding the cost of the negative externality in the form of a tax on top of the supplier's cost right over here, you are going to cause the equilibrium quantity to be the quantity where you're not generating all of this negative surplus. And it's just a positive side effect. And once again, this is all assuming that this is the right number, but it would be a positive side effect that you would also generate some revenue for the government."}, {"video_title": "Taxes for factoring in negative externalities Microeconomics Khan Academy.mp3", "Sentence": "And when we first talked about taxes, we talked about, hey, they're introducing a deadweight loss because you're not producing as much quantity as you would otherwise, or as much quantity isn't being consumed. But here, a tax could actually prevent a deadweight loss because if you have a 2 cent tax, essentially adding the cost of the negative externality in the form of a tax on top of the supplier's cost right over here, you are going to cause the equilibrium quantity to be the quantity where you're not generating all of this negative surplus. And it's just a positive side effect. And once again, this is all assuming that this is the right number, but it would be a positive side effect that you would also generate some revenue for the government. And what's good about the tax in this circumstance right over here, you're not assuming anything about what the marginal cost curve looks like or what the demand curve looks like. If as long as you're assuming that this is the right number, the tax will always shift, whatever the marginal cost curve is, it'll always shift it at the right point to intersect wherever the demand curve is at this equilibrium point that gives us an equilibrium price and an equilibrium quantity. So if this is the right number and you put a 2 cent tax per bag, a 2 cent tax per bag, then this is probably going to be the best option in terms of optimizing the total surplus."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So this is my price axis. Price axis, that is my quantity demanded axis. Quantity axis. And let me just draw an arbitrary demand curve right over here. So let's say that is my demand curve. And let's pick some price and quantities on this demand curve. So let's say that the price is up here."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And let me just draw an arbitrary demand curve right over here. So let's say that is my demand curve. And let's pick some price and quantities on this demand curve. So let's say that the price is up here. Let's call that P1. And then the quantity demanded, let's call that Q1. And we already know that the total revenue is the area of this rectangle right over here."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So let's say that the price is up here. Let's call that P1. And then the quantity demanded, let's call that Q1. And we already know that the total revenue is the area of this rectangle right over here. This is the total revenue. It's just the price times the quantity. If I'm selling two burgers an hour, and for $9 a burger, I'm going to make $18 per hour."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And we already know that the total revenue is the area of this rectangle right over here. This is the total revenue. It's just the price times the quantity. If I'm selling two burgers an hour, and for $9 a burger, I'm going to make $18 per hour. That's going to be this area right over here. Now let's assume in this part of the curve that the price elasticity of demand is greater than 1. So we are elastic."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "If I'm selling two burgers an hour, and for $9 a burger, I'm going to make $18 per hour. That's going to be this area right over here. Now let's assume in this part of the curve that the price elasticity of demand is greater than 1. So we are elastic. So let me write this. So the price, the elasticity of demand. Actually, I should say the absolute value of the elasticity of demand."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So we are elastic. So let me write this. So the price, the elasticity of demand. Actually, I should say the absolute value of the elasticity of demand. It will actually be a negative number. But the absolute value of the elasticity of demand is greater than 1, which means for a 1% drop in price, you have a greater than 1% increase in quantity. And that comes straight out of the expression or formula for what elasticity is."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Actually, I should say the absolute value of the elasticity of demand. It will actually be a negative number. But the absolute value of the elasticity of demand is greater than 1, which means for a 1% drop in price, you have a greater than 1% increase in quantity. And that comes straight out of the expression or formula for what elasticity is. Remember, elasticity is our percent change in quantity over percent change in price. So if the absolute value of this is greater than 1, these move in opposite directions, that's why it would be negative. But if we say the absolute value of this is greater than 1, that means that this quantity is going to be larger than this quantity."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And that comes straight out of the expression or formula for what elasticity is. Remember, elasticity is our percent change in quantity over percent change in price. So if the absolute value of this is greater than 1, these move in opposite directions, that's why it would be negative. But if we say the absolute value of this is greater than 1, that means that this quantity is going to be larger than this quantity. So if we have a 1% drop in price, the change in our quantity is going to be greater than 1%. And so for this point right over here, if we lower this by 1%, we're going to increase this by more than 1%. So any drop in our, any reduction in our height will be more than made up for, and this is generally the case, will be more than made up for by an increase in our width."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "But if we say the absolute value of this is greater than 1, that means that this quantity is going to be larger than this quantity. So if we have a 1% drop in price, the change in our quantity is going to be greater than 1%. And so for this point right over here, if we lower this by 1%, we're going to increase this by more than 1%. So any drop in our, any reduction in our height will be more than made up for, and this is generally the case, will be more than made up for by an increase in our width. So total revenue will increase. So when price drops, so 1% drop in price, and a larger than 1% increase in quantity, means that total revenue will go up. Now, if we go down here, if we go down to this part of the curve, and let's say that this, let's call this, let's call that P2, and let's call that quantity 2, quantity 2, and then this area right over here would be total revenue 2."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So any drop in our, any reduction in our height will be more than made up for, and this is generally the case, will be more than made up for by an increase in our width. So total revenue will increase. So when price drops, so 1% drop in price, and a larger than 1% increase in quantity, means that total revenue will go up. Now, if we go down here, if we go down to this part of the curve, and let's say that this, let's call this, let's call that P2, and let's call that quantity 2, quantity 2, and then this area right over here would be total revenue 2. Total revenue 2, let's call that total revenue 1 over there. Price times the quantity. Now, what's happening over here?"}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now, if we go down here, if we go down to this part of the curve, and let's say that this, let's call this, let's call that P2, and let's call that quantity 2, quantity 2, and then this area right over here would be total revenue 2. Total revenue 2, let's call that total revenue 1 over there. Price times the quantity. Now, what's happening over here? We're going to assume that our price elasticity of demand, the absolute value of it over here, is less than 1. So the absolute value of our price elasticity of demand is less than 1 at this point in the curve. And all that is is a fancy way of saying that for 1% drop, 1% drop in price, 1% drop in price, we get less than a 1% drop, less than a 1% drop, sorry, less than a 1% increase, they move in opposite directions, 1% increase in quantity."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now, what's happening over here? We're going to assume that our price elasticity of demand, the absolute value of it over here, is less than 1. So the absolute value of our price elasticity of demand is less than 1 at this point in the curve. And all that is is a fancy way of saying that for 1% drop, 1% drop in price, 1% drop in price, we get less than a 1% drop, less than a 1% drop, sorry, less than a 1% increase, they move in opposite directions, 1% increase in quantity. So we're lowering the height, if we have a 1% drop, we're lowering that by 1%, but we're not getting a 1% increase in our width. So the width isn't going to be increasing that much. So in general, this is going to result in a lowering of this area."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And all that is is a fancy way of saying that for 1% drop, 1% drop in price, 1% drop in price, we get less than a 1% drop, less than a 1% drop, sorry, less than a 1% increase, they move in opposite directions, 1% increase in quantity. So we're lowering the height, if we have a 1% drop, we're lowering that by 1%, but we're not getting a 1% increase in our width. So the width isn't going to be increasing that much. So in general, this is going to result in a lowering of this area. This area will get smaller. We're reducing our height more than we are expanding our width. So in this situation, total revenue would go down."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So in general, this is going to result in a lowering of this area. This area will get smaller. We're reducing our height more than we are expanding our width. So in this situation, total revenue would go down. And remember, this is an elastic situation. So when it is elastic, total revenue tends to go up. And when it is inelastic, I want to say, when it's elastic, a drop in price tends to make total revenue go up."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So in this situation, total revenue would go down. And remember, this is an elastic situation. So when it is elastic, total revenue tends to go up. And when it is inelastic, I want to say, when it's elastic, a drop in price tends to make total revenue go up. And when it is inelastic, a drop in price tends to make total revenue go down. And then you can imagine, right when you're at unit elasticity, someplace around there, a 1% drop in price will result in exactly a 1% increase in quantity demanded, and so they will kind of trade off. You won't get a noticeable change in your revenue."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And when it is inelastic, I want to say, when it's elastic, a drop in price tends to make total revenue go up. And when it is inelastic, a drop in price tends to make total revenue go down. And then you can imagine, right when you're at unit elasticity, someplace around there, a 1% drop in price will result in exactly a 1% increase in quantity demanded, and so they will kind of trade off. You won't get a noticeable change in your revenue. And the reason why I say that is that actually some many econ textbooks will tell you that you don't get a change in revenue. But if you actually do a detailed look at the maths, let me write it over here. So the absolute value of the price elasticity of demand at that point is 1, which tells us that a 1% drop in price goes along with a 1% increase in quantity."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "You won't get a noticeable change in your revenue. And the reason why I say that is that actually some many econ textbooks will tell you that you don't get a change in revenue. But if you actually do a detailed look at the maths, let me write it over here. So the absolute value of the price elasticity of demand at that point is 1, which tells us that a 1% drop in price goes along with a 1% increase in quantity. But if you look at the maths, so if the old area, so let's call this price 3, and let's call this quantity 3 right over here. And so total revenue 3, let me do this in a new color, which is this area right over there, is going to be equal to price 3 times quantity 3. Now, if we decrease price by 1%, then this will become 0.99 times our price."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So the absolute value of the price elasticity of demand at that point is 1, which tells us that a 1% drop in price goes along with a 1% increase in quantity. But if you look at the maths, so if the old area, so let's call this price 3, and let's call this quantity 3 right over here. And so total revenue 3, let me do this in a new color, which is this area right over there, is going to be equal to price 3 times quantity 3. Now, if we decrease price by 1%, then this will become 0.99 times our price. And if we increase our quantity by 1%, then this will become 1.01 times our quantity. Now, let's think about what this number right over here is. This is why I'm saying it's not exactly, the total revenue isn't going to be exactly unchanged."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now, if we decrease price by 1%, then this will become 0.99 times our price. And if we increase our quantity by 1%, then this will become 1.01 times our quantity. Now, let's think about what this number right over here is. This is why I'm saying it's not exactly, the total revenue isn't going to be exactly unchanged. If you multiply 0.99 times 1.01, you don't get exactly 1. Another way to think about it, 0.99 times 0.01 is going to be 1% less than 1.01, and 1% of 1.01 is slightly larger than 1. Or another way to think about it, this value is going to be 1% larger than 0.99, and 1% of 0.99 is less than 1, so it's not going to get you to 1."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "This is why I'm saying it's not exactly, the total revenue isn't going to be exactly unchanged. If you multiply 0.99 times 1.01, you don't get exactly 1. Another way to think about it, 0.99 times 0.01 is going to be 1% less than 1.01, and 1% of 1.01 is slightly larger than 1. Or another way to think about it, this value is going to be 1% larger than 0.99, and 1% of 0.99 is less than 1, so it's not going to get you to 1. And you can see it with your calculator. 0.99 times 1.01 gets you to very close to 1. So this is going to be equal to 0.9999 times P3Q3, which is equal to 0.9999 times total revenue 3."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Or another way to think about it, this value is going to be 1% larger than 0.99, and 1% of 0.99 is less than 1, so it's not going to get you to 1. And you can see it with your calculator. 0.99 times 1.01 gets you to very close to 1. So this is going to be equal to 0.9999 times P3Q3, which is equal to 0.9999 times total revenue 3. But it is total revenue 3. But it is roughly unchanged. So that's kind of the general rule of thumb."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So this is going to be equal to 0.9999 times P3Q3, which is equal to 0.9999 times total revenue 3. But it is total revenue 3. But it is roughly unchanged. So that's kind of the general rule of thumb. So when you are at unit elasticity, then a decrease in price roughly says no change, approximately no change, in total revenue. So I just wanted to make sure that it makes sense. It really just comes from these areas."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So that's kind of the general rule of thumb. So when you are at unit elasticity, then a decrease in price roughly says no change, approximately no change, in total revenue. So I just wanted to make sure that it makes sense. It really just comes from these areas. If you're reducing the height by less, then you're increasing the width. Obviously, the area is going to increase. Or most of the cases, I should say."}, {"video_title": "More on total revenue and elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "It really just comes from these areas. If you're reducing the height by less, then you're increasing the width. Obviously, the area is going to increase. Or most of the cases, I should say. It depends on where you are. If you're kind of compensating, whatever you reduce the height, you are compensating perfectly with the increase in width, then you're not going to have a change in revenue. And if you decrease the height by more, if you're taking more area from the top than you're adding on the width, then you're going to have a total decrease in total revenue."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "It just tells us that if we raise the price of a product, that will lower the quantity demanded for the product. Quantity demanded will go down. And you can imagine the other side of that. If we lower the price of a product, that will raise the quantity demanded of that product. And the law of demand says this just kind of generally. What we'll see in a few videos from now is that there are some exceptions to this. But to make this a little concrete, let's think about the demand for a certain product."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If we lower the price of a product, that will raise the quantity demanded of that product. And the law of demand says this just kind of generally. What we'll see in a few videos from now is that there are some exceptions to this. But to make this a little concrete, let's think about the demand for a certain product. And one thing I want to clear here, and I'm going to go through great pains to not mess this up, is that when we talk about the word demand in an economic sense, in a formal economic sense, we're not talking about a quantity. We're actually going to talk all else equals, ceteris paribus, all of the relationship between price and quantity demanded. If we talk about an actual quantity, we should say the quantity demanded."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "But to make this a little concrete, let's think about the demand for a certain product. And one thing I want to clear here, and I'm going to go through great pains to not mess this up, is that when we talk about the word demand in an economic sense, in a formal economic sense, we're not talking about a quantity. We're actually going to talk all else equals, ceteris paribus, all of the relationship between price and quantity demanded. If we talk about an actual quantity, we should say the quantity demanded. So demand versus quantity demanded. These are two different things. And if it's a little confusing to you right now, hopefully by the end of this video, the difference between demand and quantity demanded will become a little bit clearer, and definitely over the next few videos."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If we talk about an actual quantity, we should say the quantity demanded. So demand versus quantity demanded. These are two different things. And if it's a little confusing to you right now, hopefully by the end of this video, the difference between demand and quantity demanded will become a little bit clearer, and definitely over the next few videos. Because in this video, we're going to focus on how the quantity demanded changes relative to the price. In future videos, we'll talk about how the entire relationship, how demand changes, based on different factors. But to make things concrete, let's say I'm about to release my science fiction book, space whatever, I don't know, the book that I want to release."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And if it's a little confusing to you right now, hopefully by the end of this video, the difference between demand and quantity demanded will become a little bit clearer, and definitely over the next few videos. Because in this video, we're going to focus on how the quantity demanded changes relative to the price. In future videos, we'll talk about how the entire relationship, how demand changes, based on different factors. But to make things concrete, let's say I'm about to release my science fiction book, space whatever, I don't know, the book that I want to release. I'm going to release some e-book. And we've done some market study, or we just know how the price is, or how the demand is related to price, or the price is related to demand. And we're going to show that in a demand schedule, which is really just a table that just shows how the price, and actually I just made my first mistake."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "But to make things concrete, let's say I'm about to release my science fiction book, space whatever, I don't know, the book that I want to release. I'm going to release some e-book. And we've done some market study, or we just know how the price is, or how the demand is related to price, or the price is related to demand. And we're going to show that in a demand schedule, which is really just a table that just shows how the price, and actually I just made my first mistake. I just said how price relates to demand. I should say how price relates to quantity demanded, and how quantity demanded relates to price. So a demand schedule shows a relationship between price and quantity demanded, all else equal."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And we're going to show that in a demand schedule, which is really just a table that just shows how the price, and actually I just made my first mistake. I just said how price relates to demand. I should say how price relates to quantity demanded, and how quantity demanded relates to price. So a demand schedule shows a relationship between price and quantity demanded, all else equal. So we're going to have multiple scenarios here. So this column, let me do my scenarios. This column, let me put my price."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So a demand schedule shows a relationship between price and quantity demanded, all else equal. So we're going to have multiple scenarios here. So this column, let me do my scenarios. This column, let me put my price. And this column, let me put my quantity demanded. So scenario, let's call this scenario A. I could price my book at $2. I could price my book at $2."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "This column, let me put my price. And this column, let me put my quantity demanded. So scenario, let's call this scenario A. I could price my book at $2. I could price my book at $2. And I'll get a ton of people downloading it at that price. So I will get 60,000 people download my book at that price, my e-book. Scenario B, I could raise the price by $2."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "I could price my book at $2. And I'll get a ton of people downloading it at that price. So I will get 60,000 people download my book at that price, my e-book. Scenario B, I could raise the price by $2. So it's now $4. And then that kills off a lot of the demand. Now the quantity demanded goes down to 40,000 people downloading it."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Scenario B, I could raise the price by $2. So it's now $4. And then that kills off a lot of the demand. Now the quantity demanded goes down to 40,000 people downloading it. Then I could go to scenario C if I raise by another $2. So now I'm at $6. Now that lowers the quantity demanded to 30,000."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now the quantity demanded goes down to 40,000 people downloading it. Then I could go to scenario C if I raise by another $2. So now I'm at $6. Now that lowers the quantity demanded to 30,000. I'll do a couple more of these. Scenario D, I raise another $2. So I get to $8 now."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now that lowers the quantity demanded to 30,000. I'll do a couple more of these. Scenario D, I raise another $2. So I get to $8 now. Now the quantity demanded goes down to 25,000. And I'll do one more of these. Let's see, what color have I not used yet?"}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So I get to $8 now. Now the quantity demanded goes down to 25,000. And I'll do one more of these. Let's see, what color have I not used yet? I haven't used yellow yet. Scenario E, if I raise it to $10, now the quantity demanded, let's just say, is 23,000. So this relationship between this shows the law of demand right over here."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Let's see, what color have I not used yet? I haven't used yellow yet. Scenario E, if I raise it to $10, now the quantity demanded, let's just say, is 23,000. So this relationship between this shows the law of demand right over here. And this table that shows how the quantity demanded relates to price and vice versa, this is what we call a demand schedule. Now we can also, based on this demand schedule, draw a demand curve. And really we're just going to plot these points and draw the curve that connects them."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So this relationship between this shows the law of demand right over here. And this table that shows how the quantity demanded relates to price and vice versa, this is what we call a demand schedule. Now we can also, based on this demand schedule, draw a demand curve. And really we're just going to plot these points and draw the curve that connects them. Because these aren't the only scenarios. Anything in between is possible. We could charge $2.01 for the book."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And really we're just going to plot these points and draw the curve that connects them. Because these aren't the only scenarios. Anything in between is possible. We could charge $2.01 for the book. We could charge $4.50 for the book. And so that's what the demand curve captures a little bit better, because it's a continuous curve, not just five points. So let's do that."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "We could charge $2.01 for the book. We could charge $4.50 for the book. And so that's what the demand curve captures a little bit better, because it's a continuous curve, not just five points. So let's do that. Let's graph it. And this is one of those conventions of economics that I am not a fan of. Because people often talk about changing the price and how the quantity demanded changes from that."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So let's do that. Let's graph it. And this is one of those conventions of economics that I am not a fan of. Because people often talk about changing the price and how the quantity demanded changes from that. And in traditional, in most of math and science, the thing that you're changing, you normally put on the horizontal axis. So if I was in charge of the convention of economics, I would plot price on the horizontal axis right over here. But the way it's done typically is that price is done on the vertical axis."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Because people often talk about changing the price and how the quantity demanded changes from that. And in traditional, in most of math and science, the thing that you're changing, you normally put on the horizontal axis. So if I was in charge of the convention of economics, I would plot price on the horizontal axis right over here. But the way it's done typically is that price is done on the vertical axis. And so you're used to seeing it in kind of a traditional class environment. I'll do the same. So we'll put price in the vertical axis."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "But the way it's done typically is that price is done on the vertical axis. And so you're used to seeing it in kind of a traditional class environment. I'll do the same. So we'll put price in the vertical axis. And we'll put quantity demanded in the horizontal axis. And our quantity demanded goes all the way up to 60,000. So that's, let's see, that's 10, 20, 30, 40, 50, 60."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So we'll put price in the vertical axis. And we'll put quantity demanded in the horizontal axis. And our quantity demanded goes all the way up to 60,000. So that's, let's see, that's 10, 20, 30, 40, 50, 60. So that's 10, this is in 1,000, 20, 30, 40, sorry, not 45, 40, 50, and 60. And this is in thousands. And then the price goes up to $10, from $2 to $10."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So that's, let's see, that's 10, 20, 30, 40, 50, 60. So that's 10, this is in 1,000, 20, 30, 40, sorry, not 45, 40, 50, and 60. And this is in thousands. And then the price goes up to $10, from $2 to $10. So let's say this is 2, 4, 6, 8, and 10. So let's plot the scenarios. So scenario A, price is $2, 60,000 units are demanded."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And then the price goes up to $10, from $2 to $10. So let's say this is 2, 4, 6, 8, and 10. So let's plot the scenarios. So scenario A, price is $2, 60,000 units are demanded. That is scenario A, right over there. Scenario B, when the price is $4, 40,000 units are demanded. $4, 40,000 units."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So scenario A, price is $2, 60,000 units are demanded. That is scenario A, right over there. Scenario B, when the price is $4, 40,000 units are demanded. $4, 40,000 units. That's right over there. That's scenario B. Scenario C, $6, 30,000 units."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "$4, 40,000 units. That's right over there. That's scenario B. Scenario C, $6, 30,000 units. Right over there. Scenario C. Scenario D, $8, 25,000 units. $8, 25 is right about there."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Scenario C, $6, 30,000 units. Right over there. Scenario C. Scenario D, $8, 25,000 units. $8, 25 is right about there. That looks like 25,000 right in between. That's close enough. So that right over there is scenario D. And then finally scenario E, $10, 23 units."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "$8, 25 is right about there. That looks like 25,000 right in between. That's close enough. So that right over there is scenario D. And then finally scenario E, $10, 23 units. $10, 23,000 units. So it might be something like that. That is scenario E. And so we could actually have prices anywhere in between that, and maybe we could even go further."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So that right over there is scenario D. And then finally scenario E, $10, 23 units. $10, 23,000 units. So it might be something like that. That is scenario E. And so we could actually have prices anywhere in between that, and maybe we could even go further. So this right over here, so if I were to draw the demand curve, it could look something like this. The demand curve would look something, I'm trying to do my best to draw it as a straight continuous line, could look something like that. And it could keep going on and on."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "That is scenario E. And so we could actually have prices anywhere in between that, and maybe we could even go further. So this right over here, so if I were to draw the demand curve, it could look something like this. The demand curve would look something, I'm trying to do my best to draw it as a straight continuous line, could look something like that. And it could keep going on and on. And so these are two ways to show demand. So just going back to what I said earlier, the quantity demanded is all else equal for a given price how many units people are willing to download or buy of my e-book. When we talk about the demand itself, we're talking about this entire relationship."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And it could keep going on and on. And so these are two ways to show demand. So just going back to what I said earlier, the quantity demanded is all else equal for a given price how many units people are willing to download or buy of my e-book. When we talk about the demand itself, we're talking about this entire relationship. So this demand itself is this entire demand schedule. Or another way to think of it is this entire demand curve. If demand were to change, we would actually have a different curve."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "When we talk about the demand itself, we're talking about this entire relationship. So this demand itself is this entire demand schedule. Or another way to think of it is this entire demand curve. If demand were to change, we would actually have a different curve. This curve would shift, or the entries in this table would shift. If the quantity of demand changes, so we move along this curve when you hold everything else equal and you only change price. So hopefully that makes that clear."}, {"video_title": "Law of demand Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If demand were to change, we would actually have a different curve. This curve would shift, or the entries in this table would shift. If the quantity of demand changes, so we move along this curve when you hold everything else equal and you only change price. So hopefully that makes that clear. When everything else is equal and you're only changing price, you're not changing demand, you're changing the quantity demanded. The demand, because everything else is equal, is this relationship. In the next few videos, we'll think about what does happen when you do change some of those other factors."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "So let's say we're starting off in scenario F. We are vegetarians. We are only getting berries. We are not spending any time going after rabbits. But now we're starting to, I guess, crave protein, and we say, well, what is going to be the opportunity cost if I go for that extra rabbit? If I go for that extra rabbit, then what's going to happen? Well, I'm going to have to stay on my production possibilities frontier, and so I'm going to move to scenario E. So if I go after that one extra rabbit, I am going to give up 20 berries. So my opportunity cost in scenario F, sitting in scenario F, of going after that one rabbit is 20 berries."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "But now we're starting to, I guess, crave protein, and we say, well, what is going to be the opportunity cost if I go for that extra rabbit? If I go for that extra rabbit, then what's going to happen? Well, I'm going to have to stay on my production possibilities frontier, and so I'm going to move to scenario E. So if I go after that one extra rabbit, I am going to give up 20 berries. So my opportunity cost in scenario F, sitting in scenario F, of going after that one rabbit is 20 berries. Now, let's keep going. What happens if I'm in scenario E? I'm already on average eating one rabbit or finding one rabbit a day, and I want to go to two rabbits a day."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "So my opportunity cost in scenario F, sitting in scenario F, of going after that one rabbit is 20 berries. Now, let's keep going. What happens if I'm in scenario E? I'm already on average eating one rabbit or finding one rabbit a day, and I want to go to two rabbits a day. What am I going to give up? Let me do that in that same color. What will I give up?"}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "I'm already on average eating one rabbit or finding one rabbit a day, and I want to go to two rabbits a day. What am I going to give up? Let me do that in that same color. What will I give up? Well, now I am going to give up 40 berries. This is interesting. Now let's say we're in scenario D, and we want even more rabbits."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "What will I give up? Well, now I am going to give up 40 berries. This is interesting. Now let's say we're in scenario D, and we want even more rabbits. We're really starting to become carnivores now. What am I going to give up? Well, I'm going to give up 60 berries."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "Now let's say we're in scenario D, and we want even more rabbits. We're really starting to become carnivores now. What am I going to give up? Well, I'm going to give up 60 berries. If I'm able to get three rabbits every day on average, then I'm only going to get 180 berries now instead of 240, and let's just keep going. So if I want yet another rabbit every day, then I'm going to have to give up 80 berries. And then finally, just to feel some sense of completion, if I become a complete carnivore, and if I want to get on average five rabbits a day, I'm going to have to give up another 100 berries and go to not having any berries at all."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "Well, I'm going to give up 60 berries. If I'm able to get three rabbits every day on average, then I'm only going to get 180 berries now instead of 240, and let's just keep going. So if I want yet another rabbit every day, then I'm going to have to give up 80 berries. And then finally, just to feel some sense of completion, if I become a complete carnivore, and if I want to get on average five rabbits a day, I'm going to have to give up another 100 berries and go to not having any berries at all. And so you might see something interesting. The more squirrels, sorry, not squirrels, although I guess they're similar, the more rabbits that I'm going after, every time I try to go after another incremental rabbit, I'm giving up more and more berries. My opportunity cost is increasing."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "And then finally, just to feel some sense of completion, if I become a complete carnivore, and if I want to get on average five rabbits a day, I'm going to have to give up another 100 berries and go to not having any berries at all. And so you might see something interesting. The more squirrels, sorry, not squirrels, although I guess they're similar, the more rabbits that I'm going after, every time I try to go after another incremental rabbit, I'm giving up more and more berries. My opportunity cost is increasing. And so this phenomenon, it's not always the case, but it's the case in this example, increasing opportunity cost. As we increase the number of rabbits we're going after. And you could do it the other way."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "My opportunity cost is increasing. And so this phenomenon, it's not always the case, but it's the case in this example, increasing opportunity cost. As we increase the number of rabbits we're going after. And you could do it the other way. You could say, okay, as we increase, especially if you did it on a unit basis, if you said every incremental berry or every incremental 100 berries we're going after, but the numbers aren't as easy right over here, you'll actually see something going the other way. But the question, an interesting question, is okay, Sal, you set up the numbers like this earlier two videos ago, but why would this make sense? Why is this idea of increasing opportunity cost showing up in a lot of different economic, and you could call this an economic model."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "And you could do it the other way. You could say, okay, as we increase, especially if you did it on a unit basis, if you said every incremental berry or every incremental 100 berries we're going after, but the numbers aren't as easy right over here, you'll actually see something going the other way. But the question, an interesting question, is okay, Sal, you set up the numbers like this earlier two videos ago, but why would this make sense? Why is this idea of increasing opportunity cost showing up in a lot of different economic, and you could call this an economic model. We've simplified our economic reality, the choices that we have to make, down to two variables, the number of rabbits we have to go after or the number of berries. But why does this show up in economic models? And just to be clear, it does not show up in all of them."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "Why is this idea of increasing opportunity cost showing up in a lot of different economic, and you could call this an economic model. We've simplified our economic reality, the choices that we have to make, down to two variables, the number of rabbits we have to go after or the number of berries. But why does this show up in economic models? And just to be clear, it does not show up in all of them. But to think about our example as a hunter-gatherer, we started here in scenario F. In scenario F, we've decided to not pursue any rabbits. Even the slower, not so quick-witted rabbit who maybe likes to hang out with you, next to you, and it likes to play with your spears or your bow and arrow, you are not even going after that rabbit. Instead, you are choosing to spend all of your time on the berries."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "And just to be clear, it does not show up in all of them. But to think about our example as a hunter-gatherer, we started here in scenario F. In scenario F, we've decided to not pursue any rabbits. Even the slower, not so quick-witted rabbit who maybe likes to hang out with you, next to you, and it likes to play with your spears or your bow and arrow, you are not even going after that rabbit. Instead, you are choosing to spend all of your time on the berries. And not only are you getting the low, literally the low-hanging fruit, the easy berries, you're getting the berries that are further up the bush, the berries that you have to get cut by thorns to get, the berries that you have to climb trees to get. So you're getting even hard to get berries, and you're not going after even easy to get rabbits. But now all of a sudden, if you say, well, you know, that rabbit who's been hanging out with me, he's been kind of asking for it, and so that was very easy to get, it didn't take much time on a given day to get those really easy rabbits who like to hang out with you, you're not giving up a lot in terms of berries."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "Instead, you are choosing to spend all of your time on the berries. And not only are you getting the low, literally the low-hanging fruit, the easy berries, you're getting the berries that are further up the bush, the berries that you have to get cut by thorns to get, the berries that you have to climb trees to get. So you're getting even hard to get berries, and you're not going after even easy to get rabbits. But now all of a sudden, if you say, well, you know, that rabbit who's been hanging out with me, he's been kind of asking for it, and so that was very easy to get, it didn't take much time on a given day to get those really easy rabbits who like to hang out with you, you're not giving up a lot in terms of berries. One, it didn't take you much time to get those, literally those slow and maybe less quick-witted rabbits, and you're giving up in that same amount of time the very hard to get berries. So you're only going to give up about 20 of them. Now, if you want two rabbits a day, not only are you going to get the slowest of the rabbits, the ones that aren't afraid of humans, now you're going to have to go get the slightly faster rabbit."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "But now all of a sudden, if you say, well, you know, that rabbit who's been hanging out with me, he's been kind of asking for it, and so that was very easy to get, it didn't take much time on a given day to get those really easy rabbits who like to hang out with you, you're not giving up a lot in terms of berries. One, it didn't take you much time to get those, literally those slow and maybe less quick-witted rabbits, and you're giving up in that same amount of time the very hard to get berries. So you're only going to give up about 20 of them. Now, if you want two rabbits a day, not only are you going to get the slowest of the rabbits, the ones that aren't afraid of humans, now you're going to have to go get the slightly faster rabbit. The slightly faster rabbit who wants to die a little bit less and is maybe a little bit sharper. And you're now not giving up the berries that are way up in the tree and that are protected by thorns, you're giving up berries that are closer down the tree. So this is going to take you a little bit more time to do than this right over here."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "Now, if you want two rabbits a day, not only are you going to get the slowest of the rabbits, the ones that aren't afraid of humans, now you're going to have to go get the slightly faster rabbit. The slightly faster rabbit who wants to die a little bit less and is maybe a little bit sharper. And you're now not giving up the berries that are way up in the tree and that are protected by thorns, you're giving up berries that are closer down the tree. So this is going to take you a little bit more time to do than this right over here. And in that little bit more time, you're also giving up berries that were easier to get. And so this phenomenon is going to happen all the way until, you know, in this scenario, we're trying to get five rabbits a day. You are literally going after the quickest and the smartest rabbits, but you insist on going them."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "So this is going to take you a little bit more time to do than this right over here. And in that little bit more time, you're also giving up berries that were easier to get. And so this phenomenon is going to happen all the way until, you know, in this scenario, we're trying to get five rabbits a day. You are literally going after the quickest and the smartest rabbits, but you insist on going them. And in your pursuit of these quick, fast rabbits, you're even ignoring berries. You're literally like stepping on berries. You're not eating the berries that are right next to you because you're so obsessed with eating rabbits."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "You are literally going after the quickest and the smartest rabbits, but you insist on going them. And in your pursuit of these quick, fast rabbits, you're even ignoring berries. You're literally like stepping on berries. You're not eating the berries that are right next to you because you're so obsessed with eating rabbits. So hopefully that gives you a sense of why increasing opportunity cost does show up. And when you graphically show it in terms of a production possibilities frontier, it shows up in this bow-shaped curve. And you can see it because as we go from this point to this point, you see that as we increase one, the slope, the negative slope, is increasing."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "You're not eating the berries that are right next to you because you're so obsessed with eating rabbits. So hopefully that gives you a sense of why increasing opportunity cost does show up. And when you graphically show it in terms of a production possibilities frontier, it shows up in this bow-shaped curve. And you can see it because as we go from this point to this point, you see that as we increase one, the slope, the negative slope, is increasing. Or another way to think about it in scenario F, the slope is roughly like this. And I encourage you to review the algebra playlist if the idea of slope is confusing to you. But at F, the slope is like that."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "And you can see it because as we go from this point to this point, you see that as we increase one, the slope, the negative slope, is increasing. Or another way to think about it in scenario F, the slope is roughly like this. And I encourage you to review the algebra playlist if the idea of slope is confusing to you. But at F, the slope is like that. I'm drawing the slope of the tangent line right over here. At E, it gets even steeper. You're giving up even more."}, {"video_title": "Increasing opportunity cost Microeconomics Khan Academy.mp3", "Sentence": "But at F, the slope is like that. I'm drawing the slope of the tangent line right over here. At E, it gets even steeper. You're giving up even more. You're giving up even more of the berries per unit rabbit. And now in D, you're giving up even more. Then you're giving up even more."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In the last few videos, we were studying our watch factory, ABC watch factory. And based on some data, knowing what our fixed costs are, our labor units, our variable costs, our total costs, and then our total output, and that would be for different amounts of labor, we were able to calculate marginal product of labor, marginal cost, average variable cost, average fixed cost, and average total cost. What we're going to do in this video is start to explore how these various calculations will change, and eventually how these curves will change, based on changes in cost and productivity. So let's say our rent has gone up by $2,000 a month, and we have to pay that extra rent regardless of what our output is. So what is that going to do to marginal product of labor, marginal cost, average variable cost, average fixed cost, and average total cost? Pause this video and think about what's going to happen before we actually model it in this spreadsheet by raising our fixed costs, our monthly fixed costs. So we are going to go from $5,000 a month of fixed cost to $7,000 a month of fixed cost."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So let's say our rent has gone up by $2,000 a month, and we have to pay that extra rent regardless of what our output is. So what is that going to do to marginal product of labor, marginal cost, average variable cost, average fixed cost, and average total cost? Pause this video and think about what's going to happen before we actually model it in this spreadsheet by raising our fixed costs, our monthly fixed costs. So we are going to go from $5,000 a month of fixed cost to $7,000 a month of fixed cost. So it's going to be 7,000, but we're not done yet. We want to scroll all the way down. And so what changed from what I had before?"}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So we are going to go from $5,000 a month of fixed cost to $7,000 a month of fixed cost. So it's going to be 7,000, but we're not done yet. We want to scroll all the way down. And so what changed from what I had before? Well, if you were paying close attention, your marginal product of labor hasn't changed, your marginal cost hasn't changed, your average variable cost hasn't changed, your average fixed and average total cost did change. And that should hopefully make intuitive sense. If you look at the formulas for these things, for example, the marginal product of labor, you would see that it involves total output and the labor units."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so what changed from what I had before? Well, if you were paying close attention, your marginal product of labor hasn't changed, your marginal cost hasn't changed, your average variable cost hasn't changed, your average fixed and average total cost did change. And that should hopefully make intuitive sense. If you look at the formulas for these things, for example, the marginal product of labor, you would see that it involves total output and the labor units. It doesn't involve the fixed cost at all. So if the fixed cost changed, you wouldn't expect our marginal product of labor to change. When you look at marginal cost, you are involving total cost."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "If you look at the formulas for these things, for example, the marginal product of labor, you would see that it involves total output and the labor units. It doesn't involve the fixed cost at all. So if the fixed cost changed, you wouldn't expect our marginal product of labor to change. When you look at marginal cost, you are involving total cost. And you say, hey, isn't fixed cost part of total cost? But remember, fixed cost is, the $7,000 is part of the 13,000, and it's part of this 9,000 right over here. So when you take the 13,000 minus the 9,000, which we do in the numerator right over here, we're doing our change in total cost over our change in output, those $2,000, $7,000 cancel out, the fixed costs cancel out."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "When you look at marginal cost, you are involving total cost. And you say, hey, isn't fixed cost part of total cost? But remember, fixed cost is, the $7,000 is part of the 13,000, and it's part of this 9,000 right over here. So when you take the 13,000 minus the 9,000, which we do in the numerator right over here, we're doing our change in total cost over our change in output, those $2,000, $7,000 cancel out, the fixed costs cancel out. And so your marginal cost is not dependent on your fixed cost. Similarly, your variable cost is separate, you can view in a lot of ways, from your fixed cost. So your average variable costs aren't going to be affected by fixed cost."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So when you take the 13,000 minus the 9,000, which we do in the numerator right over here, we're doing our change in total cost over our change in output, those $2,000, $7,000 cancel out, the fixed costs cancel out. And so your marginal cost is not dependent on your fixed cost. Similarly, your variable cost is separate, you can view in a lot of ways, from your fixed cost. So your average variable costs aren't going to be affected by fixed cost. And of course, you would expect your average fixed cost to change because that is directly derived from your fixed costs and your output. And then average total costs are also derived from total costs, it's not a change between total costs, and that total cost has the fixed cost in it. So you might be asking yourself, well, what would change your marginal product of labor, your marginal cost, your average variable cost, or your average total cost?"}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So your average variable costs aren't going to be affected by fixed cost. And of course, you would expect your average fixed cost to change because that is directly derived from your fixed costs and your output. And then average total costs are also derived from total costs, it's not a change between total costs, and that total cost has the fixed cost in it. So you might be asking yourself, well, what would change your marginal product of labor, your marginal cost, your average variable cost, or your average total cost? Well, think about a change in labor productivity. Let's say that each person, there's some magical new device that allows, or new process that allows them to be a little bit more productive. Well then, one person, instead of producing 10, let's say they now produce 11."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So you might be asking yourself, well, what would change your marginal product of labor, your marginal cost, your average variable cost, or your average total cost? Well, think about a change in labor productivity. Let's say that each person, there's some magical new device that allows, or new process that allows them to be a little bit more productive. Well then, one person, instead of producing 10, let's say they now produce 11. And let's say two people instead of 25 can now produce 27. Let's say three people instead of 45 can now produce 47. And now four people, and I'm making these numbers up, they can now produce 59."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well then, one person, instead of producing 10, let's say they now produce 11. And let's say two people instead of 25 can now produce 27. Let's say three people instead of 45 can now produce 47. And now four people, and I'm making these numbers up, they can now produce 59. Let me say that this is 66. And then let's say that this is 72. And so notice, that did change our marginal product of labor."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And now four people, and I'm making these numbers up, they can now produce 59. Let me say that this is 66. And then let's say that this is 72. And so notice, that did change our marginal product of labor. And once again, marginal product of labor is based on the difference in total output as we have a difference in our labor units. And that change in productivity, it might be more pronounced, and the way I just happened to pick the numbers, it was more pronounced when you have fewer people, and then it got more diminished as you had more and more people. But when you had that change in productivity, you might have noticed that that changed our marginal cost, and that changed our average variable cost."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so notice, that did change our marginal product of labor. And once again, marginal product of labor is based on the difference in total output as we have a difference in our labor units. And that change in productivity, it might be more pronounced, and the way I just happened to pick the numbers, it was more pronounced when you have fewer people, and then it got more diminished as you had more and more people. But when you had that change in productivity, you might have noticed that that changed our marginal cost, and that changed our average variable cost. Because once again, your marginal cost, if we look at it right over here, it is calculated by looking at your change in total cost divided by your change in total output. And when we had this productivity improvement, our change in total output improved. Now there could be a situation where you have a productivity improvement, but the change in total output from one person to the next might not change."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But when you had that change in productivity, you might have noticed that that changed our marginal cost, and that changed our average variable cost. Because once again, your marginal cost, if we look at it right over here, it is calculated by looking at your change in total cost divided by your change in total output. And when we had this productivity improvement, our change in total output improved. Now there could be a situation where you have a productivity improvement, but the change in total output from one person to the next might not change. So it's not always going to change either the marginal product of labor or the marginal cost, but changes in productivity will often change those two things. And similarly, if you look at your average variable cost, it is based on your variable cost and your output. When you have this productivity improvement, that's going to improve your output for any given amount of variable cost."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now there could be a situation where you have a productivity improvement, but the change in total output from one person to the next might not change. So it's not always going to change either the marginal product of labor or the marginal cost, but changes in productivity will often change those two things. And similarly, if you look at your average variable cost, it is based on your variable cost and your output. When you have this productivity improvement, that's going to improve your output for any given amount of variable cost. And so that's going to have an effect on your average variable cost. And then your average total cost is, of course, based in part on your total variable cost, which is driven by that productivity improvement. Similarly, you could have changes in variable cost."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "When you have this productivity improvement, that's going to improve your output for any given amount of variable cost. And so that's going to have an effect on your average variable cost. And then your average total cost is, of course, based in part on your total variable cost, which is driven by that productivity improvement. Similarly, you could have changes in variable cost. Let's say all of the people who work at your factory have gotten together and said, we want a raise, and you give in, and you give a raise. Well now, instead of $2,000 per worker, it's going to cost $2,200 per worker. You gave a 10% raise per month."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Similarly, you could have changes in variable cost. Let's say all of the people who work at your factory have gotten together and said, we want a raise, and you give in, and you give a raise. Well now, instead of $2,000 per worker, it's going to cost $2,200 per worker. You gave a 10% raise per month. So let me get that all the way down. And notice, the things that you would have expected to change did change. Your marginal product of labor didn't change because marginal product of labor is not driven by cost."}, {"video_title": "How costs change when fixed and variable costs change AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "You gave a 10% raise per month. So let me get that all the way down. And notice, the things that you would have expected to change did change. Your marginal product of labor didn't change because marginal product of labor is not driven by cost. It only looks at the labor units and the total output. But your marginal cost did change, even though our output for every incremental person did not change because the underlying cost of the people changed. Similarly, the average variable cost, you would, of course, expect it to change because our variable costs all went up by 10%."}, {"video_title": "Marginal revenue and marginal cost in imperfect competition AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In this video, we're going to think about marginal revenue and marginal cost for a firm in an imperfectly competitive market. But before we do that, I just want to be able to review and compare to what we already know about a firm in a perfectly competitive market. So right over here, we're analyzing the firm's economics. This shows the marginal cost as a function of quantity, and we've talked about this before. Oftentimes, it will trend down initially as you have better specialization and some efficiencies, and then it might start trending up as there are just coordination costs or other costs that make the marginal cost go up. And we have talked about this notion that in a perfectly competitive market, the firm is a price taker. There's going to be some market price."}, {"video_title": "Marginal revenue and marginal cost in imperfect competition AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "This shows the marginal cost as a function of quantity, and we've talked about this before. Oftentimes, it will trend down initially as you have better specialization and some efficiencies, and then it might start trending up as there are just coordination costs or other costs that make the marginal cost go up. And we have talked about this notion that in a perfectly competitive market, the firm is a price taker. There's going to be some market price. Let's call this P sub M, some price in the market for the good that they are producing. And there's many producers who are producing this good, and they're undifferentiated, and there's no barriers to entry. And so they just have to be price takers there."}, {"video_title": "Marginal revenue and marginal cost in imperfect competition AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "There's going to be some market price. Let's call this P sub M, some price in the market for the good that they are producing. And there's many producers who are producing this good, and they're undifferentiated, and there's no barriers to entry. And so they just have to be price takers there. No matter how many units they produce, they're just going to be able to get that same market price. So a firm in a perfectly competitive market, that market price defines their marginal revenue curve. Their marginal revenue curve will essentially just be a horizontal line like this, and we've already studied this in previous videos."}, {"video_title": "Marginal revenue and marginal cost in imperfect competition AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so they just have to be price takers there. No matter how many units they produce, they're just going to be able to get that same market price. So a firm in a perfectly competitive market, that market price defines their marginal revenue curve. Their marginal revenue curve will essentially just be a horizontal line like this, and we've already studied this in previous videos. And we talked about that here, if this firm was trying to maximize its profit and if it was rational, it would produce the quantity where marginal cost is equal to marginal revenue. So it would produce this quantity right over here. But now let's think about how things are a bit different for a firm in an imperfectly competitive market."}, {"video_title": "Marginal revenue and marginal cost in imperfect competition AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Their marginal revenue curve will essentially just be a horizontal line like this, and we've already studied this in previous videos. And we talked about that here, if this firm was trying to maximize its profit and if it was rational, it would produce the quantity where marginal cost is equal to marginal revenue. So it would produce this quantity right over here. But now let's think about how things are a bit different for a firm in an imperfectly competitive market. In a previous video, we talked about how in an imperfectly competitive market, there's some differentiation amongst the various players who are competing. And so their market price is a function of quantity. If they just produce a bunch of their product, the price that they get in the market is likely to go down."}, {"video_title": "Marginal revenue and marginal cost in imperfect competition AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But now let's think about how things are a bit different for a firm in an imperfectly competitive market. In a previous video, we talked about how in an imperfectly competitive market, there's some differentiation amongst the various players who are competing. And so their market price is a function of quantity. If they just produce a bunch of their product, the price that they get in the market is likely to go down. So they will have their own firm-specific demand curve. Maybe it looks something like this. So that is their demand curve."}, {"video_title": "Marginal revenue and marginal cost in imperfect competition AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "If they just produce a bunch of their product, the price that they get in the market is likely to go down. So they will have their own firm-specific demand curve. Maybe it looks something like this. So that is their demand curve. And we also saw in that video that that demand curve, essentially the price that they could get at any quantity, that that's not going to be the same as a marginal revenue curve. If the demand curve is downward sloping like that, the marginal revenue curve is likely to be even more downward sloping. So it's going to look something like this."}, {"video_title": "Marginal revenue and marginal cost in imperfect competition AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that is their demand curve. And we also saw in that video that that demand curve, essentially the price that they could get at any quantity, that that's not going to be the same as a marginal revenue curve. If the demand curve is downward sloping like that, the marginal revenue curve is likely to be even more downward sloping. So it's going to look something like this. That would be the marginal revenue curve. Now in this situation, what would it be rational for the firm to do? Well, once again, it would want to produce a quantity where the marginal cost is equal to the marginal revenue."}, {"video_title": "Marginal revenue and marginal cost in imperfect competition AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So it's going to look something like this. That would be the marginal revenue curve. Now in this situation, what would it be rational for the firm to do? Well, once again, it would want to produce a quantity where the marginal cost is equal to the marginal revenue. So they would want to produce this quantity right over here. But you see something interesting here. If they produce at this quantity, notice the price that they can get in the market is much higher than that."}, {"video_title": "Marginal revenue and marginal cost in imperfect competition AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, once again, it would want to produce a quantity where the marginal cost is equal to the marginal revenue. So they would want to produce this quantity right over here. But you see something interesting here. If they produce at this quantity, notice the price that they can get in the market is much higher than that. The price that they get in the market is higher than the marginal cost and the marginal revenue at that point. And because we see a situation where price is greater than your marginal cost versus in a perfectly competitive market where you see that price is equal to marginal cost, that that is the optimal quantity. But because you have this gap, the people are willing to pay more than that marginal cost, but you still aren't going to be able to produce anymore because it doesn't make sense from a marginal revenue point of view."}, {"video_title": "Determinants of elasticity example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "We are asked, which of the following describes a good that is likely to have the most elastic demand? Choose one answer. So pause this video and see if you can answer that. All right, so the first choice right over here, they talk about a luxury with many substitutes. So we already talked about, when you're dealing with substitutes, if there's a lot of substitutes, that makes the quantity demanded very sensitive to price. So this would make it more elastic to have many substitutes, more elastic. And then the fact that it's a luxury, it's not something that people need, this would also make quantity more sensitive to price generally."}, {"video_title": "Determinants of elasticity example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "All right, so the first choice right over here, they talk about a luxury with many substitutes. So we already talked about, when you're dealing with substitutes, if there's a lot of substitutes, that makes the quantity demanded very sensitive to price. So this would make it more elastic to have many substitutes, more elastic. And then the fact that it's a luxury, it's not something that people need, this would also make quantity more sensitive to price generally. So we would also say more elastic. So this is looking like a good candidate, but let's check the other options here. A necessity with few substitutes."}, {"video_title": "Determinants of elasticity example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then the fact that it's a luxury, it's not something that people need, this would also make quantity more sensitive to price generally. So we would also say more elastic. So this is looking like a good candidate, but let's check the other options here. A necessity with few substitutes. Well, this is the opposite. If it's a necessity, this would be more inelastic or less elastic, less elastic. And few substitutes, if you have a change in price for that thing, people say, well, I still have to buy that thing, I can't substitute it with other things, this would also be less elastic."}, {"video_title": "Determinants of elasticity example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "A necessity with few substitutes. Well, this is the opposite. If it's a necessity, this would be more inelastic or less elastic, less elastic. And few substitutes, if you have a change in price for that thing, people say, well, I still have to buy that thing, I can't substitute it with other things, this would also be less elastic. And remember, we're looking for the most elastic demand, so we can rule this one out. A broadly defined good, such as food. Well, we just talked about that."}, {"video_title": "Determinants of elasticity example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And few substitutes, if you have a change in price for that thing, people say, well, I still have to buy that thing, I can't substitute it with other things, this would also be less elastic. And remember, we're looking for the most elastic demand, so we can rule this one out. A broadly defined good, such as food. Well, we just talked about that. If we're talking about food and there's a price change in food, well, we need food. So our quantity demanded would not likely change or a percent change in quantity would not likely be that much. This would be fairly inelastic."}, {"video_title": "Determinants of elasticity example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, we just talked about that. If we're talking about food and there's a price change in food, well, we need food. So our quantity demanded would not likely change or a percent change in quantity would not likely be that much. This would be fairly inelastic. Rule that one out. Goods that make up a small share of the budget. Well, this goes back to that example with bubblegum."}, {"video_title": "Determinants of elasticity example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "This would be fairly inelastic. Rule that one out. Goods that make up a small share of the budget. Well, this goes back to that example with bubblegum. If bubblegum goes from 25 cents to 30 cents, we might not care so much, versus if a car goes from $25,000 to $30,000. So the small things that we might not care about price changes so much, if we don't care so much about price changes, that would imply less elasticity. So that definitely would not be the most elastic demand."}, {"video_title": "Determinants of elasticity example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, this goes back to that example with bubblegum. If bubblegum goes from 25 cents to 30 cents, we might not care so much, versus if a car goes from $25,000 to $30,000. So the small things that we might not care about price changes so much, if we don't care so much about price changes, that would imply less elasticity. So that definitely would not be the most elastic demand. Goods that have to be bought under a short time constraint. Well, a good example is that it's raining and people need umbrellas right now in the next five, 10 minutes, and there they wouldn't necessarily be so sensitive to price. So this is going to be less elastic, and so once again, we would rule this out."}, {"video_title": "Determinants of elasticity example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that definitely would not be the most elastic demand. Goods that have to be bought under a short time constraint. Well, a good example is that it's raining and people need umbrellas right now in the next five, 10 minutes, and there they wouldn't necessarily be so sensitive to price. So this is going to be less elastic, and so once again, we would rule this out. If we had a long time frame, well, then people might be able to shop around for substitutes, and then things might get a little bit more elastic. They would be more sensitive to price. So we definitely like, in this scenario, choice A."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "In particular for the demand curve, we will think about the idea of marginal, marginal benefit. Now marginal benefit, when we're talking about margin, it's really thinking about what happens on the increment. What happens for each little extra that you do? So this is saying what is the benefit that I get if I get a little bit more of, in this case, chocolate? Well, from the market's point of view, imagine if there was no chocolate, but there's people in the market who crave chocolate, who dream of chocolate. If all of a sudden they were able to get their hands on some chocolate, they would get a huge benefit for that incremental amount of chocolate. Maybe for these folks, their benefit, which we could quantify as in terms of dollars, maybe their benefit is $50 per pound."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "So this is saying what is the benefit that I get if I get a little bit more of, in this case, chocolate? Well, from the market's point of view, imagine if there was no chocolate, but there's people in the market who crave chocolate, who dream of chocolate. If all of a sudden they were able to get their hands on some chocolate, they would get a huge benefit for that incremental amount of chocolate. Maybe for these folks, their benefit, which we could quantify as in terms of dollars, maybe their benefit is $50 per pound. One way to think about it, they'd be willing to pay $50 because they get that much benefit, or if they paid less than $50, let's say they paid $10 for it, well then they're getting $40 of extra benefit, of kind of surplus benefit from being able to get it at a price lower than their marginal benefit. But then let's say more chocolate becomes available. People still like it, but some of that really deep need, that deep addiction for chocolate has been satiated, and so the marginal benefit tends, for in most markets, the marginal benefit tends to go down as quantity increases."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "Maybe for these folks, their benefit, which we could quantify as in terms of dollars, maybe their benefit is $50 per pound. One way to think about it, they'd be willing to pay $50 because they get that much benefit, or if they paid less than $50, let's say they paid $10 for it, well then they're getting $40 of extra benefit, of kind of surplus benefit from being able to get it at a price lower than their marginal benefit. But then let's say more chocolate becomes available. People still like it, but some of that really deep need, that deep addiction for chocolate has been satiated, and so the marginal benefit tends, for in most markets, the marginal benefit tends to go down as quantity increases. One way to think about it, that first initial amount of quantity, so we have some small amount of quantity right over here, I'll say delta quantity. That first quantity, if you multiply it times the marginal benefit, well that gives you an area roughly of a rectangle like this. It's not quite rectangular at the top, it's more of a trapezoid if this is downward sloping, but you could approximate it as a rectangle."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "People still like it, but some of that really deep need, that deep addiction for chocolate has been satiated, and so the marginal benefit tends, for in most markets, the marginal benefit tends to go down as quantity increases. One way to think about it, that first initial amount of quantity, so we have some small amount of quantity right over here, I'll say delta quantity. That first quantity, if you multiply it times the marginal benefit, well that gives you an area roughly of a rectangle like this. It's not quite rectangular at the top, it's more of a trapezoid if this is downward sloping, but you could approximate it as a rectangle. But either way, the area right over here, the area under the marginal benefit curve, you could think about this as, well what's just the benefit that the market is getting from consuming this chocolate in this case? And so let's just continue on this trend. If there's more and more chocolate, the market will get benefit from it, but people aren't as excited about it anymore."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "It's not quite rectangular at the top, it's more of a trapezoid if this is downward sloping, but you could approximate it as a rectangle. But either way, the area right over here, the area under the marginal benefit curve, you could think about this as, well what's just the benefit that the market is getting from consuming this chocolate in this case? And so let's just continue on this trend. If there's more and more chocolate, the market will get benefit from it, but people aren't as excited about it anymore. They're saying, oh, well the chocolate's around, yeah, it'd be nice to have a little bit more, but I don't need so much more. And at some point, people might be all chocolated out, and they get maybe even zero marginal benefit from that incremental amount of chocolate. Chocolate has filled up the town, there's nowhere to actually put it."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "If there's more and more chocolate, the market will get benefit from it, but people aren't as excited about it anymore. They're saying, oh, well the chocolate's around, yeah, it'd be nice to have a little bit more, but I don't need so much more. And at some point, people might be all chocolated out, and they get maybe even zero marginal benefit from that incremental amount of chocolate. Chocolate has filled up the town, there's nowhere to actually put it. Now, that won't always be the case, you might go someplace like that, but either way you think about it, we would view this as our marginal benefit curve. And notice, this is exactly the same as a demand curve in the market for chocolate. We have plotted price versus quantity in the market for chocolate, but we thought about it in terms of marginal benefit."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "Chocolate has filled up the town, there's nowhere to actually put it. Now, that won't always be the case, you might go someplace like that, but either way you think about it, we would view this as our marginal benefit curve. And notice, this is exactly the same as a demand curve in the market for chocolate. We have plotted price versus quantity in the market for chocolate, but we thought about it in terms of marginal benefit. Now on the supply side, there's a related idea. We're gonna think about marginal cost. Marginal cost."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "We have plotted price versus quantity in the market for chocolate, but we thought about it in terms of marginal benefit. Now on the supply side, there's a related idea. We're gonna think about marginal cost. Marginal cost. So let's say at first, there's no chocolate being produced in this market. And a savvy entrepreneur says, hey, I know some folks who are addicted to chocolate. They would get a lot of benefit from it, so I'm gonna try to produce some chocolate."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "Marginal cost. So let's say at first, there's no chocolate being produced in this market. And a savvy entrepreneur says, hey, I know some folks who are addicted to chocolate. They would get a lot of benefit from it, so I'm gonna try to produce some chocolate. And they look around, and they find out, hey, there's actually a derelict chocolate factory in town that no one is using, and it's surrounded by these wild cocoa bushes that are perfect for chocolate. And there's some people in town who are actually unemployed, but they are amazing at producing chocolate. And so the first units of chocolate, the marginal cost to produce it, is actually quite low."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "They would get a lot of benefit from it, so I'm gonna try to produce some chocolate. And they look around, and they find out, hey, there's actually a derelict chocolate factory in town that no one is using, and it's surrounded by these wild cocoa bushes that are perfect for chocolate. And there's some people in town who are actually unemployed, but they are amazing at producing chocolate. And so the first units of chocolate, the marginal cost to produce it, is actually quite low. But once you utilize those folks, you utilize that derelict factory, you utilize those free cocoa bushes, or whatever, cocoa trees, well, then you gotta plant new ones. You gotta train new employees. You gotta build a new factory."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "And so the first units of chocolate, the marginal cost to produce it, is actually quite low. But once you utilize those folks, you utilize that derelict factory, you utilize those free cocoa bushes, or whatever, cocoa trees, well, then you gotta plant new ones. You gotta train new employees. You gotta build a new factory. And so to produce that next increment, well, that's gonna cost a little bit more, and then a little bit more, and then a little bit more, which is the general trend in most markets. Initially, that first amount you produce in as cheap a way using the low-hanging fruit as possible, but then you gotta go up the tree, find higher and higher fruit. Maybe I'm mixing metaphors."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "You gotta build a new factory. And so to produce that next increment, well, that's gonna cost a little bit more, and then a little bit more, and then a little bit more, which is the general trend in most markets. Initially, that first amount you produce in as cheap a way using the low-hanging fruit as possible, but then you gotta go up the tree, find higher and higher fruit. Maybe I'm mixing metaphors. But your marginal cost per unit goes higher and higher and higher. Now, what have we constructed here? Well, you might say, hey, Sal, that's a marginal cost curve."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "Maybe I'm mixing metaphors. But your marginal cost per unit goes higher and higher and higher. Now, what have we constructed here? Well, you might say, hey, Sal, that's a marginal cost curve. But once again, this also could be viewed as the supply curve for this particular market. Now, what is happening at these low quantities right over here? Well, the cost of production is, let's say they produce this delta Q amount."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "Well, you might say, hey, Sal, that's a marginal cost curve. But once again, this also could be viewed as the supply curve for this particular market. Now, what is happening at these low quantities right over here? Well, the cost of production is, let's say they produce this delta Q amount. The cost of production would be the area right over here under the marginal cost curve. That would be the cost of production. But they're able to sell it."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "Well, the cost of production is, let's say they produce this delta Q amount. The cost of production would be the area right over here under the marginal cost curve. That would be the cost of production. But they're able to sell it. The benefit to the market, I should say, would be the total area under this red curve, would be the benefit to the market, the total area under this curve. So if you have the total benefit to the market, you take out the cost, then what you have in between these curves, you could view this as a surplus. You could view this as a surplus benefit right over here."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "But they're able to sell it. The benefit to the market, I should say, would be the total area under this red curve, would be the benefit to the market, the total area under this curve. So if you have the total benefit to the market, you take out the cost, then what you have in between these curves, you could view this as a surplus. You could view this as a surplus benefit right over here. So let me write this down. This is surplus, and you won't hear this term, but I like to use it because it makes it intuitive on what we're talking about. This is surplus benefit."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "You could view this as a surplus benefit right over here. So let me write this down. This is surplus, and you won't hear this term, but I like to use it because it makes it intuitive on what we're talking about. This is surplus benefit. So as long as there's surplus benefit, the suppliers are gonna say, hey, wow, I can produce this cheaply. People get a lot of benefit for it. They'd be definitely willing to pay $10 a pound, wherever I am."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "This is surplus benefit. So as long as there's surplus benefit, the suppliers are gonna say, hey, wow, I can produce this cheaply. People get a lot of benefit for it. They'd be definitely willing to pay $10 a pound, wherever I am. If people are getting this much benefit, they're definitely going to be willing to pay $10 for it. So I'm gonna produce some, or actually, I'm gonna produce some, and I could even charge, I could charge anywhere in between these areas. Maybe I could charge right over here, and I get some of the benefit, and then the consumers get some of the benefit."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "They'd be definitely willing to pay $10 a pound, wherever I am. If people are getting this much benefit, they're definitely going to be willing to pay $10 for it. So I'm gonna produce some, or actually, I'm gonna produce some, and I could even charge, I could charge anywhere in between these areas. Maybe I could charge right over here, and I get some of the benefit, and then the consumers get some of the benefit. But then another maybe entrepreneur realizes, hey, well, there's more benefit to be had in this market, so they keep producing. They keep producing as long as there is benefit here, as long as the marginal benefit is higher than the marginal cost, all the way until we get to that point right over here. Now, what happens, what happens right over here?"}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "Maybe I could charge right over here, and I get some of the benefit, and then the consumers get some of the benefit. But then another maybe entrepreneur realizes, hey, well, there's more benefit to be had in this market, so they keep producing. They keep producing as long as there is benefit here, as long as the marginal benefit is higher than the marginal cost, all the way until we get to that point right over here. Now, what happens, what happens right over here? When we talked about just supply and demand, we talk about that's an efficient price and efficient quantity. But let's just think about, we said up until this point, it makes sense to produce more and more and more. Even this increment, if we're already at this quantity, it makes sense to produce even a little bit more because you're gonna have this cost, you're gonna have this cost incur, but then the market could have all of this, the market could have all of this benefit, which is larger than the cost."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "Now, what happens, what happens right over here? When we talked about just supply and demand, we talk about that's an efficient price and efficient quantity. But let's just think about, we said up until this point, it makes sense to produce more and more and more. Even this increment, if we're already at this quantity, it makes sense to produce even a little bit more because you're gonna have this cost, you're gonna have this cost incur, but then the market could have all of this, the market could have all of this benefit, which is larger than the cost. And so you say, well, as long as I sell it for something in between, we can split that surplus benefit, so to speak. But once these two lines intersect and we have the situation where our marginal benefit, marginal benefit is equal to our marginal cost, well, at that point, there is no surplus benefit now to be had. There's no really incentive to produce more than this."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "Even this increment, if we're already at this quantity, it makes sense to produce even a little bit more because you're gonna have this cost, you're gonna have this cost incur, but then the market could have all of this, the market could have all of this benefit, which is larger than the cost. And so you say, well, as long as I sell it for something in between, we can split that surplus benefit, so to speak. But once these two lines intersect and we have the situation where our marginal benefit, marginal benefit is equal to our marginal cost, well, at that point, there is no surplus benefit now to be had. There's no really incentive to produce more than this. Beyond this point, your incremental cost of production, your marginal cost is higher than your marginal benefit. So if you actually wanted to give it to someone for their benefit, you would be taking a loss. Or even if you just think about the market itself, the society would be incurring more incremental cost per unit than they would be getting a benefit."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "There's no really incentive to produce more than this. Beyond this point, your incremental cost of production, your marginal cost is higher than your marginal benefit. So if you actually wanted to give it to someone for their benefit, you would be taking a loss. Or even if you just think about the market itself, the society would be incurring more incremental cost per unit than they would be getting a benefit. So why even do it? And so this point right over here, where these two lines, these two curves intersect, and we've talked about this with just supply and demand, but when we think about it in terms of marginal benefit and marginal cost, we think about this quantity right over here, let's just call it Q sub zero. This quantity is considered allocatively efficient, allocatively efficient, which is a very fancy word, allocatively efficient."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "Or even if you just think about the market itself, the society would be incurring more incremental cost per unit than they would be getting a benefit. So why even do it? And so this point right over here, where these two lines, these two curves intersect, and we've talked about this with just supply and demand, but when we think about it in terms of marginal benefit and marginal cost, we think about this quantity right over here, let's just call it Q sub zero. This quantity is considered allocatively efficient, allocatively efficient, which is a very fancy word, allocatively efficient. Why is that the case? Well, any other quantity would not be efficient. For example, let's say for some reason, we were at this quantity right over here, let's say Q, Q one."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "This quantity is considered allocatively efficient, allocatively efficient, which is a very fancy word, allocatively efficient. Why is that the case? Well, any other quantity would not be efficient. For example, let's say for some reason, we were at this quantity right over here, let's say Q, Q one. Well, what happens at this quantity right over here? Well, at this quantity, at this quantity right over here, the marginal benefit is higher than the marginal cost. Marginal benefit is greater than the marginal cost."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "For example, let's say for some reason, we were at this quantity right over here, let's say Q, Q one. Well, what happens at this quantity right over here? Well, at this quantity, at this quantity right over here, the marginal benefit is higher than the marginal cost. Marginal benefit is greater than the marginal cost. And so we're leaving a bunch of stuff on the table. The market is leaving a bunch of surplus benefit, you could say total surplus, on the table. And so this benefit that the market could have had, but it does not get, this is called a deadweight loss, deadweight loss."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "Marginal benefit is greater than the marginal cost. And so we're leaving a bunch of stuff on the table. The market is leaving a bunch of surplus benefit, you could say total surplus, on the table. And so this benefit that the market could have had, but it does not get, this is called a deadweight loss, deadweight loss. And we talk about it in other videos. Remember, in the allocatively efficient quantity, we have this huge total surplus, which is the area under the marginal benefit curve and above the marginal cost curve up until the point of intersection. But if you do a quantity less than that allocatively efficient quantity, your marginal benefit is higher than your marginal cost, and you are leaving all of this total surplus on the table, regardless of how you would have actually allocated it or distributed it between the consumers or the producers."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "And so this benefit that the market could have had, but it does not get, this is called a deadweight loss, deadweight loss. And we talk about it in other videos. Remember, in the allocatively efficient quantity, we have this huge total surplus, which is the area under the marginal benefit curve and above the marginal cost curve up until the point of intersection. But if you do a quantity less than that allocatively efficient quantity, your marginal benefit is higher than your marginal cost, and you are leaving all of this total surplus on the table, regardless of how you would have actually allocated it or distributed it between the consumers or the producers. And what if you produced a quantity larger than the allocatively efficient quantity? Once again, very fancy word. So let's say that's Q two."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "But if you do a quantity less than that allocatively efficient quantity, your marginal benefit is higher than your marginal cost, and you are leaving all of this total surplus on the table, regardless of how you would have actually allocated it or distributed it between the consumers or the producers. And what if you produced a quantity larger than the allocatively efficient quantity? Once again, very fancy word. So let's say that's Q two. What happens over here? Well, here, you're able to take advantage of all of this surplus right over here. This total surplus right over here."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "So let's say that's Q two. What happens over here? Well, here, you're able to take advantage of all of this surplus right over here. This total surplus right over here. But now you're creating negative surplus. So in this part, now all of this area shows a net negative benefit, or a net, I guess I would say a net cost that our market is incurring. And so this here, it was a deadweight loss because we were leaving stuff on the table that we could have had."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "This total surplus right over here. But now you're creating negative surplus. So in this part, now all of this area shows a net negative benefit, or a net, I guess I would say a net cost that our market is incurring. And so this here, it was a deadweight loss because we were leaving stuff on the table that we could have had. Here, we're producing at a cost that our market, not just our suppliers are producing as a cost, the benefit our market is getting is less for each incremental unit, is far less than the cost. And so we are incurring a net negative total surplus. And so this too would be considered a dead, let me write that in a color you can see, a deadweight loss."}, {"video_title": "Equilibrium, allocative efficiency and total surplus.mp3", "Sentence": "And so this here, it was a deadweight loss because we were leaving stuff on the table that we could have had. Here, we're producing at a cost that our market, not just our suppliers are producing as a cost, the benefit our market is getting is less for each incremental unit, is far less than the cost. And so we are incurring a net negative total surplus. And so this too would be considered a dead, let me write that in a color you can see, a deadweight loss. Deadweight loss, we often assume it was, hey, we're leaving some total surplus on the table, but we also have deadweight loss in the case where we are producing unnecessarily because the benefit is less than the actual cost. And so whether our marginal benefit is greater than our marginal cost, or in this case, our marginal cost is greater than our marginal benefit, we are gonna produce deadweight loss in either situation. And a properly functioning market should be producing the quantity that is allocatively efficient."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "Now this notion of something being perfectly competitive, you might have a general idea of what it means. You might feel like it's very competitive, that there's a lot of people there maybe competing for your business, or maybe there's a lot of buyers and there are a lot of sellers. And that is generally true, but we're trying to be economists here, so we wanna be very precise with our language. So when economists talk about perfect competition, they're talking about this somewhat very abstract state where you have many buyers and sellers, many sellers and buyers. Now that doesn't seem too abstract so far. We can imagine a lot of markets that have many sellers and buyers. Now another thing that defines perfect competition from an economics point of view is that they're selling identical products or services."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "So when economists talk about perfect competition, they're talking about this somewhat very abstract state where you have many buyers and sellers, many sellers and buyers. Now that doesn't seem too abstract so far. We can imagine a lot of markets that have many sellers and buyers. Now another thing that defines perfect competition from an economics point of view is that they're selling identical products or services. Products, products or services. Now this one seems a little bit harder because even when you can imagine a fairly competitive market, does everyone sell exactly the same thing? Well you can imagine certain markets, maybe the market for water, or maybe the market for some type of energy, or maybe the market for produce gets pretty close to identical products or services."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "Now another thing that defines perfect competition from an economics point of view is that they're selling identical products or services. Products, products or services. Now this one seems a little bit harder because even when you can imagine a fairly competitive market, does everyone sell exactly the same thing? Well you can imagine certain markets, maybe the market for water, or maybe the market for some type of energy, or maybe the market for produce gets pretty close to identical products or services. So so far it doesn't seem like that abstract of a thing. Now another aspect of perfect competition is that every agent, so that would be the buyers, the sellers, the producers, the consumers, they have perfect information. Perfect information."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "Well you can imagine certain markets, maybe the market for water, or maybe the market for some type of energy, or maybe the market for produce gets pretty close to identical products or services. So so far it doesn't seem like that abstract of a thing. Now another aspect of perfect competition is that every agent, so that would be the buyers, the sellers, the producers, the consumers, they have perfect information. Perfect information. Now what does perfect information mean? It means that every participant in the market, the buyers and the sellers, they all know exactly what is happening in the market. So what goods or services are selling for what price and who is selling to whom?"}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "Perfect information. Now what does perfect information mean? It means that every participant in the market, the buyers and the sellers, they all know exactly what is happening in the market. So what goods or services are selling for what price and who is selling to whom? So once again, this gets a little bit more abstract because to get truly perfect information, you can't, not everyone in a market will always know everything that's going on. So once again, this is a little bit of an abstract idea that economists have introduced to be a little bit more precise. And the last aspect we're going to talk about, and this is also something that is a bit idealized, that doesn't truly exist in the real world, things close to this exist in the real world, is that there's no barriers, barriers to entry or exit."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "So what goods or services are selling for what price and who is selling to whom? So once again, this gets a little bit more abstract because to get truly perfect information, you can't, not everyone in a market will always know everything that's going on. So once again, this is a little bit of an abstract idea that economists have introduced to be a little bit more precise. And the last aspect we're going to talk about, and this is also something that is a bit idealized, that doesn't truly exist in the real world, things close to this exist in the real world, is that there's no barriers, barriers to entry or exit. Now we already mentioned some markets, say the market for agriculture. That doesn't quite have no barriers to entry or exit. You would somehow have to get land, you would have to get seeds, you would have to get fertilizer, you would have to hire people to put the seeds in and to harvest the crops."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "And the last aspect we're going to talk about, and this is also something that is a bit idealized, that doesn't truly exist in the real world, things close to this exist in the real world, is that there's no barriers, barriers to entry or exit. Now we already mentioned some markets, say the market for agriculture. That doesn't quite have no barriers to entry or exit. You would somehow have to get land, you would have to get seeds, you would have to get fertilizer, you would have to hire people to put the seeds in and to harvest the crops. And so almost any industry, any market you imagine will have some barriers. But this is an idealized notion that economists like to think about. And of course, in the real world, things might approach this or be closer to perfect competition than say other markets."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "You would somehow have to get land, you would have to get seeds, you would have to get fertilizer, you would have to hire people to put the seeds in and to harvest the crops. And so almost any industry, any market you imagine will have some barriers. But this is an idealized notion that economists like to think about. And of course, in the real world, things might approach this or be closer to perfect competition than say other markets. But when you are in this situation, let's analyze what will be happening. So we can look at the market as a whole for whatever this product and service is. So let me draw price versus quantity here for the market as a whole."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "And of course, in the real world, things might approach this or be closer to perfect competition than say other markets. But when you are in this situation, let's analyze what will be happening. So we can look at the market as a whole for whatever this product and service is. So let me draw price versus quantity here for the market as a whole. So this is price, and this is quantity, and this is the market right over here. And so we've seen this multiple times in our economics journey, that you have an upward sloping supply curve. And once again, this is for the entire market."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "So let me draw price versus quantity here for the market as a whole. So this is price, and this is quantity, and this is the market right over here. And so we've seen this multiple times in our economics journey, that you have an upward sloping supply curve. And once again, this is for the entire market. Let me do this in a different color. So you have an upward sloping supply curve like that. And you would have a downward sloping demand curve like that."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "And once again, this is for the entire market. Let me do this in a different color. So you have an upward sloping supply curve like that. And you would have a downward sloping demand curve like that. And we know what the equilibrium price and quantity would be for the market. So this right over here would be the equilibrium quantity for the market. And this right over here would be the equilibrium price for the market."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "And you would have a downward sloping demand curve like that. And we know what the equilibrium price and quantity would be for the market. So this right over here would be the equilibrium quantity for the market. And this right over here would be the equilibrium price for the market. Now how would this affect the decisions for the firm in perfect competition? Well, let's draw a similar analysis, but now at the firm level. So on this axis, you could view this for the firm."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "And this right over here would be the equilibrium price for the market. Now how would this affect the decisions for the firm in perfect competition? Well, let's draw a similar analysis, but now at the firm level. So on this axis, you could view this for the firm. And so this is going to be the firm right over here, one of the participants in the perfect competition, one of the producers, one of the sellers. So on this axis, you could view this as price. You could also view this as marginal revenue."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "So on this axis, you could view this for the firm. And so this is going to be the firm right over here, one of the participants in the perfect competition, one of the producers, one of the sellers. So on this axis, you could view this as price. You could also view this as marginal revenue. And you could also view this as marginal cost because we're going to plot different curves here. And then on the horizontal axis, we're going to have quantity again. But this is once again, the quantity that the firm produces."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "You could also view this as marginal revenue. And you could also view this as marginal cost because we're going to plot different curves here. And then on the horizontal axis, we're going to have quantity again. But this is once again, the quantity that the firm produces. Now, first of all, we could think about the marginal cost for the firm. And we've seen this multiple times, that the marginal cost for the firm, it might look something like this. It over time might trend upwards something like this, where at some point, every incremental unit is costing more and more to produce."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "But this is once again, the quantity that the firm produces. Now, first of all, we could think about the marginal cost for the firm. And we've seen this multiple times, that the marginal cost for the firm, it might look something like this. It over time might trend upwards something like this, where at some point, every incremental unit is costing more and more to produce. Maybe it's harder to get the resources, harder to get the labor, whatever you wanna say. So that's the marginal cost curve, fairly typical for a firm. And then we could think about their average total cost."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "It over time might trend upwards something like this, where at some point, every incremental unit is costing more and more to produce. Maybe it's harder to get the resources, harder to get the labor, whatever you wanna say. So that's the marginal cost curve, fairly typical for a firm. And then we could think about their average total cost. And so the average total cost curve might look something like this. Let's draw it something like this. So our average total cost, we've seen this multiple times."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "And then we could think about their average total cost. And so the average total cost curve might look something like this. Let's draw it something like this. So our average total cost, we've seen this multiple times. Now, what is going to be the marginal revenue for this firm that is operating in perfect competition? Well, when it's operating in perfect competition, it just has to be a price taker. So every unit it sells, it's just going to get the market price for that unit."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "So our average total cost, we've seen this multiple times. Now, what is going to be the marginal revenue for this firm that is operating in perfect competition? Well, when it's operating in perfect competition, it just has to be a price taker. So every unit it sells, it's just going to get the market price for that unit. So in perfect competition, the firm, every participant, that is really identical in a lot of ways, they're just going to take that price. Think about it. They won't be able to charge any more for their product or service than the market price because their product or service is identical to everyone else's, and everyone knows it because of perfect information, and they would have no motivation to charge less either."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "So every unit it sells, it's just going to get the market price for that unit. So in perfect competition, the firm, every participant, that is really identical in a lot of ways, they're just going to take that price. Think about it. They won't be able to charge any more for their product or service than the market price because their product or service is identical to everyone else's, and everyone knows it because of perfect information, and they would have no motivation to charge less either. They're just passive. You could view it that way when it comes to price. So if we just take this market price across, just like that, this right over here, this price, is going to define the marginal revenue curve for that firm."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "They won't be able to charge any more for their product or service than the market price because their product or service is identical to everyone else's, and everyone knows it because of perfect information, and they would have no motivation to charge less either. They're just passive. You could view it that way when it comes to price. So if we just take this market price across, just like that, this right over here, this price, is going to define the marginal revenue curve for that firm. So let me make this a bold curve right over here. This is going to be the marginal revenue for the firm. For every unit it sells on the margin, that's how much more revenue it's going to get."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "So if we just take this market price across, just like that, this right over here, this price, is going to define the marginal revenue curve for that firm. So let me make this a bold curve right over here. This is going to be the marginal revenue for the firm. For every unit it sells on the margin, that's how much more revenue it's going to get. Now, you could also view this as the demand curve for the firm's product. You could also view this as the average revenue for the firm's product, and let me make this clear. This is for the firm, demand for the firm, which is equal to the price that the firm actually gets."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "For every unit it sells on the margin, that's how much more revenue it's going to get. Now, you could also view this as the demand curve for the firm's product. You could also view this as the average revenue for the firm's product, and let me make this clear. This is for the firm, demand for the firm, which is equal to the price that the firm actually gets. So the big takeaway here is in perfect competition, which is this somewhat idealized state that doesn't quite exist in the real world. Certain markets can approach it. The firms are passive price takers."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "This is for the firm, demand for the firm, which is equal to the price that the firm actually gets. So the big takeaway here is in perfect competition, which is this somewhat idealized state that doesn't quite exist in the real world. Certain markets can approach it. The firms are passive price takers. They have no say on what the price is going to be, and so it would be rational for them to just produce where their marginal cost intersects with their marginal revenue, because anything more than that, then for every incremental unit, they're going to be spending more money than they get in terms of revenue. And this passivity goes a little bit against some of our everyday notions of fierce competition. When we think about fierce competition, we often think about many players trying to constantly undercut each other, and in future videos, we'll talk about scenarios where that might happen."}, {"video_title": "Perfect competition Microeconomics Khan Academy.mp3", "Sentence": "The firms are passive price takers. They have no say on what the price is going to be, and so it would be rational for them to just produce where their marginal cost intersects with their marginal revenue, because anything more than that, then for every incremental unit, they're going to be spending more money than they get in terms of revenue. And this passivity goes a little bit against some of our everyday notions of fierce competition. When we think about fierce competition, we often think about many players trying to constantly undercut each other, and in future videos, we'll talk about scenarios where that might happen. And you might think about whether or not you would want certain markets to have perfect competition, because no barriers to entry means that, frankly, anybody could get into that industry. So for example, you might not want perfect competition when it comes to someone being, say, your doctor, because you want barriers to entry. You want some level of training."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And here's our quantity of that tree planted each year. 1 million, 2 million, maybe this is nationwide, these are fairly large numbers for a particular type of tree. 4 million and so forth and so on. And then here let me put the price. So quantity per year planted in our country. And over here this is going to be our dollars per tree. And maybe this is $10, this is $20, this is $30, this is $40."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And then here let me put the price. So quantity per year planted in our country. And over here this is going to be our dollars per tree. And maybe this is $10, this is $20, this is $30, this is $40. And our marginal cost curve or our supply curve would look just to even get that first tree planted to get someone to plant it and grow it and then replant it in your garden. You're going to have to pay them at least $10. And then each incremental tree is going to get a little bit more expensive and so our marginal cost curve will look something like that."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And maybe this is $10, this is $20, this is $30, this is $40. And our marginal cost curve or our supply curve would look just to even get that first tree planted to get someone to plant it and grow it and then replant it in your garden. You're going to have to pay them at least $10. And then each incremental tree is going to get a little bit more expensive and so our marginal cost curve will look something like that. That's our marginal cost or supply curve. And then our demand curve, that very first tree, someone's going to get a huge benefit from it. And then each incremental tree people might get a little bit lower and lower benefit so it might look something like this."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And then each incremental tree is going to get a little bit more expensive and so our marginal cost curve will look something like that. That's our marginal cost or supply curve. And then our demand curve, that very first tree, someone's going to get a huge benefit from it. And then each incremental tree people might get a little bit lower and lower benefit so it might look something like this. Our demand curve would look like that. Demand, and this is the market for a certain nice tree. And if you just let the market happen the way it's happening right over here, we get to a very natural equilibrium quantity."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And then each incremental tree people might get a little bit lower and lower benefit so it might look something like this. Our demand curve would look like that. Demand, and this is the market for a certain nice tree. And if you just let the market happen the way it's happening right over here, we get to a very natural equilibrium quantity. It looks like it's about 2.7 million trees planted per year. And our equilibrium price is about $20 per tree. And we generate all of this total surplus that's split essentially between the consumers, the people who are buying the trees, and the people who are producing the trees."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And if you just let the market happen the way it's happening right over here, we get to a very natural equilibrium quantity. It looks like it's about 2.7 million trees planted per year. And our equilibrium price is about $20 per tree. And we generate all of this total surplus that's split essentially between the consumers, the people who are buying the trees, and the people who are producing the trees. Now, let's say that a research study comes out and this particular breed of trees, the nice tree, it turns out has all of these benefits to it. So let's say that it's somehow related to pest control. Maybe all the pests that people don't like, when they eat this bark they go away or something like that."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And we generate all of this total surplus that's split essentially between the consumers, the people who are buying the trees, and the people who are producing the trees. Now, let's say that a research study comes out and this particular breed of trees, the nice tree, it turns out has all of these benefits to it. So let's say that it's somehow related to pest control. Maybe all the pests that people don't like, when they eat this bark they go away or something like that. The mosquitoes go away and you get less disease. Let's say it also improves air quality. And let's say on top of that it's just nice looking."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Maybe all the pests that people don't like, when they eat this bark they go away or something like that. The mosquitoes go away and you get less disease. Let's say it also improves air quality. And let's say on top of that it's just nice looking. So even if it's not your tree, you pass it by in a neighborhood, it just calms your nerves and makes you feel better about the world. So they are just nice to look at. And this study that these researchers conducted, they determined that the benefit of all of these things, of the pest control and the air quality and just the aesthetic benefit of society at large, comes out over the life of a tree to $10 a tree."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And let's say on top of that it's just nice looking. So even if it's not your tree, you pass it by in a neighborhood, it just calms your nerves and makes you feel better about the world. So they are just nice to look at. And this study that these researchers conducted, they determined that the benefit of all of these things, of the pest control and the air quality and just the aesthetic benefit of society at large, comes out over the life of a tree to $10 a tree. So it is $10 per tree benefit. So they're essentially saying that above and beyond the benefit that the owner of the garden gets, there's a societal, there's an external benefit. And so you can imagine, we're not talking about positive externalities."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And this study that these researchers conducted, they determined that the benefit of all of these things, of the pest control and the air quality and just the aesthetic benefit of society at large, comes out over the life of a tree to $10 a tree. So it is $10 per tree benefit. So they're essentially saying that above and beyond the benefit that the owner of the garden gets, there's a societal, there's an external benefit. And so you can imagine, we're not talking about positive externalities. There's an external benefit of planting the tree that amounts to $10 per tree. So how would we factor that in? How do we determine if just given this equilibrium price and quantity, whether we really do have the optimal number of trees in society?"}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And so you can imagine, we're not talking about positive externalities. There's an external benefit of planting the tree that amounts to $10 per tree. So how would we factor that in? How do we determine if just given this equilibrium price and quantity, whether we really do have the optimal number of trees in society? Well, in the last few videos we had a negative externality. We had an external cost and so we added that cost to the cost curve. Now we have an external benefit."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "How do we determine if just given this equilibrium price and quantity, whether we really do have the optimal number of trees in society? Well, in the last few videos we had a negative externality. We had an external cost and so we added that cost to the cost curve. Now we have an external benefit. We have a positive externality. So we can add this benefit to the marginal benefit curve. So essentially, this is the benefit that the buyers of the tree are getting, and to that let's add the benefit that society is getting."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Now we have an external benefit. We have a positive externality. So we can add this benefit to the marginal benefit curve. So essentially, this is the benefit that the buyers of the tree are getting, and to that let's add the benefit that society is getting. So society is getting $10 more benefit. So this 4 millionth tree, or it's actually a little bit lower, it looks like it's about the 3.5 millionth tree, there's $10 of benefit. But if you combine it with society's benefit, so another $10 you would get up here."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So essentially, this is the benefit that the buyers of the tree are getting, and to that let's add the benefit that society is getting. So society is getting $10 more benefit. So this 4 millionth tree, or it's actually a little bit lower, it looks like it's about the 3.5 millionth tree, there's $10 of benefit. But if you combine it with society's benefit, so another $10 you would get up here. And so you would essentially, and this first tree, it looks like it's almost $50 of benefit, but if you add society's benefit, it's actually closer to $60 of benefit. And so you're essentially taking this demand curve and you're shifting it up by $10 when you are factoring in the benefit to society. So that up there."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "But if you combine it with society's benefit, so another $10 you would get up here. And so you would essentially, and this first tree, it looks like it's almost $50 of benefit, but if you add society's benefit, it's actually closer to $60 of benefit. And so you're essentially taking this demand curve and you're shifting it up by $10 when you are factoring in the benefit to society. So that up there. You could call this the marginal benefit plus the external benefit curve. So it's factoring in all of the benefit that society is getting by these trees planted. But when you look at that curve, you get a slightly different equilibrium price."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So that up there. You could call this the marginal benefit plus the external benefit curve. So it's factoring in all of the benefit that society is getting by these trees planted. But when you look at that curve, you get a slightly different equilibrium price. The equilibrium price goes all the way out here. So now the equilibrium price goes up to this. The equilibrium price looks closer, instead of $20, at $27, and the quantity actually produced looks closer to $3.3 million."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "But when you look at that curve, you get a slightly different equilibrium price. The equilibrium price goes all the way out here. So now the equilibrium price goes up to this. The equilibrium price looks closer, instead of $20, at $27, and the quantity actually produced looks closer to $3.3 million. And so if we just let the market happen without factoring in this benefit in some way, we're essentially leaving on the table all of this surplus that could have happened. If we just let the market settle in on its natural price and equilibrium quantity, we're going to produce this $2.7 million. So the total benefit to society is going to be this whole curve."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "The equilibrium price looks closer, instead of $20, at $27, and the quantity actually produced looks closer to $3.3 million. And so if we just let the market happen without factoring in this benefit in some way, we're essentially leaving on the table all of this surplus that could have happened. If we just let the market settle in on its natural price and equilibrium quantity, we're going to produce this $2.7 million. So the total benefit to society is going to be this whole curve. Or you could say society's benefit is going to be this right over here. The consumer's benefit is going to be this part right over here. And then actually this part all the way over here because our equilibrium price gets right over there."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So the total benefit to society is going to be this whole curve. Or you could say society's benefit is going to be this right over here. The consumer's benefit is going to be this part right over here. And then actually this part all the way over here because our equilibrium price gets right over there. And then the producer's surplus is that right over there. But we're leaving some societal benefit on the table. If you think of it from society's point of view, you can view this orange area as a dead weight loss."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And then actually this part all the way over here because our equilibrium price gets right over there. And then the producer's surplus is that right over there. But we're leaving some societal benefit on the table. If you think of it from society's point of view, you can view this orange area as a dead weight loss. We're leaving that on the table if we don't somehow create an incentive for more of these trees to be produced. And so in this situation, a way to make the optimal quantity produced, in order for society to get this surplus, what they could do is, in the case of a negative externality, we imposed a tax that factors in the negative externality. Now we could put some type of a subsidy."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "If you think of it from society's point of view, you can view this orange area as a dead weight loss. We're leaving that on the table if we don't somehow create an incentive for more of these trees to be produced. And so in this situation, a way to make the optimal quantity produced, in order for society to get this surplus, what they could do is, in the case of a negative externality, we imposed a tax that factors in the negative externality. Now we could put some type of a subsidy. We could say, hey, if you plant a tree, if someone buys and plants one of these trees, you will get a $10 tax credit. So it's essentially saying whoever plants one of these trees, their taxes are going to be $10 lower than what they would have otherwise had paid. And so essentially they're saying, look, whatever benefit you were going to get from the tree, we're going to give you $10 more benefit for that."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Now we could put some type of a subsidy. We could say, hey, if you plant a tree, if someone buys and plants one of these trees, you will get a $10 tax credit. So it's essentially saying whoever plants one of these trees, their taxes are going to be $10 lower than what they would have otherwise had paid. And so essentially they're saying, look, whatever benefit you were going to get from the tree, we're going to give you $10 more benefit for that. And so you're essentially making sure that the optimal quantity is being produced. Now, in that circumstance, you're essentially giving all of the marginal benefit, that extra $10 benefit, you're giving it to the people who are planting the trees. So essentially all of this becomes their benefit as well because they are going to get the $10."}, {"video_title": "Positive externalities Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And so essentially they're saying, look, whatever benefit you were going to get from the tree, we're going to give you $10 more benefit for that. And so you're essentially making sure that the optimal quantity is being produced. Now, in that circumstance, you're essentially giving all of the marginal benefit, that extra $10 benefit, you're giving it to the people who are planting the trees. So essentially all of this becomes their benefit as well because they are going to get the $10. But the good thing is at least that positive surplus is going to someone. It's not being lost. You're not giving up."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And we've shown the extremes. We've shown things that are perfectly inelastic and things that are perfectly elastic. What I wanna do in this video, and it'll be a quick little video, is think about can we construct a demand curve, or at least understand what it looks like, that has a constant elasticity across the curve. And just for fun, let's make it a constant elasticity of one. So it has constant unit elasticity of demand. So let's think about how we can create that. And hopefully it'll give us a little bit more intuition on how this elasticity business even works."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And just for fun, let's make it a constant elasticity of one. So it has constant unit elasticity of demand. So let's think about how we can create that. And hopefully it'll give us a little bit more intuition on how this elasticity business even works. So let's draw our axes. So I can see, there you go, that is price. Price, and that right there is quantity."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And hopefully it'll give us a little bit more intuition on how this elasticity business even works. So let's draw our axes. So I can see, there you go, that is price. Price, and that right there is quantity. Quantity. And let me put quanti, no, I put one extra t there, quantity. Now let's put some numbers there that'll just help us draw this demand curve that has unit elasticity at every point, at every price and every quantity."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Price, and that right there is quantity. Quantity. And let me put quanti, no, I put one extra t there, quantity. Now let's put some numbers there that'll just help us draw this demand curve that has unit elasticity at every point, at every price and every quantity. So I'm just gonna put some numbers here. So let's say that right over there is 10, so that's $10 or whatever we're doing, and that this is 10 units per time period, 10 units per week or 10 units per month or whatever else. Now we want the absolute value of the elasticity of demand to be equal to one at all points."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now let's put some numbers there that'll just help us draw this demand curve that has unit elasticity at every point, at every price and every quantity. So I'm just gonna put some numbers here. So let's say that right over there is 10, so that's $10 or whatever we're doing, and that this is 10 units per time period, 10 units per week or 10 units per month or whatever else. Now we want the absolute value of the elasticity of demand to be equal to one at all points. And we're going to assume that this curve meets the law of demand, which means that price goes down, quantity demanded goes up. So let's think, so it's going to be a downward sloping. So really we're going to say that the elasticity of demand is going to be equal to negative one."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now we want the absolute value of the elasticity of demand to be equal to one at all points. And we're going to assume that this curve meets the law of demand, which means that price goes down, quantity demanded goes up. So let's think, so it's going to be a downward sloping. So really we're going to say that the elasticity of demand is going to be equal to negative one. If we have a 1% decrease in price, we're going to have a 1% increase in quantity and vice versa. So let's think about it. If we're up here, if we're up here where the price is near $10 and maybe where the quantity is closer to $1, let's think about what a 10% movement in price would look like, a 10% movement down."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So really we're going to say that the elasticity of demand is going to be equal to negative one. If we have a 1% decrease in price, we're going to have a 1% increase in quantity and vice versa. So let's think about it. If we're up here, if we're up here where the price is near $10 and maybe where the quantity is closer to $1, let's think about what a 10% movement in price would look like, a 10% movement down. It would be roughly about this size. A 10% movement would be roughly there. And I'm just trying to get the general shape of this curve."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "If we're up here, if we're up here where the price is near $10 and maybe where the quantity is closer to $1, let's think about what a 10% movement in price would look like, a 10% movement down. It would be roughly about this size. A 10% movement would be roughly there. And I'm just trying to get the general shape of this curve. I'm not gonna go into the deep mathematics or the calculus of it. So that is a 10% price movement down. And we also want a 10% quantity movement up."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And I'm just trying to get the general shape of this curve. I'm not gonna go into the deep mathematics or the calculus of it. So that is a 10% price movement down. And we also want a 10% quantity movement up. But remember, our quantity is only at one. So 10% quantity movement up would only be 10% of one. So if we're moving 10% in price downwards, this is a 10% upwards in quantity."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And we also want a 10% quantity movement up. But remember, our quantity is only at one. So 10% quantity movement up would only be 10% of one. So if we're moving 10% in price downwards, this is a 10% upwards in quantity. So our curve up here would look something like this. It would actually have to be quite steep. Now let's think about what the curve would look over here."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So if we're moving 10% in price downwards, this is a 10% upwards in quantity. So our curve up here would look something like this. It would actually have to be quite steep. Now let's think about what the curve would look over here. Once again, we want 10% for both of them because we want the price elasticity of demand to be one throughout the curve. So if we go over here, a 10% movement in price, so let's say we're down here where price is close to one, a 10% movement in price is going to be very small. So a 10% movement in price is going to be like that."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now let's think about what the curve would look over here. Once again, we want 10% for both of them because we want the price elasticity of demand to be one throughout the curve. So if we go over here, a 10% movement in price, so let's say we're down here where price is close to one, a 10% movement in price is going to be very small. So a 10% movement in price is going to be like that. It's gonna be like, well, it's gonna be roughly a 10th of a movement. So that's a 10% movement in price. But a 10% movement in quantity demanded over here, it's going to be much larger."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So a 10% movement in price is going to be like that. It's gonna be like, well, it's gonna be roughly a 10th of a movement. So that's a 10% movement in price. But a 10% movement in quantity demanded over here, it's going to be much larger. It's going to look something like that because the quantity is approaching 10, so 10% of that is about one unit, just like that. So at this point in the graph, it would look something like this. It would flatten out a good bit, just like that."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "But a 10% movement in quantity demanded over here, it's going to be much larger. It's going to look something like that because the quantity is approaching 10, so 10% of that is about one unit, just like that. So at this point in the graph, it would look something like this. It would flatten out a good bit, just like that. And then when the price and the quantity is about the same, so let's say this point right over here where the price and the quantity is about the same, so let's say that this is, so that is two, this is three, this is two, this is three right over here, your percent movements are going to be the same, but since the price and quantity are the same, the absolute movements are also going to be the same. So at that point, our curve should look something like that. It should have a slope of one."}, {"video_title": "Constant unit elasticity Elasticity Microeconomics Khan Academy.mp3", "Sentence": "It would flatten out a good bit, just like that. And then when the price and the quantity is about the same, so let's say this point right over here where the price and the quantity is about the same, so let's say that this is, so that is two, this is three, this is two, this is three right over here, your percent movements are going to be the same, but since the price and quantity are the same, the absolute movements are also going to be the same. So at that point, our curve should look something like that. It should have a slope of one. And so if you connect the dots, you get the general shape of a demand curve that has a price elasticity of demand at negative one throughout the curve or whose absolute value of the price elasticity of demand is one, so let's just do that. So the curve would look something like, I'll just draw a dotted line, it's easier to do a do, so it'll look something like that. It'll keep getting steeper as we get the quantity closer to zero and it'll keep flattening out as the quantity grows and grows and grows."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So let's say that the industry that we are in, the demand curve looks something like that. So that is demand, and I'm going to assume that it is a linear demand curve. This axis right over here is dollars per unit in the context of demand, that's price, and this is quantity over here. This little graph here, we still have quantity in the horizontal axis, but the vertical axis isn't just dollars per unit, it's absolute level of dollars. So over here we can actually plot total revenue as a function of quantity. So obviously, remember, we're assuming we're the only producer here, we have a monopoly in this market. So if we pick a quantity, if we don't produce anything, we're not going to generate any revenue, so our total revenue will be zero."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "This little graph here, we still have quantity in the horizontal axis, but the vertical axis isn't just dollars per unit, it's absolute level of dollars. So over here we can actually plot total revenue as a function of quantity. So obviously, remember, we're assuming we're the only producer here, we have a monopoly in this market. So if we pick a quantity, if we don't produce anything, we're not going to generate any revenue, so our total revenue will be zero. And if we produce a bunch, but we don't charge anything for it, and that's this point right over here, our total revenue will also be zero. And we've done this in other videos, but then as we increase quantity from this point, our total revenue will keep going up and up and up, there'll be some maximum point, and then it'll start going down again. So our total revenue would look something like this."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So if we pick a quantity, if we don't produce anything, we're not going to generate any revenue, so our total revenue will be zero. And if we produce a bunch, but we don't charge anything for it, and that's this point right over here, our total revenue will also be zero. And we've done this in other videos, but then as we increase quantity from this point, our total revenue will keep going up and up and up, there'll be some maximum point, and then it'll start going down again. So our total revenue would look something like this. And from the total revenue, we can think about what the marginal revenue would look like. Remember, the marginal revenue just says, if I increase my quantity by a little bit, how much am I increasing my total revenue? And so that's essentially the slope of the total revenue curve at any given point, or you could think of it as the slope of the tangent line."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So our total revenue would look something like this. And from the total revenue, we can think about what the marginal revenue would look like. Remember, the marginal revenue just says, if I increase my quantity by a little bit, how much am I increasing my total revenue? And so that's essentially the slope of the total revenue curve at any given point, or you could think of it as the slope of the tangent line. And we've seen before, when you start here, you have a very high positive slope, and we've seen in other videos it actually ends up being the exact same value as where the demand curve intersects the vertical axis right over there. But then it keeps going lower, the slope becomes a little less steep, less steep, less steep, it's still positive, less steep, less steep, and then it becomes zero right over there, and then it starts going negative. So it becomes zero right at that quantity."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And so that's essentially the slope of the total revenue curve at any given point, or you could think of it as the slope of the tangent line. And we've seen before, when you start here, you have a very high positive slope, and we've seen in other videos it actually ends up being the exact same value as where the demand curve intersects the vertical axis right over there. But then it keeps going lower, the slope becomes a little less steep, less steep, less steep, it's still positive, less steep, less steep, and then it becomes zero right over there, and then it starts going negative. So it becomes zero right at that quantity. So the slope of this keeps going down and down and down. It's positive, then it becomes zero, and then it actually becomes negative, and you see that here. Now it starts downward sloping even more steep, even more steep, and even more steep."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So it becomes zero right at that quantity. So the slope of this keeps going down and down and down. It's positive, then it becomes zero, and then it actually becomes negative, and you see that here. Now it starts downward sloping even more steep, even more steep, and even more steep. So that's the revenue side of things. And let me label this. This is our marginal revenue curve, slope of the total revenue."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "Now it starts downward sloping even more steep, even more steep, and even more steep. So that's the revenue side of things. And let me label this. This is our marginal revenue curve, slope of the total revenue. If we're going to maximize profit, we need to think about what our costs look like. So let me draw our total cost curve, and I will do it in magenta. So let's say our total costs look something like this."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "This is our marginal revenue curve, slope of the total revenue. If we're going to maximize profit, we need to think about what our costs look like. So let me draw our total cost curve, and I will do it in magenta. So let's say our total costs look something like this. Out here, when we have very few units, when we have zero units, all of our costs are fixed costs. And then as we produce more and more units, the variable costs start piling on over there. And even from this diagram, you can actually start to visually see economic profit."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So let's say our total costs look something like this. Out here, when we have very few units, when we have zero units, all of our costs are fixed costs. And then as we produce more and more units, the variable costs start piling on over there. And even from this diagram, you can actually start to visually see economic profit. Economic profit, and when we're talking about costs and profit in an economics class, like this is kind of one, I guess, remember, you should view it in terms of economic profit. And when we're talking about total costs, we're talking about opportunity costs. So this is total opportunity costs, both the implicit, the ones that, or both the explicit, the ones that you're actually paying money for explicitly, and the implicit opportunity costs."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And even from this diagram, you can actually start to visually see economic profit. Economic profit, and when we're talking about costs and profit in an economics class, like this is kind of one, I guess, remember, you should view it in terms of economic profit. And when we're talking about total costs, we're talking about opportunity costs. So this is total opportunity costs, both the implicit, the ones that, or both the explicit, the ones that you're actually paying money for explicitly, and the implicit opportunity costs. Total opportunity costs, that's total opportunity costs. And the difference between your total revenue, so for a given quantity, the difference between your total revenue and your total opportunity costs, that gives you your economic profit. So for this quantity right over here, your economic profit would be represented by the height of this little bar between these two curves."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So this is total opportunity costs, both the implicit, the ones that, or both the explicit, the ones that you're actually paying money for explicitly, and the implicit opportunity costs. Total opportunity costs, that's total opportunity costs. And the difference between your total revenue, so for a given quantity, the difference between your total revenue and your total opportunity costs, that gives you your economic profit. So for this quantity right over here, your economic profit would be represented by the height of this little bar between these two curves. But what we see, what's going on is, as we increase the quantity over here, these curves are getting further and further apart. That's because the green curve, the total revenue, its slope is larger than this purple curve, which is total opportunity costs, or you could say total costs. And so we could even go even further along."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So for this quantity right over here, your economic profit would be represented by the height of this little bar between these two curves. But what we see, what's going on is, as we increase the quantity over here, these curves are getting further and further apart. That's because the green curve, the total revenue, its slope is larger than this purple curve, which is total opportunity costs, or you could say total costs. And so we could even go even further along. The distance between the two curves gets bigger, bigger. Looks like it maxes out right around here someplace. And then the two things start getting closer and closer together."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And so we could even go even further along. The distance between the two curves gets bigger, bigger. Looks like it maxes out right around here someplace. And then the two things start getting closer and closer together. Now this purple curve's slope is now larger than the orange curve's slope, so then they start getting closer and closer together. And so if you were to just look at this graph, whatever the maximum distance between these two things are, it looks like it's about there, right over here. That would be your maximum economic profit."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And then the two things start getting closer and closer together. Now this purple curve's slope is now larger than the orange curve's slope, so then they start getting closer and closer together. And so if you were to just look at this graph, whatever the maximum distance between these two things are, it looks like it's about there, right over here. That would be your maximum economic profit. But we know we can also visualize it on this curve over here. And we can do that by plotting our marginal cost. And remember, marginal cost, just as marginal revenue, is the slope of your total revenue curve, marginal cost is the slope, the instantaneous slope at any point, of your total cost curve."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "That would be your maximum economic profit. But we know we can also visualize it on this curve over here. And we can do that by plotting our marginal cost. And remember, marginal cost, just as marginal revenue, is the slope of your total revenue curve, marginal cost is the slope, the instantaneous slope at any point, of your total cost curve. So I will do that, let's do that in yellow. So right over here you have a zero slope, or pretty close to zero, at least the way I drew it over there. So your marginal cost is going to be pretty close to zero right over there."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And remember, marginal cost, just as marginal revenue, is the slope of your total revenue curve, marginal cost is the slope, the instantaneous slope at any point, of your total cost curve. So I will do that, let's do that in yellow. So right over here you have a zero slope, or pretty close to zero, at least the way I drew it over there. So your marginal cost is going to be pretty close to zero right over there. And then we see that the slope keeps increasing and increasing and increasing, and so our marginal cost will keep increasing, increasing, and increasing. So it will look something like that. That is our marginal cost curve."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So your marginal cost is going to be pretty close to zero right over there. And then we see that the slope keeps increasing and increasing and increasing, and so our marginal cost will keep increasing, increasing, and increasing. So it will look something like that. That is our marginal cost curve. So if we pick a quantity, and if we find that the marginal cost over here, I don't know, let's say it's $5 per unit, that literally means that the slope at that same quantity, the slope of our total cost curve, that the slope over there would have to be 5. That's what that is telling us. This is plotting the slope of this curve right over here."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "That is our marginal cost curve. So if we pick a quantity, and if we find that the marginal cost over here, I don't know, let's say it's $5 per unit, that literally means that the slope at that same quantity, the slope of our total cost curve, that the slope over there would have to be 5. That's what that is telling us. This is plotting the slope of this curve right over here. And if we want to maximize profit, we already talked about how we would do it visually on this curve, we can do it over here. Well, right over here, if we start from producing nothing to producing something, for each incremental unit, the incremental revenue we get on that is much higher than the incremental cost. So hey, we should produce it because we're going to get profit there."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "This is plotting the slope of this curve right over here. And if we want to maximize profit, we already talked about how we would do it visually on this curve, we can do it over here. Well, right over here, if we start from producing nothing to producing something, for each incremental unit, the incremental revenue we get on that is much higher than the incremental cost. So hey, we should produce it because we're going to get profit there. We could keep producing because we're going to get profit on each of these incremental units. So we'll keep doing it, we'll keep doing it, we'll keep doing it until the marginal revenue is equal to the marginal cost. At that point, it doesn't make sense for us to produce anymore."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So hey, we should produce it because we're going to get profit there. We could keep producing because we're going to get profit on each of these incremental units. So we'll keep doing it, we'll keep doing it, we'll keep doing it until the marginal revenue is equal to the marginal cost. At that point, it doesn't make sense for us to produce anymore. If we produce an extra unit past that point, on that unit our cost will be higher than our revenue, so it will eat into our economic profit. So this right over here is where we max the quantity at which we maximize profit. We see it right over there."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "At that point, it doesn't make sense for us to produce anymore. If we produce an extra unit past that point, on that unit our cost will be higher than our revenue, so it will eat into our economic profit. So this right over here is where we max the quantity at which we maximize profit. We see it right over there. The way I drew it, luckily, it looks like that is the maximum point between those two curves as well. And it makes sense. Before this point, when marginal revenue is higher than marginal cost, that means that the slope of the total revenue curve is larger than the slope of the total cost curve, so they're getting further and further apart."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "We see it right over there. The way I drew it, luckily, it looks like that is the maximum point between those two curves as well. And it makes sense. Before this point, when marginal revenue is higher than marginal cost, that means that the slope of the total revenue curve is larger than the slope of the total cost curve, so they're getting further and further apart. Right at that point, their slopes are the same. So the slopes are going to be the same right over there. And then after that point, the slope of the marginal cost curve, or sorry, the marginal cost is higher, which tells us the slope of the total cost curve is higher than the slope of the total revenue curve."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "Before this point, when marginal revenue is higher than marginal cost, that means that the slope of the total revenue curve is larger than the slope of the total cost curve, so they're getting further and further apart. Right at that point, their slopes are the same. So the slopes are going to be the same right over there. And then after that point, the slope of the marginal cost curve, or sorry, the marginal cost is higher, which tells us the slope of the total cost curve is higher than the slope of the total revenue curve. And so they're going to get closer and closer together, and this distance gets quenched apart. So that is where you maximize profit. And if you wanted to visualize the actual profit, on this graph over here, we can obviously visualize it here as the distance between these two curves."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And then after that point, the slope of the marginal cost curve, or sorry, the marginal cost is higher, which tells us the slope of the total cost curve is higher than the slope of the total revenue curve. And so they're going to get closer and closer together, and this distance gets quenched apart. So that is where you maximize profit. And if you wanted to visualize the actual profit, on this graph over here, we can obviously visualize it here as the distance between these two curves. But if we were to visualize it over here, we would have to plot our average total cost curve. And essentially what you're doing is you're taking this total cost curve, and you're not just taking the slope at any point, that's the marginal cost, instead you're just dividing it by the quantity. So if you take this total cost curve, if you take this value and divide it by a very, very low quantity, you're going to get a very, very large number."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And if you wanted to visualize the actual profit, on this graph over here, we can obviously visualize it here as the distance between these two curves. But if we were to visualize it over here, we would have to plot our average total cost curve. And essentially what you're doing is you're taking this total cost curve, and you're not just taking the slope at any point, that's the marginal cost, instead you're just dividing it by the quantity. So if you take this total cost curve, if you take this value and divide it by a very, very low quantity, you're going to get a very, very large number. You can imagine as you're spreading your fixed costs amongst a very small quantity. So you're going to get a very large number, and as you produce more and more and more, your average total costs go down, but then your variable costs start picking up, and your average total costs might look something like that. Average total costs."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So if you take this total cost curve, if you take this value and divide it by a very, very low quantity, you're going to get a very, very large number. You can imagine as you're spreading your fixed costs amongst a very small quantity. So you're going to get a very large number, and as you produce more and more and more, your average total costs go down, but then your variable costs start picking up, and your average total costs might look something like that. Average total costs. And so if you want to know your profit, which you have maximized from this graph right over here, you say, well, this is the quantity that maximizes my profit. Marginal revenue is equal to marginal cost. The price that I can get in the market for that quantity, well, then you go up to your demand curve, and it gives you, this is the price that you will get for that quantity."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "Average total costs. And so if you want to know your profit, which you have maximized from this graph right over here, you say, well, this is the quantity that maximizes my profit. Marginal revenue is equal to marginal cost. The price that I can get in the market for that quantity, well, then you go up to your demand curve, and it gives you, this is the price that you will get for that quantity. And so that is, on a per unit basis, that is the revenue that you will get. You can view price as equal to, price is the same thing as revenue per unit. So on a per unit basis, this is the revenue you're getting, and on a per unit basis, this is your average cost."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "The price that I can get in the market for that quantity, well, then you go up to your demand curve, and it gives you, this is the price that you will get for that quantity. And so that is, on a per unit basis, that is the revenue that you will get. You can view price as equal to, price is the same thing as revenue per unit. So on a per unit basis, this is the revenue you're getting, and on a per unit basis, this is your average cost. This is average total cost. This is taking all your costs and dividing it by units. So on an average per unit basis, this is going to be your economic profit."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So on a per unit basis, this is the revenue you're getting, and on a per unit basis, this is your average cost. This is average total cost. This is taking all your costs and dividing it by units. So on an average per unit basis, this is going to be your economic profit. On a per unit basis, and if you wanted to find your actual economic profit, you would have to multiply it by the total number of units. So you would essentially have the area of this rectangle right over here. This is your per unit average economic profit, and so your total economic profit is going to be quantity times profit per unit."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So on an average per unit basis, this is going to be your economic profit. On a per unit basis, and if you wanted to find your actual economic profit, you would have to multiply it by the total number of units. So you would essentially have the area of this rectangle right over here. This is your per unit average economic profit, and so your total economic profit is going to be quantity times profit per unit. And so this right over here is economic profit, or maybe I should call it total economic profit. Let me write it out. Total economic profit."}, {"video_title": "Review of revenue and cost graphs for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "This is your per unit average economic profit, and so your total economic profit is going to be quantity times profit per unit. And so this right over here is economic profit, or maybe I should call it total economic profit. Let me write it out. Total economic profit. And the area of that rectangle should be the same thing as the height of this right over here. And the only reason, and we can maintain, this is a sustainable scenario, because we have a monopoly. No one else can enter."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "On the same day, police have made two, at first, unrelated arrests. They arrest a gentleman named Al, and they caught him red-handed selling drugs. So it's an open and shut case. And on the same day, they catch a gentleman named Bill, and he is also caught red-handed stealing drugs. And they bring them separately to the police station, and they tell them, look, this is an open and shut case. You're going to get convicted for drug dealing, and you're going to get two years. And they tell this to each of them individually."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And on the same day, they catch a gentleman named Bill, and he is also caught red-handed stealing drugs. And they bring them separately to the police station, and they tell them, look, this is an open and shut case. You're going to get convicted for drug dealing, and you're going to get two years. And they tell this to each of them individually. They were selling the same type of drugs. It just happened to be that. But they were doing it completely independently."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And they tell this to each of them individually. They were selling the same type of drugs. It just happened to be that. But they were doing it completely independently. Two years for drugs is what's going to happen, assuming nothing else. But then the district attorney has a chance to chat with each of these gentlemen separately, and while he's chatting with them, he reinforces the idea that this is an open and shut case for the drug dealing. They're each going to get two years if nothing else happens."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "But they were doing it completely independently. Two years for drugs is what's going to happen, assuming nothing else. But then the district attorney has a chance to chat with each of these gentlemen separately, and while he's chatting with them, he reinforces the idea that this is an open and shut case for the drug dealing. They're each going to get two years if nothing else happens. But then he starts to realize that these two characters look like he starts to have a suspicion, for whatever reason, that these were the two characters that actually committed a much more serious offense, that they had committed a major armed robbery a few weeks ago. And all the district attorney has to go on is his hunch, his suspicion. He has no hard evidence."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "They're each going to get two years if nothing else happens. But then he starts to realize that these two characters look like he starts to have a suspicion, for whatever reason, that these were the two characters that actually committed a much more serious offense, that they had committed a major armed robbery a few weeks ago. And all the district attorney has to go on is his hunch, his suspicion. He has no hard evidence. So what he wants to do is try to get a deal with each of these guys so that they have an incentive to essentially snitch on each other. So what he tells each of them is, look, you're going to get two years for drug dealing. That's kind of guaranteed."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "He has no hard evidence. So what he wants to do is try to get a deal with each of these guys so that they have an incentive to essentially snitch on each other. So what he tells each of them is, look, you're going to get two years for drug dealing. That's kind of guaranteed. But he says, look, if you confess and the other doesn't, then you will get one year and the other guy will get 10 years. So he's telling Al, look, we caught Bill too just randomly today. If you confess that it was you and Bill who performed that armed robbery, your term is actually going to go down from two years to one year, but Bill is obviously going to have to spend a lot more time in jail, especially because he is not cooperating with us."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "That's kind of guaranteed. But he says, look, if you confess and the other doesn't, then you will get one year and the other guy will get 10 years. So he's telling Al, look, we caught Bill too just randomly today. If you confess that it was you and Bill who performed that armed robbery, your term is actually going to go down from two years to one year, but Bill is obviously going to have to spend a lot more time in jail, especially because he is not cooperating with us. He is not confessing. But then the other statement is also true. If you deny and the other confesses, now it switches around."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If you confess that it was you and Bill who performed that armed robbery, your term is actually going to go down from two years to one year, but Bill is obviously going to have to spend a lot more time in jail, especially because he is not cooperating with us. He is not confessing. But then the other statement is also true. If you deny and the other confesses, now it switches around. You will get 10 years because you're not cooperating, and the other, your co-conspirator, will get a reduced sentence. We'll get the one year. So this is like telling Al, look, if you deny that you were the armed robber and Bill snitches you out, then you're going to get 10 years in prison, and Bill's only going to get one year in prison."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If you deny and the other confesses, now it switches around. You will get 10 years because you're not cooperating, and the other, your co-conspirator, will get a reduced sentence. We'll get the one year. So this is like telling Al, look, if you deny that you were the armed robber and Bill snitches you out, then you're going to get 10 years in prison, and Bill's only going to get one year in prison. And if both of you essentially confess, you will both get three years. So this scenario is called the prisoner's dilemma because we'll see in a second there is a globally optimal scenario for them where they both deny and they'll both get two years, but we'll see based on their incentives, assuming they don't have any unusual loyalty to each other, and these are hardened criminals here, they're not brothers or related to each other in any way, they don't have any kind of loyalty pact, we'll see that they will rationally pick a non-optimal scenario. And to understand that, I'm going to draw something called a payoff matrix."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So this is like telling Al, look, if you deny that you were the armed robber and Bill snitches you out, then you're going to get 10 years in prison, and Bill's only going to get one year in prison. And if both of you essentially confess, you will both get three years. So this scenario is called the prisoner's dilemma because we'll see in a second there is a globally optimal scenario for them where they both deny and they'll both get two years, but we'll see based on their incentives, assuming they don't have any unusual loyalty to each other, and these are hardened criminals here, they're not brothers or related to each other in any way, they don't have any kind of loyalty pact, we'll see that they will rationally pick a non-optimal scenario. And to understand that, I'm going to draw something called a payoff matrix. So let me do it right here for Bill. So Bill has two options. He can confess to the armed robbery or he can deny that he knows anything about the armed robbery."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And to understand that, I'm going to draw something called a payoff matrix. So let me do it right here for Bill. So Bill has two options. He can confess to the armed robbery or he can deny that he knows anything about the armed robbery. And Al has the same two options. Al can confess and Al can deny. And since it's called a payoff matrix, let me draw some grids here."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "He can confess to the armed robbery or he can deny that he knows anything about the armed robbery. And Al has the same two options. Al can confess and Al can deny. And since it's called a payoff matrix, let me draw some grids here. And let's think about all of the different scenarios and what the payoffs would be. If Al confesses and Bill confesses, then we're in scenario four. They both get three years in jail, so they both will get three for Al and three for Bill."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And since it's called a payoff matrix, let me draw some grids here. And let's think about all of the different scenarios and what the payoffs would be. If Al confesses and Bill confesses, then we're in scenario four. They both get three years in jail, so they both will get three for Al and three for Bill. Now, if Al confesses and Bill denies, then we are in scenario two from Al's point of view. Al is only going to get one year, but Bill is going to get ten years. Now, if the opposite thing happens, if Bill confesses and Al denies, then it goes the other way around."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "They both get three years in jail, so they both will get three for Al and three for Bill. Now, if Al confesses and Bill denies, then we are in scenario two from Al's point of view. Al is only going to get one year, but Bill is going to get ten years. Now, if the opposite thing happens, if Bill confesses and Al denies, then it goes the other way around. Al is going to get ten years for not cooperating, and Bill is going to have a reduced sentence of one year for cooperating. And then if they both deny, they're in scenario one, where they're both just going to get their time for the drug dealing. So Al will get two years and Bill will get two years."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now, if the opposite thing happens, if Bill confesses and Al denies, then it goes the other way around. Al is going to get ten years for not cooperating, and Bill is going to have a reduced sentence of one year for cooperating. And then if they both deny, they're in scenario one, where they're both just going to get their time for the drug dealing. So Al will get two years and Bill will get two years. Now, I alluded to this earlier in the video. What is the globally optimal scenario for them? Well, it's this scenario, where they both deny having anything to do with the armed robbery."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So Al will get two years and Bill will get two years. Now, I alluded to this earlier in the video. What is the globally optimal scenario for them? Well, it's this scenario, where they both deny having anything to do with the armed robbery. Then they both get two years. But what we'll see is it's actually somewhat rational, assuming that they don't have any strong loyalties to each other, a strong level of trust with the other party, to not go there. And it's actually rational for both of them to confess."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Well, it's this scenario, where they both deny having anything to do with the armed robbery. Then they both get two years. But what we'll see is it's actually somewhat rational, assuming that they don't have any strong loyalties to each other, a strong level of trust with the other party, to not go there. And it's actually rational for both of them to confess. And a confession is actually a Nash equilibrium. And we'll talk more about this. A Nash equilibrium is where each party has picked a choice given the choices of the other party."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And it's actually rational for both of them to confess. And a confession is actually a Nash equilibrium. And we'll talk more about this. A Nash equilibrium is where each party has picked a choice given the choices of the other party. So when we think of, or each party has picked the optimal choice given the choices of the other, or given whatever choice the other party picks. And so from Al's point of view, he says, well, look, I don't know whether Bill is confessing or denying. So let's say he confesses."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "A Nash equilibrium is where each party has picked a choice given the choices of the other party. So when we think of, or each party has picked the optimal choice given the choices of the other, or given whatever choice the other party picks. And so from Al's point of view, he says, well, look, I don't know whether Bill is confessing or denying. So let's say he confesses. What's better for me to do? If he confesses and I confess, then I get three years. If he confesses and I deny, I get 10 years."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So let's say he confesses. What's better for me to do? If he confesses and I confess, then I get three years. If he confesses and I deny, I get 10 years. So if he confesses, it's better for me to confess as well. So this is a preferable scenario to this one down here. Now, I don't know that Bill confessed."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If he confesses and I deny, I get 10 years. So if he confesses, it's better for me to confess as well. So this is a preferable scenario to this one down here. Now, I don't know that Bill confessed. He might deny. If I assume Bill denied, is it better for me to confess and get one year or deny and get two years? Well, once again, it's better for me to confess."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now, I don't know that Bill confessed. He might deny. If I assume Bill denied, is it better for me to confess and get one year or deny and get two years? Well, once again, it's better for me to confess. And so regardless of whether Bill confesses or denies, this once again, the optimal choice for Al to pick, taking into account Bill's choices, is to confess. If Bill confesses, Al's better off confessing. If Bill denies, Al's better off confessing."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Well, once again, it's better for me to confess. And so regardless of whether Bill confesses or denies, this once again, the optimal choice for Al to pick, taking into account Bill's choices, is to confess. If Bill confesses, Al's better off confessing. If Bill denies, Al's better off confessing. Now we look at it from Bill's point of view, and it's completely symmetric. If Bill says, well, I don't know if Al is confessing or denying. If Al confesses, I can confess and get three years, or I can deny and get 10 years."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If Bill denies, Al's better off confessing. Now we look at it from Bill's point of view, and it's completely symmetric. If Bill says, well, I don't know if Al is confessing or denying. If Al confesses, I can confess and get three years, or I can deny and get 10 years. Well, three years in prison is better than 10. So I would go for the three years if I know Al is confessing. But I don't know that Al is definitely confessing."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If Al confesses, I can confess and get three years, or I can deny and get 10 years. Well, three years in prison is better than 10. So I would go for the three years if I know Al is confessing. But I don't know that Al is definitely confessing. He might deny. If Al is denying, I could confess and get one year, or I could deny and get two years. But once again, I would want to confess and get the one year."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "But I don't know that Al is definitely confessing. He might deny. If Al is denying, I could confess and get one year, or I could deny and get two years. But once again, I would want to confess and get the one year. So Bill, taking into account each of the scenarios that Al might take, it's always better for him to confess. And so this is interesting. They're rationally deducing that they should get to this scenario, this Nash equilibrium state, as opposed to this globally optimal state."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "But once again, I would want to confess and get the one year. So Bill, taking into account each of the scenarios that Al might take, it's always better for him to confess. And so this is interesting. They're rationally deducing that they should get to this scenario, this Nash equilibrium state, as opposed to this globally optimal state. They're both getting three years by both confessing, as opposed to both of them getting two years by both denying. The problem with this one is this is an unstable state. If one of them assumes that they're somehow in that state temporarily, they say, well, I can always improve my scenario by changing what I want to do."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "They're rationally deducing that they should get to this scenario, this Nash equilibrium state, as opposed to this globally optimal state. They're both getting three years by both confessing, as opposed to both of them getting two years by both denying. The problem with this one is this is an unstable state. If one of them assumes that they're somehow in that state temporarily, they say, well, I can always improve my scenario by changing what I want to do. If Al thought that Bill was definitely denying, Al could improve his circumstance by moving out of that state and confessing and only getting one year. Likewise, if Bill thought that maybe Al is likely to deny, he realizes that he can optimize by moving in this direction. Instead of denying and getting two and two, he could move in that direction right over there."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If one of them assumes that they're somehow in that state temporarily, they say, well, I can always improve my scenario by changing what I want to do. If Al thought that Bill was definitely denying, Al could improve his circumstance by moving out of that state and confessing and only getting one year. Likewise, if Bill thought that maybe Al is likely to deny, he realizes that he can optimize by moving in this direction. Instead of denying and getting two and two, he could move in that direction right over there. So this is an unstable optimal scenario. But this Nash equilibrium, this state right over here, is actually very, very, very stable. It's better for each of them to confess regardless of what the other one does."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Instead of denying and getting two and two, he could move in that direction right over there. So this is an unstable optimal scenario. But this Nash equilibrium, this state right over here, is actually very, very, very stable. It's better for each of them to confess regardless of what the other one does. And assuming all of the other actors have chosen their strategy, there's no incentive for Bill. So assuming everyone else has changed their strategy, you can only move in that direction if you're Bill. You can go from the Nash equilibrium of confessing to denying, but you're worse off, so you won't want to do that."}, {"video_title": "Prisoners' dilemma and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "It's better for each of them to confess regardless of what the other one does. And assuming all of the other actors have chosen their strategy, there's no incentive for Bill. So assuming everyone else has changed their strategy, you can only move in that direction if you're Bill. You can go from the Nash equilibrium of confessing to denying, but you're worse off, so you won't want to do that. Or you could move in this direction, which would be Al changing his decision. But once again, that gives a worse outcome for Al. You're going from three years to ten years."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So pause this video, have a go at it. Even if you struggle with it, it'll make your brain more attuned to when we work through it together. All right, now let's work through this together. And I just really want to understand what's going on here before I even try to answer their questions. So let's first think about what's going on before the tax. So before the tax, I have this supply curve right over here in blue, and I have this demand curve. Where they intersect gives us our equilibrium price right over here, and our equilibrium quantity right over there."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And I just really want to understand what's going on here before I even try to answer their questions. So let's first think about what's going on before the tax. So before the tax, I have this supply curve right over here in blue, and I have this demand curve. Where they intersect gives us our equilibrium price right over here, and our equilibrium quantity right over there. And if we wanted to look at the consumer surplus, it would be the area above this horizontal line. And below the demand curve. So that is our original consumer surplus."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Where they intersect gives us our equilibrium price right over here, and our equilibrium quantity right over there. And if we wanted to look at the consumer surplus, it would be the area above this horizontal line. And below the demand curve. So that is our original consumer surplus. And our original producer surplus is above the supply curve and below this price horizontal line. And so the total surplus would be this entire triangle right over here, all before the tax. But they're not asking us before the tax, they want us to figure out everything after the tax."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that is our original consumer surplus. And our original producer surplus is above the supply curve and below this price horizontal line. And so the total surplus would be this entire triangle right over here, all before the tax. But they're not asking us before the tax, they want us to figure out everything after the tax. So what happens due to the tax? Well if we assume it's a tax on each unit that is being supplied, the effect it has, and we see it here, they drew it for us, is it shifts the effective supply curve up. And I say the effective one because that's the one that's going to affect the equilibrium price, or the new equilibrium price."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But they're not asking us before the tax, they want us to figure out everything after the tax. So what happens due to the tax? Well if we assume it's a tax on each unit that is being supplied, the effect it has, and we see it here, they drew it for us, is it shifts the effective supply curve up. And I say the effective one because that's the one that's going to affect the equilibrium price, or the new equilibrium price. But as we'll see, there's some nuances in terms of considering the surplus. So first, let's think about the consumer, well actually let me label the now price with the taxes. So this is now our equilibrium price when we have the taxes."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And I say the effective one because that's the one that's going to affect the equilibrium price, or the new equilibrium price. But as we'll see, there's some nuances in terms of considering the surplus. So first, let's think about the consumer, well actually let me label the now price with the taxes. So this is now our equilibrium price when we have the taxes. It's where our demand curve hasn't shifted, but it's where the existing demand curve intersects with this new shifted supply with tax curve. And similarly, that point of intersection also tells us our quantity with the taxes. Now that we've understood everything, or hopefully we have, let's think about the various surpluses and the deadweight losses and the tax revenues."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this is now our equilibrium price when we have the taxes. It's where our demand curve hasn't shifted, but it's where the existing demand curve intersects with this new shifted supply with tax curve. And similarly, that point of intersection also tells us our quantity with the taxes. Now that we've understood everything, or hopefully we have, let's think about the various surpluses and the deadweight losses and the tax revenues. So first, let's think about the consumer surplus. Well the consumer surplus is going to be the region above our new horizontal price and below the demand curve. So that is this region R right over here, that still you have this consumer right over here who was willing to pay a lot, but still has to pay less than that even with the taxes, so they're getting this benefit more than they would have needed in order, they would have been willing to pay more than the tax, and so they're getting this surplus."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now that we've understood everything, or hopefully we have, let's think about the various surpluses and the deadweight losses and the tax revenues. So first, let's think about the consumer surplus. Well the consumer surplus is going to be the region above our new horizontal price and below the demand curve. So that is this region R right over here, that still you have this consumer right over here who was willing to pay a lot, but still has to pay less than that even with the taxes, so they're getting this benefit more than they would have needed in order, they would have been willing to pay more than the tax, and so they're getting this surplus. And so if you look at the entire market right now, the total consumer surplus after the tax is R. R is equal to consumer surplus, and this is all after the taxes, consumer surplus. Now what about the producer surplus? Well if we weren't dealing with the tax, we would just look above the supply curve and below the equilibrium price line and say, hey, maybe it's that area."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that is this region R right over here, that still you have this consumer right over here who was willing to pay a lot, but still has to pay less than that even with the taxes, so they're getting this benefit more than they would have needed in order, they would have been willing to pay more than the tax, and so they're getting this surplus. And so if you look at the entire market right now, the total consumer surplus after the tax is R. R is equal to consumer surplus, and this is all after the taxes, consumer surplus. Now what about the producer surplus? Well if we weren't dealing with the tax, we would just look above the supply curve and below the equilibrium price line and say, hey, maybe it's that area. But remember what's happening from the producer's point of view. The producer does not see this new increased price at this quantity. The producer, remember, they don't get to keep the tax revenue."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well if we weren't dealing with the tax, we would just look above the supply curve and below the equilibrium price line and say, hey, maybe it's that area. But remember what's happening from the producer's point of view. The producer does not see this new increased price at this quantity. The producer, remember, they don't get to keep the tax revenue. That they have to give to the government. So the producer, actually, this is the price that the producer sees. So you can see this is what producers get after taxes, after taxes, or I'd say net of taxes may be a better way to think about it."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "The producer, remember, they don't get to keep the tax revenue. That they have to give to the government. So the producer, actually, this is the price that the producer sees. So you can see this is what producers get after taxes, after taxes, or I'd say net of taxes may be a better way to think about it. Net of taxes. And so the producer surplus is going to be the area below what they're getting from the market net of taxes and above what the prices at which they were willing to produce various quantities. And so the producer surplus is this area V right over here."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So you can see this is what producers get after taxes, after taxes, or I'd say net of taxes may be a better way to think about it. Net of taxes. And so the producer surplus is going to be the area below what they're getting from the market net of taxes and above what the prices at which they were willing to produce various quantities. And so the producer surplus is this area V right over here. So V is equal to the producer, producer surplus. And now what about the tax revenue? Well, the tax revenue is essentially going to be all of this other part of the total surplus."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so the producer surplus is this area V right over here. So V is equal to the producer, producer surplus. And now what about the tax revenue? Well, the tax revenue is essentially going to be all of this other part of the total surplus. This is what goes to the government. The difference between these two. If the producers did not have to give that tax to the government, then they would have been able to keep all of this."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, the tax revenue is essentially going to be all of this other part of the total surplus. This is what goes to the government. The difference between these two. If the producers did not have to give that tax to the government, then they would have been able to keep all of this. But this right over here, let me do this in a new color. So this region right over here is what the government is able to keep. Notice it's this quantity and they get this much tax per unit quantity."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "If the producers did not have to give that tax to the government, then they would have been able to keep all of this. But this right over here, let me do this in a new color. So this region right over here is what the government is able to keep. Notice it's this quantity and they get this much tax per unit quantity. And so this area is the government to, is the revenue to the government. So S plus U is equal to tax revenue, tax revenue. And then last but not least, what about the deadweight loss?"}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Notice it's this quantity and they get this much tax per unit quantity. And so this area is the government to, is the revenue to the government. So S plus U is equal to tax revenue, tax revenue. And then last but not least, what about the deadweight loss? Well, remember the deadweight loss is the difference between the original total surplus when we just let things naturally go to equilibrium. The difference between that and now our new total surplus, which is now lower because we have not allowed the market to just function in a very natural way because of this tax on quantity. Well, as we said before, the original total surplus was this entire triangle."}, {"video_title": "Identifying tax incidence in a graph AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then last but not least, what about the deadweight loss? Well, remember the deadweight loss is the difference between the original total surplus when we just let things naturally go to equilibrium. The difference between that and now our new total surplus, which is now lower because we have not allowed the market to just function in a very natural way because of this tax on quantity. Well, as we said before, the original total surplus was this entire triangle. Now the total surplus is this trapezoid that's the sum of all of these areas. And so what we lost is this area right over here. So that is the deadweight loss."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "What I want to do in this video is make sure we understand the difference between comparative advantage and absolute advantage. What we saw in the last video is that Patty had a comparative advantage in plates relative to Charlie, because her opportunity cost of producing one plate was lower than Charlie's opportunity cost of producing a plate. Hers was 1 3rd of a cup. His was 3 cups. So that's why it made sense for her to specialize in plates. Charlie, on the other hand, had a comparative advantage in cups. His opportunity cost for producing a cup was only 1 3rd of a plate, while Patty's was 3 plates."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "His was 3 cups. So that's why it made sense for her to specialize in plates. Charlie, on the other hand, had a comparative advantage in cups. His opportunity cost for producing a cup was only 1 3rd of a plate, while Patty's was 3 plates. So that's why he specialized in cups. Now, we can't confuse this with absolute advantage. Absolute advantage in a given product just means that you are more productive at that thing, given the same inputs."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "His opportunity cost for producing a cup was only 1 3rd of a plate, while Patty's was 3 plates. So that's why he specialized in cups. Now, we can't confuse this with absolute advantage. Absolute advantage in a given product just means that you are more productive at that thing, given the same inputs. And so if I were to just give you this graph, and you didn't know how many workers Charlie or Patty had and how many inputs they're using to produce either 30 cups in a day or 30 plates in a day, you actually could not make any statement about absolute advantage. But if we assume that in all of these scenarios they have the same number of inputs, so if we think about plates, if we say, let's say they each have one employee, maybe it's themselves. And given that one input or the same number of inputs, Patty is able to produce more plates than Charlie, then it is true Patty would have an absolute advantage in plates."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "Absolute advantage in a given product just means that you are more productive at that thing, given the same inputs. And so if I were to just give you this graph, and you didn't know how many workers Charlie or Patty had and how many inputs they're using to produce either 30 cups in a day or 30 plates in a day, you actually could not make any statement about absolute advantage. But if we assume that in all of these scenarios they have the same number of inputs, so if we think about plates, if we say, let's say they each have one employee, maybe it's themselves. And given that one input or the same number of inputs, Patty is able to produce more plates than Charlie, then it is true Patty would have an absolute advantage in plates. And if given the same number of inputs, Charlie is able to produce more cups than Patty, then he would have an absolute advantage in cups. But it is not because of that absolute advantage that he is specializing it. In fact, we don't even know what their inputs were."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "And given that one input or the same number of inputs, Patty is able to produce more plates than Charlie, then it is true Patty would have an absolute advantage in plates. And if given the same number of inputs, Charlie is able to produce more cups than Patty, then he would have an absolute advantage in cups. But it is not because of that absolute advantage that he is specializing it. In fact, we don't even know what their inputs were. It might be that he doesn't have an absolute advantage. Maybe Charlie needs 100 people to produce his 30 cups, while Patty can produce 10 cups with one person. So in that case, actually Patty would have an absolute advantage, but it just would be obvious from this right over here."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "In fact, we don't even know what their inputs were. It might be that he doesn't have an absolute advantage. Maybe Charlie needs 100 people to produce his 30 cups, while Patty can produce 10 cups with one person. So in that case, actually Patty would have an absolute advantage, but it just would be obvious from this right over here. But to make everything clear, I want to do a scenario where, let's say, Charlie improved his productivity in some way, and he actually has the absolute advantage in both products, and still show that as long as they have different comparative advantages, that it still makes sense for them to specialize. So let's do another scenario. So Charlie has improved dramatically."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So in that case, actually Patty would have an absolute advantage, but it just would be obvious from this right over here. But to make everything clear, I want to do a scenario where, let's say, Charlie improved his productivity in some way, and he actually has the absolute advantage in both products, and still show that as long as they have different comparative advantages, that it still makes sense for them to specialize. So let's do another scenario. So Charlie has improved dramatically. So let's draw our little graph here. So that's our cups axis, and this is still our plates axis, cups and plates. And let me put some more markers here, 10, 20, 30, and 40."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So Charlie has improved dramatically. So let's draw our little graph here. So that's our cups axis, and this is still our plates axis, cups and plates. And let me put some more markers here, 10, 20, 30, and 40. And 10, 20, 30, and 40. And let's still put Patty. Let's assume Patty hasn't changed."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "And let me put some more markers here, 10, 20, 30, and 40. And 10, 20, 30, and 40. And let's still put Patty. Let's assume Patty hasn't changed. So this is her PPF. So that is Patty's PPF, just like that. But let's say that Charlie has improved dramatically."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "Let's assume Patty hasn't changed. So this is her PPF. So that is Patty's PPF, just like that. But let's say that Charlie has improved dramatically. And so Charlie's PPF looks like this. So in a given day, he can produce. And let's just assume that they're using the same number of inputs."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "But let's say that Charlie has improved dramatically. And so Charlie's PPF looks like this. So in a given day, he can produce. And let's just assume that they're using the same number of inputs. So using the same number of inputs in a given day, he can produce 40 cups when Patty can only produce 10. So he has the absolute advantage in cups. Or in the same given day, using the same inputs, he could produce 40 plates while Patty can only produce 30."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "And let's just assume that they're using the same number of inputs. So using the same number of inputs in a given day, he can produce 40 cups when Patty can only produce 10. So he has the absolute advantage in cups. Or in the same given day, using the same inputs, he could produce 40 plates while Patty can only produce 30. So now Charlie all of a sudden has an absolute advantage in both products. But we'll see it still makes sense for them to specialize because they have different comparative advantages. They have different opportunity costs."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "Or in the same given day, using the same inputs, he could produce 40 plates while Patty can only produce 30. So now Charlie all of a sudden has an absolute advantage in both products. But we'll see it still makes sense for them to specialize because they have different comparative advantages. They have different opportunity costs. So let's figure this out. So we have all the same numbers for Patty. Actually, let me copy and paste Patty's numbers right over here."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "They have different opportunity costs. So let's figure this out. So we have all the same numbers for Patty. Actually, let me copy and paste Patty's numbers right over here. Actually, we have access to her numbers right over here, so I don't even have to copy and paste it. So let's think of Charlie's new numbers now. So this is the PPF for Charlie."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "Actually, let me copy and paste Patty's numbers right over here. Actually, we have access to her numbers right over here, so I don't even have to copy and paste it. So let's think of Charlie's new numbers now. So this is the PPF for Charlie. So this is our new PPF for Charlie. Maybe he did some investment or R&D to get him this new, awesome, productive PPF. So he's expanded his PPF."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So this is the PPF for Charlie. So this is our new PPF for Charlie. Maybe he did some investment or R&D to get him this new, awesome, productive PPF. So he's expanded his PPF. So what is his opportunity cost? So say he's sitting here. What is his opportunity cost of producing?"}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So he's expanded his PPF. So what is his opportunity cost? So say he's sitting here. What is his opportunity cost of producing? So he's producing 40 cups. What would be his opportunity cost of producing 40 plates? Well, to produce those 40 plates, he would have to give up those 40 cups."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "What is his opportunity cost of producing? So he's producing 40 cups. What would be his opportunity cost of producing 40 plates? Well, to produce those 40 plates, he would have to give up those 40 cups. So his opportunity cost of 40 plates is equal to 40 cups. Or you divide both sides by 40. His opportunity cost for one plate is equal to 1 cup."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "Well, to produce those 40 plates, he would have to give up those 40 cups. So his opportunity cost of 40 plates is equal to 40 cups. Or you divide both sides by 40. His opportunity cost for one plate is equal to 1 cup. And this makes math very easy. His opportunity cost for 1 cup is equal to 1 plate. Now, given this new reality, so we've already established Charlie has an absolute advantage in both using the same inputs."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "His opportunity cost for one plate is equal to 1 cup. And this makes math very easy. His opportunity cost for 1 cup is equal to 1 plate. Now, given this new reality, so we've already established Charlie has an absolute advantage in both using the same inputs. He can do more of either of them. And remember, when you're talking about absolute advantage, you have to think about the amount of inputs you use. Who's more productive in that way?"}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "Now, given this new reality, so we've already established Charlie has an absolute advantage in both using the same inputs. He can do more of either of them. And remember, when you're talking about absolute advantage, you have to think about the amount of inputs you use. Who's more productive in that way? But let's think about comparative advantage. If we think about plates, who has a lower opportunity cost for producing a plate? Patty hasn't changed."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "Who's more productive in that way? But let's think about comparative advantage. If we think about plates, who has a lower opportunity cost for producing a plate? Patty hasn't changed. Her opportunity cost for producing a plate is 1 third of a cup. Charlie's opportunity cost for producing a plate has improved, but it's still worse than Patty's. He has to spend 1 cup to make a plate."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "Patty hasn't changed. Her opportunity cost for producing a plate is 1 third of a cup. Charlie's opportunity cost for producing a plate has improved, but it's still worse than Patty's. He has to spend 1 cup to make a plate. She only has to give up 1 third of a cup to make a plate. So Patty still has a comparative advantage in plates. And if we look at the comparative advantage, or if we look at the opportunity cost in cups, the opportunity cost for Charlie to make 1 cup is 1 plate."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "He has to spend 1 cup to make a plate. She only has to give up 1 third of a cup to make a plate. So Patty still has a comparative advantage in plates. And if we look at the comparative advantage, or if we look at the opportunity cost in cups, the opportunity cost for Charlie to make 1 cup is 1 plate. So it's actually a little bit worse than it was before. But as we'll see, it ends up being a good thing. He's just overall more productive."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "And if we look at the comparative advantage, or if we look at the opportunity cost in cups, the opportunity cost for Charlie to make 1 cup is 1 plate. So it's actually a little bit worse than it was before. But as we'll see, it ends up being a good thing. He's just overall more productive. But his opportunity cost for 1 cup, he's giving up 1 plate now when before he was producing 1 third of a plate. And that's because in the other scenario, he was more one-sided, I guess is one way to say it. But his opportunity cost for producing a cup is still cheaper than Patty's."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "He's just overall more productive. But his opportunity cost for 1 cup, he's giving up 1 plate now when before he was producing 1 third of a plate. And that's because in the other scenario, he was more one-sided, I guess is one way to say it. But his opportunity cost for producing a cup is still cheaper than Patty's. Her cost of producing a cup is 3 plates, her opportunity cost, while his is only 1 plate. So he still has the comparative advantage in cups. So Charlie should still specialize in cups."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "But his opportunity cost for producing a cup is still cheaper than Patty's. Her cost of producing a cup is 3 plates, her opportunity cost, while his is only 1 plate. So he still has the comparative advantage in cups. So Charlie should still specialize in cups. And Patty should still specialize in plates. And to show that they can still get an outcome that is beyond even Charlie's production possibilities frontier, let's think about how they could trade. So Charlie is going to specialize in cups."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So Charlie should still specialize in cups. And Patty should still specialize in plates. And to show that they can still get an outcome that is beyond even Charlie's production possibilities frontier, let's think about how they could trade. So Charlie is going to specialize in cups. He's going to sit right over there producing 40 cups a day. And Patty is going to specialize in plates. And she's going to sit right there and produce."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So Charlie is going to specialize in cups. He's going to sit right over there producing 40 cups a day. And Patty is going to specialize in plates. And she's going to sit right there and produce. Let me use a different color. I don't want to use his color. And she's going to sit right over there and produce 30 plates a day."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "And she's going to sit right there and produce. Let me use a different color. I don't want to use his color. And she's going to sit right over there and produce 30 plates a day. So how could they trade for mutual benefit? Well, any trade that is better than their, assuming that they don't want to have only plates or they don't only want to have cups, any trade that is cheaper than their opportunity cost will be a good one. So for example, Patty is sitting here producing only plates."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "And she's going to sit right over there and produce 30 plates a day. So how could they trade for mutual benefit? Well, any trade that is better than their, assuming that they don't want to have only plates or they don't only want to have cups, any trade that is cheaper than their opportunity cost will be a good one. So for example, Patty is sitting here producing only plates. Her opportunity cost for a cup is 3 plates. Her opportunity cost for a cup is 3 plates. So she would be willing to trade anything less than 3 plates for a cup, assuming that she wants it."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So for example, Patty is sitting here producing only plates. Her opportunity cost for a cup is 3 plates. Her opportunity cost for a cup is 3 plates. So she would be willing to trade anything less than 3 plates for a cup, assuming that she wants it. Because if she had to make the cups herself, she would have to give up 3 plates. So let's say that she'd be willing to trade. So Patty would be willing to trade 1 plate."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So she would be willing to trade anything less than 3 plates for a cup, assuming that she wants it. Because if she had to make the cups herself, she would have to give up 3 plates. So let's say that she'd be willing to trade. So Patty would be willing to trade 1 plate. Actually, let me write this. She'd be willing to trade 2 plates for 1 cup. She'd be willing to trade that because if she had to make the cups herself, she would have to give up 3 plates for 1 cup."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So Patty would be willing to trade 1 plate. Actually, let me write this. She'd be willing to trade 2 plates for 1 cup. She'd be willing to trade that because if she had to make the cups herself, she would have to give up 3 plates for 1 cup. So she's willing to trade 2 plates for 1 cup. And let's see if Charlie would be willing to trade 2 plates for 1 cup. So he has all of these cups."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "She'd be willing to trade that because if she had to make the cups herself, she would have to give up 3 plates for 1 cup. So she's willing to trade 2 plates for 1 cup. And let's see if Charlie would be willing to trade 2 plates for 1 cup. So he has all of these cups. How many cups does he have to give away for a plate? Well, he has to give away 1 cup for a plate. Now he would have to give away 1 cup for 2 plates."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So he has all of these cups. How many cups does he have to give away for a plate? Well, he has to give away 1 cup for a plate. Now he would have to give away 1 cup for 2 plates. Or he would have to give up 1 half a cup for a plate. Either way, this is better than his opportunity cost of trying to get that incremental plate. So he would be willing to do this too, 2 plates for 1 cup."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "Now he would have to give away 1 cup for 2 plates. Or he would have to give up 1 half a cup for a plate. Either way, this is better than his opportunity cost of trying to get that incremental plate. So he would be willing to do this too, 2 plates for 1 cup. He'd be willing to do 1 cup for 2 plates. And to see how that would improve, so he could have 40 right here, 40 cups. Or he could trade 1 of them away."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So he would be willing to do this too, 2 plates for 1 cup. He'd be willing to do 1 cup for 2 plates. And to see how that would improve, so he could have 40 right here, 40 cups. Or he could trade 1 of them away. Actually, let's do a scenario where he trades 10 of the cups away. So he trades 10 of the cups away. So now he only has 20 cups."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "Or he could trade 1 of them away. Actually, let's do a scenario where he trades 10 of the cups away. So he trades 10 of the cups away. So now he only has 20 cups. But for those 20 cups he traded away, for those 20 cups, actually that's a bad example because Patty won't have enough cups. So let's say he trades away 10 cups. So let's get the scenario."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So now he only has 20 cups. But for those 20 cups he traded away, for those 20 cups, actually that's a bad example because Patty won't have enough cups. So let's say he trades away 10 cups. So let's get the scenario. So Charlie trades 10 cups for 20 plates. So now he traded 10 cups and he gets 20 plates. So now he'll end up at this scenario right over here, which was beyond."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So let's get the scenario. So Charlie trades 10 cups for 20 plates. So now he traded 10 cups and he gets 20 plates. So now he'll end up at this scenario right over here, which was beyond. It was unattainable when he was working by himself, when he didn't specialize and get these gains from trade. So this is a good scenario for him. He's able to get outcomes that he otherwise would not have been able to get."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So now he'll end up at this scenario right over here, which was beyond. It was unattainable when he was working by himself, when he didn't specialize and get these gains from trade. So this is a good scenario for him. He's able to get outcomes that he otherwise would not have been able to get. Depending on how he trades, he could get outcomes on that, well, up to a certain point. Because Patty only has 30 cups. So he can only get about, at best, he could take all of Patty's cups."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "He's able to get outcomes that he otherwise would not have been able to get. Depending on how he trades, he could get outcomes on that, well, up to a certain point. Because Patty only has 30 cups. So he can only get about, at best, he could take all of Patty's cups. So he could get something along that line over there. But if we look at the same scenario, Patty traded 20 plates for 10 cups, where does that put her? So she traded 20 plates, so she's down to 10 plates."}, {"video_title": "Comparative advantage and absolute advantage Microeconomics Khan Academy.mp3", "Sentence": "So he can only get about, at best, he could take all of Patty's cups. So he could get something along that line over there. But if we look at the same scenario, Patty traded 20 plates for 10 cups, where does that put her? So she traded 20 plates, so she's down to 10 plates. But she got 10 cups, so that put her right over here. Once again, beyond her production possibilities frontier. So this would look like a pretty good situation for Patty as well."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "So pause this video and see if you could have a go at it before we do it together. All right, now let's do it together. So we're gonna do side-by-side graphs, one for the market and one for the firm Epic Eats. So let me do that. So this will be my market. This is my market graph. And so this is going to be quantity of labor."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "So let me do that. So this will be my market. This is my market graph. And so this is going to be quantity of labor. Quantity of labor. And then on the vertical axis, I have my wages, which you could view as the price of labor, the wage rate. And so this is the market."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "And so this is going to be quantity of labor. Quantity of labor. And then on the vertical axis, I have my wages, which you could view as the price of labor, the wage rate. And so this is the market. And then over here, I wanna do it side-by-side. This is going to be the firm. This is going to be Epic Eats."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "And so this is the market. And then over here, I wanna do it side-by-side. This is going to be the firm. This is going to be Epic Eats. Once again, I have quantity, quantity of labor. And I'm going to have the wage rate. And this is Epic Eats."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "This is going to be Epic Eats. Once again, I have quantity, quantity of labor. And I'm going to have the wage rate. And this is Epic Eats. This is at the firm level. Now, they want us to show the market wage and the quantity of workers hired in the market. Well, to do that, we're going to have to think about the demand for workers in the market."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "And this is Epic Eats. This is at the firm level. Now, they want us to show the market wage and the quantity of workers hired in the market. Well, to do that, we're going to have to think about the demand for workers in the market. Well, at a high wage rate, there's not going to be a lot of labor demanded. And then as the wage goes down, more and more people are going to wanna hire people. This is the market labor demand curve."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "Well, to do that, we're going to have to think about the demand for workers in the market. Well, at a high wage rate, there's not going to be a lot of labor demanded. And then as the wage goes down, more and more people are going to wanna hire people. This is the market labor demand curve. Demand curve. And then the supply curve is going to be upward-sloping at a low wage rate. Not a lot of people are going to wanna give their labor."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "This is the market labor demand curve. Demand curve. And then the supply curve is going to be upward-sloping at a low wage rate. Not a lot of people are going to wanna give their labor. But then as wages go up, people will, more and more people are likely to enter, want to be part of the labor force. So this is going to be the market labor supply curve. And then we have our equilibrium wage, which they want us to label W sub M. So that is going to be right over here, W sub lowercase M. And then the quantity of workers hired in the market is going to be capital L sub lowercase M, capital L sub lowercase M. So we did this first part, the part that focuses on the market."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "Not a lot of people are going to wanna give their labor. But then as wages go up, people will, more and more people are likely to enter, want to be part of the labor force. So this is going to be the market labor supply curve. And then we have our equilibrium wage, which they want us to label W sub M. So that is going to be right over here, W sub lowercase M. And then the quantity of workers hired in the market is going to be capital L sub lowercase M, capital L sub lowercase M. So we did this first part, the part that focuses on the market. Then they want us to focus on the marginal factor cost curve labeled MFC. Well, that's what it's going to cost Epic Eats to hire folks. And we're dealing with a, it hires in a perfectly competitive labor market."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "And then we have our equilibrium wage, which they want us to label W sub M. So that is going to be right over here, W sub lowercase M. And then the quantity of workers hired in the market is going to be capital L sub lowercase M, capital L sub lowercase M. So we did this first part, the part that focuses on the market. Then they want us to focus on the marginal factor cost curve labeled MFC. Well, that's what it's going to cost Epic Eats to hire folks. And we're dealing with a, it hires in a perfectly competitive labor market. So it's just gonna pay the market wages. So let me do that. So this is going to be the price it pays for labor, which is its marginal factor cost curve, MFC."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "And we're dealing with a, it hires in a perfectly competitive labor market. So it's just gonna pay the market wages. So let me do that. So this is going to be the price it pays for labor, which is its marginal factor cost curve, MFC. Just like that, so I did the second part. The marginal revenue product labeled MRP. Well, the way you typically look at it is for Epic Eats, that it has some marginal revenue product at a certain quantity."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "So this is going to be the price it pays for labor, which is its marginal factor cost curve, MFC. Just like that, so I did the second part. The marginal revenue product labeled MRP. Well, the way you typically look at it is for Epic Eats, that it has some marginal revenue product at a certain quantity. And then as it hires more and more people, it tends to have diminishing returns. So a typical marginal revenue product curve looks something like this. So that's MRP, did that part."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "Well, the way you typically look at it is for Epic Eats, that it has some marginal revenue product at a certain quantity. And then as it hires more and more people, it tends to have diminishing returns. So a typical marginal revenue product curve looks something like this. So that's MRP, did that part. The wage paid by the firm labeled W sub F, and the quantity of workers hired by the firm labeled L sub F. Well, the wage paid by the firm, that's dictated by the market wage. So we could say that this is equal to the market wage, which is equal to the wage paid by the firm. And you could put this over here."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "So that's MRP, did that part. The wage paid by the firm labeled W sub F, and the quantity of workers hired by the firm labeled L sub F. Well, the wage paid by the firm, that's dictated by the market wage. So we could say that this is equal to the market wage, which is equal to the wage paid by the firm. And you could put this over here. The wage paid by the firm is right over there. So we did this first part. And the quantity of workers hired by the firm, what would be rational is, is that they would keep hiring people until the marginal revenue product is no longer higher than that marginal cost of hiring that extra unit of labor."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "And you could put this over here. The wage paid by the firm is right over there. So we did this first part. And the quantity of workers hired by the firm, what would be rational is, is that they would keep hiring people until the marginal revenue product is no longer higher than that marginal cost of hiring that extra unit of labor. So it's right at that point of intersection. And so that is the quantity of workers hired by the firm. So L. Now let's do the next part."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "And the quantity of workers hired by the firm, what would be rational is, is that they would keep hiring people until the marginal revenue product is no longer higher than that marginal cost of hiring that extra unit of labor. So it's right at that point of intersection. And so that is the quantity of workers hired by the firm. So L. Now let's do the next part. It says, assume that there is an increase in the price of Epic Eats stuffed sandwiches. In the short run, will the wage paid by Epic Eats be higher than, lower than, or equal to W sub F? Explain."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "So L. Now let's do the next part. It says, assume that there is an increase in the price of Epic Eats stuffed sandwiches. In the short run, will the wage paid by Epic Eats be higher than, lower than, or equal to W sub F? Explain. So pause this video and see if you can answer that. Well, in the short run, Epic Eats, no matter how much it hires or doesn't hire, it's just going to pay the same wage. So we could say it is going to be equal to, equal, equal, so pay, pay, equal to WF because operating, operating in, in perfectly competitive, perfectly competitive labor market, labor market."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "Explain. So pause this video and see if you can answer that. Well, in the short run, Epic Eats, no matter how much it hires or doesn't hire, it's just going to pay the same wage. So we could say it is going to be equal to, equal, equal, so pay, pay, equal to WF because operating, operating in, in perfectly competitive, perfectly competitive labor market, labor market. In the short run, what will happen to the number of workers hired by Epic Eats? Explain. So in the short run, if the wage is being the same, but they had a price increase, so that means that the MRP is going to shift to the right because per unit, they're going to be able to sell it for more."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "So we could say it is going to be equal to, equal, equal, so pay, pay, equal to WF because operating, operating in, in perfectly competitive, perfectly competitive labor market, labor market. In the short run, what will happen to the number of workers hired by Epic Eats? Explain. So in the short run, if the wage is being the same, but they had a price increase, so that means that the MRP is going to shift to the right because per unit, they're going to be able to sell it for more. You're going to have a situation where the MRP switch shifts to the right or right and up, and so you're going to have MRP two. This is after the price increase, and notice, now we intersect the MFC line at a higher point, and so what will happen to the number of workers hired? So number of workers goes up because MRP shifts up due to price increase, price increase, which causes it, causes it to intersect, intersect your marginal factor cost curve, MFC, at higher, at higher quantity of labor hired, quantity of labor."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "So in the short run, if the wage is being the same, but they had a price increase, so that means that the MRP is going to shift to the right because per unit, they're going to be able to sell it for more. You're going to have a situation where the MRP switch shifts to the right or right and up, and so you're going to have MRP two. This is after the price increase, and notice, now we intersect the MFC line at a higher point, and so what will happen to the number of workers hired? So number of workers goes up because MRP shifts up due to price increase, price increase, which causes it, causes it to intersect, intersect your marginal factor cost curve, MFC, at higher, at higher quantity of labor hired, quantity of labor. All right, now let's do part C. Epic Eats uses capital and labor in the production of sandwiches. The marginal product of the last unit of capital used is 4,000 units, and the marginal product of the last unit of labor used is 3,000. If Epic Eats minimizes costs and the rental rate of capital is $400, what is the wage rate?"}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "So number of workers goes up because MRP shifts up due to price increase, price increase, which causes it, causes it to intersect, intersect your marginal factor cost curve, MFC, at higher, at higher quantity of labor hired, quantity of labor. All right, now let's do part C. Epic Eats uses capital and labor in the production of sandwiches. The marginal product of the last unit of capital used is 4,000 units, and the marginal product of the last unit of labor used is 3,000. If Epic Eats minimizes costs and the rental rate of capital is $400, what is the wage rate? So pause this video and see if you can answer that. All right, so they give us a few things. So the marginal product of the last unit of capital, so we can say marginal product of the last unit of capital."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "If Epic Eats minimizes costs and the rental rate of capital is $400, what is the wage rate? So pause this video and see if you can answer that. All right, so they give us a few things. So the marginal product of the last unit of capital, so we can say marginal product of the last unit of capital. I'll use K for capital even though I know it's not to confuse ourselves with something else, although you could argue to use C, but we'll use K to ease confusion. So the marginal product of the last unit of capital is equal to 4,000 units. We know that the marginal product of the last unit of labor is equal to 3,000 units."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "So the marginal product of the last unit of capital, so we can say marginal product of the last unit of capital. I'll use K for capital even though I know it's not to confuse ourselves with something else, although you could argue to use C, but we'll use K to ease confusion. So the marginal product of the last unit of capital is equal to 4,000 units. We know that the marginal product of the last unit of labor is equal to 3,000 units. And we could view this right over here, the rental rate of capital, you could view this as the price of capital. You could also view this as the marginal factor cost of capital, but I'll just call this the price of capital is equal to $400. And they want us to figure out the wage rate."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "We know that the marginal product of the last unit of labor is equal to 3,000 units. And we could view this right over here, the rental rate of capital, you could view this as the price of capital. You could also view this as the marginal factor cost of capital, but I'll just call this the price of capital is equal to $400. And they want us to figure out the wage rate. So you could view this as the price of labor is equal to what? And they tell us that it's minimizing costs. And one way to think about it is the number of units per dollar that the firm gets on the margin, if they're able to get more units per dollar by switching, by putting that extra dollar into labor versus capital or capital versus labor, they're going to do it."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "And they want us to figure out the wage rate. So you could view this as the price of labor is equal to what? And they tell us that it's minimizing costs. And one way to think about it is the number of units per dollar that the firm gets on the margin, if they're able to get more units per dollar by switching, by putting that extra dollar into labor versus capital or capital versus labor, they're going to do it. So what we would assume is is that the number of units per dollar that they're getting at this point are going to be the same whether they invest in labor or capital. And so the number of units per dollar that they're getting from the capital is the marginal product of the capital divided by the price of the capital. This is the number of units per dollar."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "And one way to think about it is the number of units per dollar that the firm gets on the margin, if they're able to get more units per dollar by switching, by putting that extra dollar into labor versus capital or capital versus labor, they're going to do it. So what we would assume is is that the number of units per dollar that they're getting at this point are going to be the same whether they invest in labor or capital. And so the number of units per dollar that they're getting from the capital is the marginal product of the capital divided by the price of the capital. This is the number of units per dollar. And this needs to be equal to the number of units per dollar that they're getting from that last unit of labor. So that's the marginal product of labor. So the units they're getting from labor on the margin divided by the price of labor on the margin."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "This is the number of units per dollar. And this needs to be equal to the number of units per dollar that they're getting from that last unit of labor. So that's the marginal product of labor. So the units they're getting from labor on the margin divided by the price of labor on the margin. And then we just solve for this. So this will get us to, we're gonna have 4,000, this is 4,000 units divided by $400. $400 is going to be equal to 3,000 units, 3,000 units divided by the price of labor."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "So the units they're getting from labor on the margin divided by the price of labor on the margin. And then we just solve for this. So this will get us to, we're gonna have 4,000, this is 4,000 units divided by $400. $400 is going to be equal to 3,000 units, 3,000 units divided by the price of labor. So you can manipulate this a little bit. You could divide both sides by 400. So this is going to be 10 units per dollar."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "$400 is going to be equal to 3,000 units, 3,000 units divided by the price of labor. So you can manipulate this a little bit. You could divide both sides by 400. So this is going to be 10 units per dollar. So let me scroll down a little bit right over here. So we could, this is, let's see, yep, this is going to be 10, 10 units, I'll write it this way, 10 units per dollar is going to be equal to 3,000 units divided by the price of labor. And so you just do a little bit of manipulation, multiply both sides by the price of labor, divide both sides by 10."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "So this is going to be 10 units per dollar. So let me scroll down a little bit right over here. So we could, this is, let's see, yep, this is going to be 10, 10 units, I'll write it this way, 10 units per dollar is going to be equal to 3,000 units divided by the price of labor. And so you just do a little bit of manipulation, multiply both sides by the price of labor, divide both sides by 10. You do a little bit of algebra. This gets you to $300 for the incremental cost of labor. So this is going to get us to the price of labor is equal to $300."}, {"video_title": "Factor markets worked example Microeconomics Khan Academy.mp3", "Sentence": "And so you just do a little bit of manipulation, multiply both sides by the price of labor, divide both sides by 10. You do a little bit of algebra. This gets you to $300 for the incremental cost of labor. So this is going to get us to the price of labor is equal to $300. And you can verify that. You could plug it back in if you like. And we're done."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "What it means is that you have a monopoly on your differentiated product, but eventually other people are going to make substitute products. They can't make exactly your product. It can't be identical, and it might eat into your demand. And to understand that, let us draw the demand curve for a market in which monopolistic competition is going on. I'll draw it nice and big. And so on this axis right over here, I'm going to plot dollars per unit. And so price is revenue per unit, and we'll have cost per unit and things like that."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And to understand that, let us draw the demand curve for a market in which monopolistic competition is going on. I'll draw it nice and big. And so on this axis right over here, I'm going to plot dollars per unit. And so price is revenue per unit, and we'll have cost per unit and things like that. And in this axis, I'm going to have quantity produced in a given period of time. And we're going to speak in fairly general terms over here. Now, let's assume that our monopolistic competitor right over here is Apple and its iPads."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And so price is revenue per unit, and we'll have cost per unit and things like that. And in this axis, I'm going to have quantity produced in a given period of time. And we're going to speak in fairly general terms over here. Now, let's assume that our monopolistic competitor right over here is Apple and its iPads. And I want to emphasize, I'm not making any accusations that Apple is a monopolist here. They just have a differentiated product, and so they are monopolistic competitors here. They have a monopoly in iPads."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Now, let's assume that our monopolistic competitor right over here is Apple and its iPads. And I want to emphasize, I'm not making any accusations that Apple is a monopolist here. They just have a differentiated product, and so they are monopolistic competitors here. They have a monopoly in iPads. They don't have a monopoly in tablet computers or in computers in general, but only they can sell iPads. And so let's draw the demand curve in the short run for iPads, and I'll make it linear to make things simple. Let me draw a little bit better than that."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "They have a monopoly in iPads. They don't have a monopoly in tablet computers or in computers in general, but only they can sell iPads. And so let's draw the demand curve in the short run for iPads, and I'll make it linear to make things simple. Let me draw a little bit better than that. So let's say the demand curve looks something like that. So that is our demand curve. And we know that if that's the demand curve, and remember, we're talking about the market for iPads, not the market for tablet computers."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Let me draw a little bit better than that. So let's say the demand curve looks something like that. So that is our demand curve. And we know that if that's the demand curve, and remember, we're talking about the market for iPads, not the market for tablet computers. Apple is a monopolist in the market for iPads, so its marginal revenue will have twice the slope of this demand curve. So it will look something like that. That is Apple's marginal revenue curve."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And we know that if that's the demand curve, and remember, we're talking about the market for iPads, not the market for tablet computers. Apple is a monopolist in the market for iPads, so its marginal revenue will have twice the slope of this demand curve. So it will look something like that. That is Apple's marginal revenue curve. And then think about its short run economic profits in a given period of time, whatever this quantity per period of time is. Let's draw its costs. So first I'll draw, let me draw its marginal costs."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "That is Apple's marginal revenue curve. And then think about its short run economic profits in a given period of time, whatever this quantity per period of time is. Let's draw its costs. So first I'll draw, let me draw its marginal costs. So its marginal costs might look something like this. That is their marginal costs. And then to do average total costs, up here when you have very low quantity, most of your costs are fixed costs, but you're dividing it by a very small quantity."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So first I'll draw, let me draw its marginal costs. So its marginal costs might look something like this. That is their marginal costs. And then to do average total costs, up here when you have very low quantity, most of your costs are fixed costs, but you're dividing it by a very small quantity. So you're going to have a very high average total cost. It's going to get lower and lower and lower as long as the cost on each incremental unit is lower than the average. And the cost on each incremental unit is a marginal cost curve."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And then to do average total costs, up here when you have very low quantity, most of your costs are fixed costs, but you're dividing it by a very small quantity. So you're going to have a very high average total cost. It's going to get lower and lower and lower as long as the cost on each incremental unit is lower than the average. And the cost on each incremental unit is a marginal cost curve. So as long as the average total cost is higher than the marginal cost curve, then that's going to be downward sloping. And at some point, they're going to be equal to each other. And now each incremental unit that you add on is going to increase the average because each incremental unit's cost is more than the average."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And the cost on each incremental unit is a marginal cost curve. So as long as the average total cost is higher than the marginal cost curve, then that's going to be downward sloping. And at some point, they're going to be equal to each other. And now each incremental unit that you add on is going to increase the average because each incremental unit's cost is more than the average. So it's going to cause everything to average up. And this actually right over here should be the minimum point on our average total cost curve. So given the way I've drawn things, what is Apple's short run economic profit?"}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And now each incremental unit that you add on is going to increase the average because each incremental unit's cost is more than the average. So it's going to cause everything to average up. And this actually right over here should be the minimum point on our average total cost curve. So given the way I've drawn things, what is Apple's short run economic profit? Well, we just have to think about its optimal quantity to produce. So it's definitely going to produce, one, the marginal revenue, much higher than the marginal cost. It's going to make economic profit on that unit."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So given the way I've drawn things, what is Apple's short run economic profit? Well, we just have to think about its optimal quantity to produce. So it's definitely going to produce, one, the marginal revenue, much higher than the marginal cost. It's going to make economic profit on that unit. It's going to keep producing because that continues to be true, continues to be true, all the way into this point right over here. And it doesn't want to produce more than that because then the opportunity cost on each incremental unit is higher than the revenue on that. So you're going to take an economic loss."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "It's going to make economic profit on that unit. It's going to keep producing because that continues to be true, continues to be true, all the way into this point right over here. And it doesn't want to produce more than that because then the opportunity cost on each incremental unit is higher than the revenue on that. So you're going to take an economic loss. So you're going to produce right over there. And at that quantity, so I'll call that Q star right over there, at that quantity, this is the price that they can charge in the market going to the demand curve. I just went straight up to the demand curve over there."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So you're going to take an economic loss. So you're going to produce right over there. And at that quantity, so I'll call that Q star right over there, at that quantity, this is the price that they can charge in the market going to the demand curve. I just went straight up to the demand curve over there. This is the price that they can charge in the market. And their average, or you could view that as their average revenue per unit. And then we have our average cost per unit right over here, an average total cost."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "I just went straight up to the demand curve over there. This is the price that they can charge in the market. And their average, or you could view that as their average revenue per unit. And then we have our average cost per unit right over here, an average total cost. So this is their average economic profit per unit. And if we multiply that times the total number of units, the area of this rectangle right over here is going to give total economic profit. Now in all things, if the rest of the world sees economic profit, they're just like, wow, that's a good, people are doing better in that market than their opportunity costs."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And then we have our average cost per unit right over here, an average total cost. So this is their average economic profit per unit. And if we multiply that times the total number of units, the area of this rectangle right over here is going to give total economic profit. Now in all things, if the rest of the world sees economic profit, they're just like, wow, that's a good, people are doing better in that market than their opportunity costs. And so other competitors say, well, I can't produce iPads, but I can start making competitive products. So you'll see players like Samsung, and we are seeing this, sitting here in 2012. And this is kind of a work in progress for these competitors right over here."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Now in all things, if the rest of the world sees economic profit, they're just like, wow, that's a good, people are doing better in that market than their opportunity costs. And so other competitors say, well, I can't produce iPads, but I can start making competitive products. So you'll see players like Samsung, and we are seeing this, sitting here in 2012. And this is kind of a work in progress for these competitors right over here. Samsung, HTC, HP, all the tablet manufacturers, all the computer manufacturers. And they're pairing up with the operating system manufacturers like Microsoft and Google's Android. And they are making competitive products."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And this is kind of a work in progress for these competitors right over here. Samsung, HTC, HP, all the tablet manufacturers, all the computer manufacturers. And they're pairing up with the operating system manufacturers like Microsoft and Google's Android. And they are making competitive products. And on top of it, they are marketing it. They're marketing it heavily. They're trying to market the products as aggressively as possible."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And they are making competitive products. And on top of it, they are marketing it. They're marketing it heavily. They're trying to market the products as aggressively as possible. And so as their products become more and more comparable to an iPad, or maybe even better in certain dimensions, either cost or features, and they market it heavily, in the long run, what's going to happen to Apple's demand curve? Well, at any given price, less will be demanded. And so the demand curve will shift."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "They're trying to market the products as aggressively as possible. And so as their products become more and more comparable to an iPad, or maybe even better in certain dimensions, either cost or features, and they market it heavily, in the long run, what's going to happen to Apple's demand curve? Well, at any given price, less will be demanded. And so the demand curve will shift. The demand curve will shift to the left. And so we could end up with a new demand curve, I'll do it in a different shade of blue, that looks something like that. So this is our new demand curve, or we should say maybe our long run demand curve, after these people have made their products better and have marketed heavily."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And so the demand curve will shift. The demand curve will shift to the left. And so we could end up with a new demand curve, I'll do it in a different shade of blue, that looks something like that. So this is our new demand curve, or we should say maybe our long run demand curve, after these people have made their products better and have marketed heavily. If that's the new long run demand curve, then our long run marginal revenue curve was going to have twice the slope of that. So it's going to look something like this. So if it's twice the slope, it's going to hit right about, it's going to look, I can do a better job than that."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So this is our new demand curve, or we should say maybe our long run demand curve, after these people have made their products better and have marketed heavily. If that's the new long run demand curve, then our long run marginal revenue curve was going to have twice the slope of that. So it's going to look something like this. So if it's twice the slope, it's going to hit right about, it's going to look, I can do a better job than that. So our new marginal revenue, let me do it in a slightly different color. Pink. Our new marginal revenue curve will look something like that."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So if it's twice the slope, it's going to hit right about, it's going to look, I can do a better job than that. So our new marginal revenue, let me do it in a slightly different color. Pink. Our new marginal revenue curve will look something like that. So this is long run marginal revenue. Long run marginal revenue curve. And so now what is the optimal quantity for Apple to produce?"}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Our new marginal revenue curve will look something like that. So this is long run marginal revenue. Long run marginal revenue curve. And so now what is the optimal quantity for Apple to produce? Well, now it's going to make economic profit, economic profit, economic profit, all the way until this point right over here. So now we have this new, I'll call it long run quantity. Or maybe I'll call it, let me do it a different color."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And so now what is the optimal quantity for Apple to produce? Well, now it's going to make economic profit, economic profit, economic profit, all the way until this point right over here. So now we have this new, I'll call it long run quantity. Or maybe I'll call it, let me do it a different color. I'm using that pink too much. Long run quantity right over there. And to figure out the revenue per unit or the price at that quantity, we just go up to the demand curve, our new demand curve."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Or maybe I'll call it, let me do it a different color. I'm using that pink too much. Long run quantity right over there. And to figure out the revenue per unit or the price at that quantity, we just go up to the demand curve, our new demand curve. Remember, our long run demand curve, it's right over there. It looks like, at least the way I've drawn it, that the price hasn't changed much. We've got the same price."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And to figure out the revenue per unit or the price at that quantity, we just go up to the demand curve, our new demand curve. Remember, our long run demand curve, it's right over there. It looks like, at least the way I've drawn it, that the price hasn't changed much. We've got the same price. But now what is our average economic profit per unit? Well, the way I've drawn it, the average total costs right over there are right about what that price is. So our average economic profit per unit goes down to zero."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "We've got the same price. But now what is our average economic profit per unit? Well, the way I've drawn it, the average total costs right over there are right about what that price is. So our average economic profit per unit goes down to zero. Over here we had this nice green height. Now we have no height anymore. And even though we're selling a good number of units, our average economic profit per unit is zero."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So our average economic profit per unit goes down to zero. Over here we had this nice green height. Now we have no height anymore. And even though we're selling a good number of units, our average economic profit per unit is zero. So instead of an area over there, we're going to have the area of a line, which is essentially zero. So now we have zero economic profit. So the important thing to realize for a monopolistic competitor, and this could happen overnight."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And even though we're selling a good number of units, our average economic profit per unit is zero. So instead of an area over there, we're going to have the area of a line, which is essentially zero. So now we have zero economic profit. So the important thing to realize for a monopolistic competitor, and this could happen overnight. I mean, some would argue that sitting here in early 2012, Apple is still generating economic profit. And it's always important to realize economic profit is different than accounting profit. Accounting profit can be positive."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So the important thing to realize for a monopolistic competitor, and this could happen overnight. I mean, some would argue that sitting here in early 2012, Apple is still generating economic profit. And it's always important to realize economic profit is different than accounting profit. Accounting profit can be positive. Economic profit can be zero when accounting profit is positive. So you could even have an economic loss and still have accounting profit. But some people would argue that right now Apple is still making profits above and beyond even their opportunity costs."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Accounting profit can be positive. Economic profit can be zero when accounting profit is positive. So you could even have an economic loss and still have accounting profit. But some people would argue that right now Apple is still making profits above and beyond even their opportunity costs. And this is actually a work in progress right now in 2012, that the demand curve is shifting to the left. But eventually, all of the economic profit will be eaten up. And there will be less incentive for all of these players to be as aggressive."}, {"video_title": "Monopolistic competition and economic profit Microeconomics Khan Academy.mp3", "Sentence": "But some people would argue that right now Apple is still making profits above and beyond even their opportunity costs. And this is actually a work in progress right now in 2012, that the demand curve is shifting to the left. But eventually, all of the economic profit will be eaten up. And there will be less incentive for all of these players to be as aggressive. So the important thing to realize with a monopolistic competitor is, sure, their curves look like a monopolist. But the competition doesn't happen in terms of supply of iPads. None of these players can supply iPads."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "If instead of renting our building for $200,000, instead we bought the building for $2 million, how would that have shown up from an accounting profit point of view and an economic profit point of view? So we're going to buy our building for $2 million. So that is the market value of our building at the beginning of our period, at the beginning of year one. And let's say at the end of year one, so this is year one right over here that occurs. And maybe to a large degree, this is because I used the building. There was a lot of traffic in there. Maybe it was a brand new building before."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "And let's say at the end of year one, so this is year one right over here that occurs. And maybe to a large degree, this is because I used the building. There was a lot of traffic in there. Maybe it was a brand new building before. Now it's essentially kind of the building itself has taken some wear and tear. And because of that, the market value of the building is now $1.9 million. So essentially, through this year, the building's value has depreciated by $100,000."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "Maybe it was a brand new building before. Now it's essentially kind of the building itself has taken some wear and tear. And because of that, the market value of the building is now $1.9 million. So essentially, through this year, the building's value has depreciated by $100,000. So we'll say the depreciation is $100,000. Notice, I didn't pay anyone that $100,000. It was not an explicit opportunity cost."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "So essentially, through this year, the building's value has depreciated by $100,000. So we'll say the depreciation is $100,000. Notice, I didn't pay anyone that $100,000. It was not an explicit opportunity cost. But this really is an opportunity cost. Because I've spent this $100,000 is the opportunity cost of not selling the building a year ago. And instead of using that building, I've essentially lost out on $100,000."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "It was not an explicit opportunity cost. But this really is an opportunity cost. Because I've spent this $100,000 is the opportunity cost of not selling the building a year ago. And instead of using that building, I've essentially lost out on $100,000. Now that's not all that I have lost out on. I have also lost out on the ability to invest this $2 million in other things. Maybe I could have invested the $2 million at a 5% rate and gotten some interest on it."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "And instead of using that building, I've essentially lost out on $100,000. Now that's not all that I have lost out on. I have also lost out on the ability to invest this $2 million in other things. Maybe I could have invested the $2 million at a 5% rate and gotten some interest on it. So I also have the opportunity cost of capital, of not investing that $2 million someplace else. And so the opportunity cost of capital, let's say I could have gotten 5% on my $2 million. So 5% of $2 million is $100,000."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "Maybe I could have invested the $2 million at a 5% rate and gotten some interest on it. So I also have the opportunity cost of capital, of not investing that $2 million someplace else. And so the opportunity cost of capital, let's say I could have gotten 5% on my $2 million. So 5% of $2 million is $100,000. So my opportunity cost of capital right over is $100,000. Another way to think about it is, let's just say that I buy the building and I sell it at the end of the year. Then I would have literally lost $100,000 on that transaction."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "So 5% of $2 million is $100,000. So my opportunity cost of capital right over is $100,000. Another way to think about it is, let's just say that I buy the building and I sell it at the end of the year. Then I would have literally lost $100,000 on that transaction. And although I might have used it, so I got some value out of it, and I would have lost another $100,000 by not having that money invested in some other use during that period. So these are the two non-explicit costs that would show up in our profit statements. Now this depreciation is something that is accounted for by accountants."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "Then I would have literally lost $100,000 on that transaction. And although I might have used it, so I got some value out of it, and I would have lost another $100,000 by not having that money invested in some other use during that period. So these are the two non-explicit costs that would show up in our profit statements. Now this depreciation is something that is accounted for by accountants. When you look at a company's financials, you will see something called depreciation, which is a measure of how you're using up your capital goods. You are using up your building. You are using up your equipment."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "Now this depreciation is something that is accounted for by accountants. When you look at a company's financials, you will see something called depreciation, which is a measure of how you're using up your capital goods. You are using up your building. You are using up your equipment. You are using up your vehicles or whatever else you might have. Economists are very pure about depreciation. They say, what was the market value at the beginning of the period?"}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "You are using up your equipment. You are using up your vehicles or whatever else you might have. Economists are very pure about depreciation. They say, what was the market value at the beginning of the period? What is the market value at the end? And so the difference is how much it has depreciated. And this is kind of, it's actually almost a more natural way."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "They say, what was the market value at the beginning of the period? What is the market value at the end? And so the difference is how much it has depreciated. And this is kind of, it's actually almost a more natural way. In accounting, and I won't go into the details, there are many ways to depreciate something. You might be able to say, well, if the thing is worth $2 million and if it's going to last me 10 years, I can depreciate $100,000 a year. Or actually $200,000 a year."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "And this is kind of, it's actually almost a more natural way. In accounting, and I won't go into the details, there are many ways to depreciate something. You might be able to say, well, if the thing is worth $2 million and if it's going to last me 10 years, I can depreciate $100,000 a year. Or actually $200,000 a year. 2 million divided by 10 years. And there's different incentives based on if you are the owner of a firm of how you depreciate. You might want to actually have a lot of depreciation for tax purposes so that you can somehow hide a profit or whatever."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "Or actually $200,000 a year. 2 million divided by 10 years. And there's different incentives based on if you are the owner of a firm of how you depreciate. You might want to actually have a lot of depreciation for tax purposes so that you can somehow hide a profit or whatever. But for the sake of this video, we're going to assume that both the accountants and the economists will mark off $100,000 of depreciation if we were to buy the building. So let's redo our two financial statements. The accounting version and the economic version."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "You might want to actually have a lot of depreciation for tax purposes so that you can somehow hide a profit or whatever. But for the sake of this video, we're going to assume that both the accountants and the economists will mark off $100,000 of depreciation if we were to buy the building. So let's redo our two financial statements. The accounting version and the economic version. So in the accounting version, so let me copy and paste all of this. So copy, and let me go down here and paste it. Let me paste it."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "The accounting version and the economic version. So in the accounting version, so let me copy and paste all of this. So copy, and let me go down here and paste it. Let me paste it. And so now we don't have any rent expense. Instead of renting the building, we've gone off and we've bought the building. So let me get rid of that."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "Let me paste it. And so now we don't have any rent expense. Instead of renting the building, we've gone off and we've bought the building. So let me get rid of that. So our rent expense is now going to be 0. But we do have a depreciation expense. And I'll write that in another color."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "So let me get rid of that. So our rent expense is now going to be 0. But we do have a depreciation expense. And I'll write that in another color. We do have a depreciation expense of $100,000. And we don't think about the opportunity cost of capital. What we could have done, this is opportunity cost of capital."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "And I'll write that in another color. We do have a depreciation expense of $100,000. And we don't think about the opportunity cost of capital. What we could have done, this is opportunity cost of capital. What we could have done with that $2 million that we used to buy the building. And so our pre-tax profit, our pre-tax accounting profit, from an accounting point of view, is going to be, let's see, 50 minus 200 is 300 minus another. Let me make sure I get this right."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "What we could have done, this is opportunity cost of capital. What we could have done with that $2 million that we used to buy the building. And so our pre-tax profit, our pre-tax accounting profit, from an accounting point of view, is going to be, let's see, 50 minus 200 is 300 minus another. Let me make sure I get this right. Actually, it's gotten better. Because my rent was 200, and now I only have a depreciation of 100. So it's 50 minus 350 gives me a pre-tax profit of $150,000."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "Let me make sure I get this right. Actually, it's gotten better. Because my rent was 200, and now I only have a depreciation of 100. So it's 50 minus 350 gives me a pre-tax profit of $150,000. And that was because I was renting it for more, and now my depreciation, based on what happened with the market rate, actually changed less than what my rent would have been. But the economic profit, at least based on the way we've done the numbers here, it'll actually come out neutral. Which it should, because we're really economic profit."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "So it's 50 minus 350 gives me a pre-tax profit of $150,000. And that was because I was renting it for more, and now my depreciation, based on what happened with the market rate, actually changed less than what my rent would have been. But the economic profit, at least based on the way we've done the numbers here, it'll actually come out neutral. Which it should, because we're really economic profit. We're just trying to decide, does it make sense for us to run this business in this way? And so when we look at the economic profit, let's copy and paste this again. So we're going to, let me copy just this part."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "Which it should, because we're really economic profit. We're just trying to decide, does it make sense for us to run this business in this way? And so when we look at the economic profit, let's copy and paste this again. So we're going to, let me copy just this part. So copy and paste. And maybe if things actually did improve when we actually changed whether we owned or rent, then that would say, well, that's the more economic way to do it. So let's say it's year two."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "So we're going to, let me copy just this part. So copy and paste. And maybe if things actually did improve when we actually changed whether we owned or rent, then that would say, well, that's the more economic way to do it. So let's say it's year two. Or this is year one again. But now we're doing, this is economic profit, year one. So our food is the same, our labor is the same, our rent disappears."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "So let's say it's year two. Or this is year one again. But now we're doing, this is economic profit, year one. So our food is the same, our labor is the same, our rent disappears. Let me get rid of that. Let me get rid of the rent. The rent is now going to be zero."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "So our food is the same, our labor is the same, our rent disappears. Let me get rid of that. Let me get rid of the rent. The rent is now going to be zero. We now own our building. Rent is zero. These are all our explicit costs."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "The rent is now going to be zero. We now own our building. Rent is zero. These are all our explicit costs. These are direct payments of money to someone else. But now let's think about our implicit costs. Well, we still have the same implicit costs that we had up here."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "These are all our explicit costs. These are direct payments of money to someone else. But now let's think about our implicit costs. Well, we still have the same implicit costs that we had up here. We have the wages for gone. We talked about maybe I was a doctor and I'm not working as a doctor to run this restaurant. So my wages for gone are $150,000."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "Well, we still have the same implicit costs that we had up here. We have the wages for gone. We talked about maybe I was a doctor and I'm not working as a doctor to run this restaurant. So my wages for gone are $150,000. Our $150,000, well actually, I think, wages lost are $150,000. And now we have the depreciation on top of that. I'll do this in magenta to show what is new."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "So my wages for gone are $150,000. Our $150,000, well actually, I think, wages lost are $150,000. And now we have the depreciation on top of that. I'll do this in magenta to show what is new. We have the depreciation of $100,000. And on top of that, we have the opportunity cost of capital, the return we could have gotten on that $2 million that instead we used to buy the building. So I'll call it OCC, Opportunity Cost of Capital, in this situation, was the 5% of $2 million, another $100,000."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "I'll do this in magenta to show what is new. We have the depreciation of $100,000. And on top of that, we have the opportunity cost of capital, the return we could have gotten on that $2 million that instead we used to buy the building. So I'll call it OCC, Opportunity Cost of Capital, in this situation, was the 5% of $2 million, another $100,000. So the way that I've worked out the numbers here, we didn't have to spend $200,000 on rent, but we increased our implicit costs by owning the building by $200,000. So it all comes out the same. We still get what we got in the previous one of an economic profit of negative $100,000."}, {"video_title": "Depreciation and opportunity cost of capital Microeconomics Khan Academy.mp3", "Sentence": "So I'll call it OCC, Opportunity Cost of Capital, in this situation, was the 5% of $2 million, another $100,000. So the way that I've worked out the numbers here, we didn't have to spend $200,000 on rent, but we increased our implicit costs by owning the building by $200,000. So it all comes out the same. We still get what we got in the previous one of an economic profit of negative $100,000. Negative $100,000 of economic profit. And this, of course, was accounting profit. And so what I wanted to really just highlight in this is that you don't get kind of a freebie on the economic profit when you decide to buy instead of rent, or rent versus buy."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "Given that we have a monopoly on oranges and a demand curve for oranges in the market, how do we maximize our profit? And to answer that question, we're going to think about our total revenue for different quantities, and from that we'll get the marginal revenue for different quantities, and then we can compare that to our marginal cost curve, and that should give us a pretty good sense of what quantity we should produce to optimize things. So let's just figure out total revenue first. So obviously if we produce nothing, if we produce zero quantity, we'll have nothing to sell. You know, revenue is, total revenue is price times quantity. Your price is six, but your quantity is zero, so your total revenue is going to be zero if you produce nothing. If you produce one unit, and this over here is actually 1,000 pounds per day, and we'll call a unit 1,000 pounds per day."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "So obviously if we produce nothing, if we produce zero quantity, we'll have nothing to sell. You know, revenue is, total revenue is price times quantity. Your price is six, but your quantity is zero, so your total revenue is going to be zero if you produce nothing. If you produce one unit, and this over here is actually 1,000 pounds per day, and we'll call a unit 1,000 pounds per day. If you produce one unit, then your total revenue is one unit times $5 per pound, so it'll be five times, actually 1,000, so it'll be $5,000, and you could also view it as the area of this rectangle right over here. You have the height is price and the width is quantity, but we can plot that five times one. If you produce one unit, you're going to get $5,000."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "If you produce one unit, and this over here is actually 1,000 pounds per day, and we'll call a unit 1,000 pounds per day. If you produce one unit, then your total revenue is one unit times $5 per pound, so it'll be five times, actually 1,000, so it'll be $5,000, and you could also view it as the area of this rectangle right over here. You have the height is price and the width is quantity, but we can plot that five times one. If you produce one unit, you're going to get $5,000. So this right over here is in thousands of dollars, and this right over here is in thousands of pounds, just to make sure that we're consistent with this right over here. Let's keep going. So that was this point, or when we produce 1,000 pounds, we get $5,000."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "If you produce one unit, you're going to get $5,000. So this right over here is in thousands of dollars, and this right over here is in thousands of pounds, just to make sure that we're consistent with this right over here. Let's keep going. So that was this point, or when we produce 1,000 pounds, we get $5,000. If we produce 2,000 pounds, now we're talking about our price is going to be $4, or if we could say our price is $4, we can sell 2,000 pounds given this demand curve, and our total revenue is going to be the area of this rectangle right over here. Height is price, width is quantity. Four times two is eight."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "So that was this point, or when we produce 1,000 pounds, we get $5,000. If we produce 2,000 pounds, now we're talking about our price is going to be $4, or if we could say our price is $4, we can sell 2,000 pounds given this demand curve, and our total revenue is going to be the area of this rectangle right over here. Height is price, width is quantity. Four times two is eight. So if I produce 2,000 pounds, then I will get a total revenue of $8,000. So this is 7.5. Eight is going to put us something right about there."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "Four times two is eight. So if I produce 2,000 pounds, then I will get a total revenue of $8,000. So this is 7.5. Eight is going to put us something right about there. And then we can keep going. If I produce, or if the price is $3 per pound, I can sell 3,000 pounds. My total revenue is this rectangle right over here."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "Eight is going to put us something right about there. And then we can keep going. If I produce, or if the price is $3 per pound, I can sell 3,000 pounds. My total revenue is this rectangle right over here. Three times three is $9,000. So if I produce 3,000 pounds, I can get a total revenue of $9,000. So right about there."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "My total revenue is this rectangle right over here. Three times three is $9,000. So if I produce 3,000 pounds, I can get a total revenue of $9,000. So right about there. And let's keep going. If I produce, or if the price is $2 per pound, I can sell 4,000 pounds. My total revenue is two times four, which is $8,000."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "So right about there. And let's keep going. If I produce, or if the price is $2 per pound, I can sell 4,000 pounds. My total revenue is two times four, which is $8,000. So if I produce 4,000 pounds, I can get a total revenue of $8,000. It should be even with that one right over there. Just like that."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "My total revenue is two times four, which is $8,000. So if I produce 4,000 pounds, I can get a total revenue of $8,000. It should be even with that one right over there. Just like that. And then if I produce, or if the price is $1,000, I'm looking for new colors, if the price is $1 per pound, I should say, I can sell 5,000 pounds. My total revenue is going to be one times five, or $5,000. So it's going to be even with this here."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "Just like that. And then if I produce, or if the price is $1,000, I'm looking for new colors, if the price is $1 per pound, I should say, I can sell 5,000 pounds. My total revenue is going to be one times five, or $5,000. So it's going to be even with this here. So if I produce 5,000 units, I can get $5,000 of revenue. And if the price is zero, the market will demand 6,000 pounds per day, if it's free, but I'm not going to generate any revenue because I'm going to be giving it away for free. So I will not be generating any revenue in this situation."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "So it's going to be even with this here. So if I produce 5,000 units, I can get $5,000 of revenue. And if the price is zero, the market will demand 6,000 pounds per day, if it's free, but I'm not going to generate any revenue because I'm going to be giving it away for free. So I will not be generating any revenue in this situation. So our total revenue curve, it looks like, and if you've taken algebra, you would recognize this as a downward-facing parabola. Our total revenue looks like this. Our total revenue, it's easier for me to draw a curve with a dotted line."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "So I will not be generating any revenue in this situation. So our total revenue curve, it looks like, and if you've taken algebra, you would recognize this as a downward-facing parabola. Our total revenue looks like this. Our total revenue, it's easier for me to draw a curve with a dotted line. Our total revenue looks something like that. And you could even solve it algebraically to show that it is this downward-facing parabola. The formula right over here of the demand curve, it's y-intercept is six, so if I wanted to write price as a function of quantity, we have price is equal to 6 minus quantity."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "Our total revenue, it's easier for me to draw a curve with a dotted line. Our total revenue looks something like that. And you could even solve it algebraically to show that it is this downward-facing parabola. The formula right over here of the demand curve, it's y-intercept is six, so if I wanted to write price as a function of quantity, we have price is equal to 6 minus quantity. Or if you wanted to write it in the traditional slope-intercept form, or mx plus b form, and if that doesn't make any sense, you might want to review some of our algebra playlist, you could write it as p is equal to negative q plus 6. Obviously, these are the same exact thing. You have a y-intercept of 6, and you have a negative 1 slope."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "The formula right over here of the demand curve, it's y-intercept is six, so if I wanted to write price as a function of quantity, we have price is equal to 6 minus quantity. Or if you wanted to write it in the traditional slope-intercept form, or mx plus b form, and if that doesn't make any sense, you might want to review some of our algebra playlist, you could write it as p is equal to negative q plus 6. Obviously, these are the same exact thing. You have a y-intercept of 6, and you have a negative 1 slope. If you increase quantity by 1, you decrease price by 1. Or another way to think about it, if you decrease price by 1, you increase quantity by 1. So that's why you have a negative 1 slope."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "You have a y-intercept of 6, and you have a negative 1 slope. If you increase quantity by 1, you decrease price by 1. Or another way to think about it, if you decrease price by 1, you increase quantity by 1. So that's why you have a negative 1 slope. So this is price as a function of quantity. What is total revenue? Well, total revenue is equal to price times quantity."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "So that's why you have a negative 1 slope. So this is price as a function of quantity. What is total revenue? Well, total revenue is equal to price times quantity. But we can write price as a function of quantity. We did it just now. This is what it is."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "Well, total revenue is equal to price times quantity. But we can write price as a function of quantity. We did it just now. This is what it is. So we can rewrite it, or we could even rewrite it like this. We can rewrite the price part as, so this is going to be equal to negative q plus 6 times quantity. And this is equal to total revenue."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "This is what it is. So we can rewrite it, or we could even rewrite it like this. We can rewrite the price part as, so this is going to be equal to negative q plus 6 times quantity. And this is equal to total revenue. And then if you multiply this out, you get total revenue is equal to, q times q is negative q squared plus 6q. So you might recognize this. This is clearly a quadratic."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "And this is equal to total revenue. And then if you multiply this out, you get total revenue is equal to, q times q is negative q squared plus 6q. So you might recognize this. This is clearly a quadratic. Since you have a negative out front before the second degree term right over here, before the q squared, it is a downward opening parabola. So it makes complete sense. Now, I'm going to leave you there in this video because I'm trying to make an effort not to make my videos too long."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "This is clearly a quadratic. Since you have a negative out front before the second degree term right over here, before the q squared, it is a downward opening parabola. So it makes complete sense. Now, I'm going to leave you there in this video because I'm trying to make an effort not to make my videos too long. But in the next video, what we're going to think about is what is the marginal revenue we get for each of these quantities. And just as a review, marginal revenue is equal to change in total revenue divided by change in quantity. Or another way to think about it, the marginal revenue at any one of these quantities is the slope of the line tangent to that point."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "Now, I'm going to leave you there in this video because I'm trying to make an effort not to make my videos too long. But in the next video, what we're going to think about is what is the marginal revenue we get for each of these quantities. And just as a review, marginal revenue is equal to change in total revenue divided by change in quantity. Or another way to think about it, the marginal revenue at any one of these quantities is the slope of the line tangent to that point. And you really have to do a little bit of calculus in order to actually calculate slopes of tangent lines. But we'll approximate it with a little bit of algebra. But what we essentially want to do is figure out the slope."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "Or another way to think about it, the marginal revenue at any one of these quantities is the slope of the line tangent to that point. And you really have to do a little bit of calculus in order to actually calculate slopes of tangent lines. But we'll approximate it with a little bit of algebra. But what we essentially want to do is figure out the slope. So if we wanted to figure out the marginal revenue when we're selling 1,000 pounds. So exactly how much more total revenue do we get if we just barely increase, if we just start selling another millionth of a pounds of oranges, what's going to happen? And so what we do is we're essentially trying to figure out the slope of the tangent line at any point."}, {"video_title": "Monopolist optimizing price Total revenue. Microeconomics Khan Academy.mp3", "Sentence": "But what we essentially want to do is figure out the slope. So if we wanted to figure out the marginal revenue when we're selling 1,000 pounds. So exactly how much more total revenue do we get if we just barely increase, if we just start selling another millionth of a pounds of oranges, what's going to happen? And so what we do is we're essentially trying to figure out the slope of the tangent line at any point. And you can see that because the change in total revenue is this, change in total revenue is that, and change in quantity is that there. So we're trying to find the instantaneous slope of that point, or you could think of it as the slope of the tangent line. And we'll continue doing that in the next video."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Remember, the short run is defined as the amount of time over which at least one of your inputs is fixed. But if we talk about longer term, so let's say you're running a factory, and in the short run, the short run would be how long it takes to build another factory or how long it takes to close down or sell another factory. But in the long run, you can always add more factories or shut down factories. So in the long run, everything is variable. So what we're gonna do in this video is think about how the average total cost that we've studied in previous videos, which were actually short run average total costs, how those relate to the long run average total cost. So let's imagine that we are trying to open up a food truck business. And let's say that each food truck, so each food truck, and let's say we're going to sell tacos."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So in the long run, everything is variable. So what we're gonna do in this video is think about how the average total cost that we've studied in previous videos, which were actually short run average total costs, how those relate to the long run average total cost. So let's imagine that we are trying to open up a food truck business. And let's say that each food truck, so each food truck, and let's say we're going to sell tacos. So these are taco food trucks. And so each food truck can optimally, optimally, I'll just write it like that, serve 100 tacos per day. And we haven't started our business yet, but we have to decide how many food trucks to buy."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And let's say that each food truck, so each food truck, and let's say we're going to sell tacos. So these are taco food trucks. And so each food truck can optimally, optimally, I'll just write it like that, serve 100 tacos per day. And we haven't started our business yet, but we have to decide how many food trucks to buy. And we do some market research and we feel pretty confident that we're going to be able to sell 200 tacos per day. So we're going to target, target 200 tacos, tacos per day. Now in this world, what you would wanna do is optimize your fixed costs to minimize your average total costs for 200 tacos per day."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And we haven't started our business yet, but we have to decide how many food trucks to buy. And we do some market research and we feel pretty confident that we're going to be able to sell 200 tacos per day. So we're going to target, target 200 tacos, tacos per day. Now in this world, what you would wanna do is optimize your fixed costs to minimize your average total costs for 200 tacos per day. Remember your fixed cost is essentially going to be, let's say it's just your food truck, and then you're going to have variable costs. It might be the staff that's making the tacos. It might be the supplies for the tacos, things like that."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now in this world, what you would wanna do is optimize your fixed costs to minimize your average total costs for 200 tacos per day. Remember your fixed cost is essentially going to be, let's say it's just your food truck, and then you're going to have variable costs. It might be the staff that's making the tacos. It might be the supplies for the tacos, things like that. And so you might have an average total cost curve that looks like this. So let me make some axes here. So this is going to be quantity of tacos per day, quantity of tacos, and this is going to be per day."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "It might be the supplies for the tacos, things like that. And so you might have an average total cost curve that looks like this. So let me make some axes here. So this is going to be quantity of tacos per day, quantity of tacos, and this is going to be per day. And then in the vertical axis, this is going to be cost per taco, cost per taco. And let's say, since you're optimizing for 200 tacos today, you wanna minimize your cost per taco, 200 tacos per day. That happens with two food trucks."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this is going to be quantity of tacos per day, quantity of tacos, and this is going to be per day. And then in the vertical axis, this is going to be cost per taco, cost per taco. And let's say, since you're optimizing for 200 tacos today, you wanna minimize your cost per taco, 200 tacos per day. That happens with two food trucks. So if we're at 200 tacos per day, let me put it right over there, 200 tacos per day, we get to a cost per taco, average total cost per taco. Let's say that is 50 cents. So that is 50 cents right over there."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "That happens with two food trucks. So if we're at 200 tacos per day, let me put it right over there, 200 tacos per day, we get to a cost per taco, average total cost per taco. Let's say that is 50 cents. So that is 50 cents right over there. But the actual number of sales, the actual number of tacos that you might have to produce in a given day might vary from that. And that will actually help construct your average total cost curve. And so your average total cost curve might look something like this."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that is 50 cents right over there. But the actual number of sales, the actual number of tacos that you might have to produce in a given day might vary from that. And that will actually help construct your average total cost curve. And so your average total cost curve might look something like this. It might look, might look something like this. We've seen curves like this in the past. And we would call this our average total cost."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so your average total cost curve might look something like this. It might look, might look something like this. We've seen curves like this in the past. And we would call this our average total cost. But now, because we're differentiating between our short run and long run, let's make this very clear. This is our short run average total cost, and this is a situation where we have two of our food trucks per day, two food trucks. Now, what if instead of 200 tacos per day, it ends up that we only have to produce 100 tacos per day, because that's how many people are demanding."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And we would call this our average total cost. But now, because we're differentiating between our short run and long run, let's make this very clear. This is our short run average total cost, and this is a situation where we have two of our food trucks per day, two food trucks. Now, what if instead of 200 tacos per day, it ends up that we only have to produce 100 tacos per day, because that's how many people are demanding. So let's say this is 100 right over here. Well, if we keep the number of trucks we have constant, so we don't change our fixed cost, well then our cost per taco is going to be higher. Let's say that this right over here is, let's say this is 70 cents, 70 cents per taco."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, what if instead of 200 tacos per day, it ends up that we only have to produce 100 tacos per day, because that's how many people are demanding. So let's say this is 100 right over here. Well, if we keep the number of trucks we have constant, so we don't change our fixed cost, well then our cost per taco is going to be higher. Let's say that this right over here is, let's say this is 70 cents, 70 cents per taco. And then there's the other scenario. Let's say that our tacos sell better than expected. Let's say that we need to somehow produce 300 tacos per day."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Let's say that this right over here is, let's say this is 70 cents, 70 cents per taco. And then there's the other scenario. Let's say that our tacos sell better than expected. Let's say that we need to somehow produce 300 tacos per day. Well, if we can't change our fixed cost, which is by definition what the short run is, well then we might be at say this point. Looks like it would be about, let's just call that 80 cents, 80 cents per taco as our short run average total cost. Now, in either of these situations, let's say that we have the more pessimistic scenario actually happens, that there's only demand for 100 tacos per day."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Let's say that we need to somehow produce 300 tacos per day. Well, if we can't change our fixed cost, which is by definition what the short run is, well then we might be at say this point. Looks like it would be about, let's just call that 80 cents, 80 cents per taco as our short run average total cost. Now, in either of these situations, let's say that we have the more pessimistic scenario actually happens, that there's only demand for 100 tacos per day. Well, in that world, the rational thing would be, hey, let's sell one of those trucks. We're only at 50% utilization at 100 tacos per day. Let's sell one of those trucks to lower our average total cost."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, in either of these situations, let's say that we have the more pessimistic scenario actually happens, that there's only demand for 100 tacos per day. Well, in that world, the rational thing would be, hey, let's sell one of those trucks. We're only at 50% utilization at 100 tacos per day. Let's sell one of those trucks to lower our average total cost. And so in the long run, you can adjust your fixed cost. So with one truck, we're at a curve that looks like this. So at 100 tacos per day, our costs are 60 cents per taco."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Let's sell one of those trucks to lower our average total cost. And so in the long run, you can adjust your fixed cost. So with one truck, we're at a curve that looks like this. So at 100 tacos per day, our costs are 60 cents per taco. And the curve might look something like this. So if things were to get even worse than that, our costs would go up. And if for some reason the market were to actually go back to what we expected or even beyond, then our costs would go even higher."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So at 100 tacos per day, our costs are 60 cents per taco. And the curve might look something like this. So if things were to get even worse than that, our costs would go up. And if for some reason the market were to actually go back to what we expected or even beyond, then our costs would go even higher. So this cost curve, which is based on one truck, so let me call this our short run average total cost, and this is for one truck, this would be suboptimal if we actually do have 200 units being produced a day or 300 units produced per day, but it is optimal for 100 units per day. Now things could go the other way. You might start with those two trucks that are optimal for 200 units per day, 200 tacos per day, but you're in the world where people wanna buy 300 tacos per day, and 300 tacos with two trucks is not optimal."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And if for some reason the market were to actually go back to what we expected or even beyond, then our costs would go even higher. So this cost curve, which is based on one truck, so let me call this our short run average total cost, and this is for one truck, this would be suboptimal if we actually do have 200 units being produced a day or 300 units produced per day, but it is optimal for 100 units per day. Now things could go the other way. You might start with those two trucks that are optimal for 200 units per day, 200 tacos per day, but you're in the world where people wanna buy 300 tacos per day, and 300 tacos with two trucks is not optimal. So in the long run, you order another truck, and maybe it takes a couple of months for it to show up and be outfitted and whatever, but once you get that third truck, now you can optimally serve 300 tacos per day. And so you might be in this situation. So if you get another truck, you could have another short run average total cost curve that looks something like this right over here."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "You might start with those two trucks that are optimal for 200 units per day, 200 tacos per day, but you're in the world where people wanna buy 300 tacos per day, and 300 tacos with two trucks is not optimal. So in the long run, you order another truck, and maybe it takes a couple of months for it to show up and be outfitted and whatever, but once you get that third truck, now you can optimally serve 300 tacos per day. And so you might be in this situation. So if you get another truck, you could have another short run average total cost curve that looks something like this right over here. So this is our short run average total cost curve, and so this is when we have three trucks. And remember, the short run is when at least one of your inputs is fixed, and in this one, for the simplified model, we're assuming that input is the truck, that everything else is a variable expense. Now when you look at this, it helps us think about a long run average total cost."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So if you get another truck, you could have another short run average total cost curve that looks something like this right over here. So this is our short run average total cost curve, and so this is when we have three trucks. And remember, the short run is when at least one of your inputs is fixed, and in this one, for the simplified model, we're assuming that input is the truck, that everything else is a variable expense. Now when you look at this, it helps us think about a long run average total cost. What would that be? Well, in the long run, we can change the number of trucks we have, and if we can, in the long run, we can change the number of trucks we have, we would always be picking the optimal number of trucks for the quantity we're producing. So in the long run, we would wanna be at that point."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now when you look at this, it helps us think about a long run average total cost. What would that be? Well, in the long run, we can change the number of trucks we have, and if we can, in the long run, we can change the number of trucks we have, we would always be picking the optimal number of trucks for the quantity we're producing. So in the long run, we would wanna be at that point. So if there's only 100 that we need to produce a day, we would only use one truck. If there's 200 to produce a day, we would use two trucks and be at that point. If we need to produce 300, we would have three trucks and be on that point."}, {"video_title": "Long run average total cost curve AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So in the long run, we would wanna be at that point. So if there's only 100 that we need to produce a day, we would only use one truck. If there's 200 to produce a day, we would use two trucks and be at that point. If we need to produce 300, we would have three trucks and be on that point. And so your long run average total cost curve would be connecting these dots, and so it would look something like this. And some of you might be thinking, well, but this situation right over here is where you have 1 1\u20442 trucks. What's the deal with that?"}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "You will hear the term production function thrown around in economics circles, and it might seem a little intimidating and a little mathy at first, but as you're about to see, it's a fairly basic idea. It's this idea that you could have these various inputs, let's call this input number one, and then you have input number two, and you can keep going, and then you put them in, their inputs into some type of process, and then that function, let's just call that f, that's going to describe how much output you can get given that input. We can also describe it a little bit more mathematically. Those of you who remember your algebra two might recognize this, where we could say the output, it's often used the letter Q in economic circle, it's going to be a function, it's going to be a function of the various inputs. So I'll put input number one, input number two, and you could go, you could have as many inputs as is necessary to produce that good. And these inputs, if you wanted to categorize them, these are the classic factors of production that we would have talked about before. These would be, these would be your land, labor, capital, and entrepreneurship."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Those of you who remember your algebra two might recognize this, where we could say the output, it's often used the letter Q in economic circle, it's going to be a function, it's going to be a function of the various inputs. So I'll put input number one, input number two, and you could go, you could have as many inputs as is necessary to produce that good. And these inputs, if you wanted to categorize them, these are the classic factors of production that we would have talked about before. These would be, these would be your land, labor, capital, and entrepreneurship. And it doesn't have to be all of them, but each of these inputs would likely be factored as one of these. Now this might still seem very abstract and very mathy. So to make things very tangible, let's give a, well, let's give a tangible example."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "These would be, these would be your land, labor, capital, and entrepreneurship. And it doesn't have to be all of them, but each of these inputs would likely be factored as one of these. Now this might still seem very abstract and very mathy. So to make things very tangible, let's give a, well, let's give a tangible example. Let's say that we're trying to make a bread toasting operation. So what we need to do is we take bread, we stick it in a toaster, and then once it's toast, we're done. And so what are our inputs there?"}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So to make things very tangible, let's give a, well, let's give a tangible example. Let's say that we're trying to make a bread toasting operation. So what we need to do is we take bread, we stick it in a toaster, and then once it's toast, we're done. And so what are our inputs there? Well, you're definitely going to need some bread. So let me draw some bread right over here, my best attempt at drawing bread. So that right over there, that is bread."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so what are our inputs there? Well, you're definitely going to need some bread. So let me draw some bread right over here, my best attempt at drawing bread. So that right over there, that is bread. You could call that input number one. Now you're also going to need a toaster, at least one toaster, or toasters, I should say. And let's say the toasters that we use for this operation, they can toast four pieces of bread at a time, and it takes 10 minutes to do that."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that right over there, that is bread. You could call that input number one. Now you're also going to need a toaster, at least one toaster, or toasters, I should say. And let's say the toasters that we use for this operation, they can toast four pieces of bread at a time, and it takes 10 minutes to do that. Four slices in 10 minutes. Now you might say, well, aren't those going to be all of our inputs? But then the obvious question is that bread isn't just going to jump into the toaster on its own and then jump back out."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And let's say the toasters that we use for this operation, they can toast four pieces of bread at a time, and it takes 10 minutes to do that. Four slices in 10 minutes. Now you might say, well, aren't those going to be all of our inputs? But then the obvious question is that bread isn't just going to jump into the toaster on its own and then jump back out. Someone, there's going to be, needs to be some labor to operate this operation. So we're going to need some toaster operators. And let's say that they can process, they can process one slice per minute."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But then the obvious question is that bread isn't just going to jump into the toaster on its own and then jump back out. Someone, there's going to be, needs to be some labor to operate this operation. So we're going to need some toaster operators. And let's say that they can process, they can process one slice per minute. One slice per minute. I know many of y'all are thinking that you could do better than that, but try to do it all day. One slice per minute."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And let's say that they can process, they can process one slice per minute. One slice per minute. I know many of y'all are thinking that you could do better than that, but try to do it all day. One slice per minute. Now based on this, if these are really all of the three inputs into producing the output, toasted piece of bread, we could try to construct a production function here. So let's do that. So let's say the output is going to be the number of slices, slices of toasted, toasted bread, and it's going to be equal to, and I'm gonna write this as, I'm gonna make our production function as being the minimum of several values."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "One slice per minute. Now based on this, if these are really all of the three inputs into producing the output, toasted piece of bread, we could try to construct a production function here. So let's do that. So let's say the output is going to be the number of slices, slices of toasted, toasted bread, and it's going to be equal to, and I'm gonna write this as, I'm gonna make our production function as being the minimum of several values. And what you're gonna see is it's going to be based on what's going to be our rate limiting factor. And I don't wanna get too much in the weeds with you on this, but just to help us understand. So it's going to be the minimum of, well, the amount of bread you have."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So let's say the output is going to be the number of slices, slices of toasted, toasted bread, and it's going to be equal to, and I'm gonna write this as, I'm gonna make our production function as being the minimum of several values. And what you're gonna see is it's going to be based on what's going to be our rate limiting factor. And I don't wanna get too much in the weeds with you on this, but just to help us understand. So it's going to be the minimum of, well, the amount of bread you have. So slices of bread, slices of bread. And why does that make sense? Well, the amount of toasted bread you can produce is always going to be limited by the amount of untoasted bread that you put into your process."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So it's going to be the minimum of, well, the amount of bread you have. So slices of bread, slices of bread. And why does that make sense? Well, the amount of toasted bread you can produce is always going to be limited by the amount of untoasted bread that you put into your process. If you only have 60 that's going in per hour here, well, then you can only produce a maximum of 60 right over here. And this is going to be per hour, per hour. So this is gonna be the slices of bread per hour."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, the amount of toasted bread you can produce is always going to be limited by the amount of untoasted bread that you put into your process. If you only have 60 that's going in per hour here, well, then you can only produce a maximum of 60 right over here. And this is going to be per hour, per hour. So this is gonna be the slices of bread per hour. Now our other input, how much toast can one toaster toast in one hour? Well, if they do four slices in 10 minutes, we'll multiply that times six to get to an hour. That's gonna be 24 slices per hour."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this is gonna be the slices of bread per hour. Now our other input, how much toast can one toaster toast in one hour? Well, if they do four slices in 10 minutes, we'll multiply that times six to get to an hour. That's gonna be 24 slices per hour. So we could do 24 times the number of toasters, times the toasters. And then last but not least, how much bread or how many slices can one person process per hour? Well, it's gonna be 60 slices per hour."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "That's gonna be 24 slices per hour. So we could do 24 times the number of toasters, times the toasters. And then last but not least, how much bread or how many slices can one person process per hour? Well, it's gonna be 60 slices per hour. So we'll do 60 times, times, let's call them workers. I was gonna call them toasters, but we're already using that for the equipment, times the number of workers. And so it's worth, at this point, just pause this video and really process what's going on."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, it's gonna be 60 slices per hour. So we'll do 60 times, times, let's call them workers. I was gonna call them toasters, but we're already using that for the equipment, times the number of workers. And so it's worth, at this point, just pause this video and really process what's going on. What are the inputs here and what are the outputs? Well, the inputs are right over here. The number of slices of bread per hour, the number of toasters we have at our disposal, the number of workers."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so it's worth, at this point, just pause this video and really process what's going on. What are the inputs here and what are the outputs? Well, the inputs are right over here. The number of slices of bread per hour, the number of toasters we have at our disposal, the number of workers. Toasters you could view as capital, workers you could view as labor. And now another interesting thing to think about, and we will talk a lot about this in economics, is what's going on in the long run and the short run? And production functions are useful for thinking about the long run and the short run because the short run is defined, the short run is defined as the situation in which at least one of your inputs is fixed."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "The number of slices of bread per hour, the number of toasters we have at our disposal, the number of workers. Toasters you could view as capital, workers you could view as labor. And now another interesting thing to think about, and we will talk a lot about this in economics, is what's going on in the long run and the short run? And production functions are useful for thinking about the long run and the short run because the short run is defined, the short run is defined as the situation in which at least one of your inputs is fixed. Let me write this down. At least, at least one input is fixed. Now what does that mean in our bread toasting example right over here?"}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And production functions are useful for thinking about the long run and the short run because the short run is defined, the short run is defined as the situation in which at least one of your inputs is fixed. Let me write this down. At least, at least one input is fixed. Now what does that mean in our bread toasting example right over here? Well, let's just say that we can, it's very easy to get slices of bread. If we have the capacity and we wanna produce more bread, the slices of bread are, let's say it's just never our rate limiting factor. So that part isn't fixed."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now what does that mean in our bread toasting example right over here? Well, let's just say that we can, it's very easy to get slices of bread. If we have the capacity and we wanna produce more bread, the slices of bread are, let's say it's just never our rate limiting factor. So that part isn't fixed. But to get a new toaster, let's say these are special toasters, and you gotta order them and it takes a month. So let's say that there's a one month lead time on this input. One month lead time."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that part isn't fixed. But to get a new toaster, let's say these are special toasters, and you gotta order them and it takes a month. So let's say that there's a one month lead time on this input. One month lead time. And let's say for workers, there's just not a line of people ready to toast toast. You have to put a job posting out there and you're going to have to interview people. And so let's say that it takes two weeks to hire someone."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "One month lead time. And let's say for workers, there's just not a line of people ready to toast toast. You have to put a job posting out there and you're going to have to interview people. And so let's say that it takes two weeks to hire someone. So two weeks to hire. Or I guess you could also say two weeks to hire or to fire someone if you wanna reduce capacity. And let's say it takes one month to either get a toaster or to remove a toaster."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so let's say that it takes two weeks to hire someone. So two weeks to hire. Or I guess you could also say two weeks to hire or to fire someone if you wanna reduce capacity. And let's say it takes one month to either get a toaster or to remove a toaster. Well, in that case, the short run in this situation is a time period where at least one of the inputs is fixed. So pause this video and think about what would be the short run in our situation? Well, the short run in our situation, the number of toasters we're going to have is going to be fixed for at least a month."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And let's say it takes one month to either get a toaster or to remove a toaster. Well, in that case, the short run in this situation is a time period where at least one of the inputs is fixed. So pause this video and think about what would be the short run in our situation? Well, the short run in our situation, the number of toasters we're going to have is going to be fixed for at least a month. So our short run in this situation is up to a month. So up to a month. And then the other side of it, what would the long run be?"}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, the short run in our situation, the number of toasters we're going to have is going to be fixed for at least a month. So our short run in this situation is up to a month. So up to a month. And then the other side of it, what would the long run be? Well, in the long run, by definition, none of your inputs are fixed. You can change the number you have of any of these things. So our long run is going to be greater than one month in this example."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then the other side of it, what would the long run be? Well, in the long run, by definition, none of your inputs are fixed. You can change the number you have of any of these things. So our long run is going to be greater than one month in this example. Now, it's really worth noting, that was just for this example. If we were talking about some type of automobile factory and the output is the number of automobiles produced per day or per month, and then you have all these inputs, you would have your metal, you would have your labor, and then you would have the equipment for the factory itself. Well, there, the long run, it might take another year or even two years or five years to build a factory."}, {"video_title": "Introduction to production functions AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So our long run is going to be greater than one month in this example. Now, it's really worth noting, that was just for this example. If we were talking about some type of automobile factory and the output is the number of automobiles produced per day or per month, and then you have all these inputs, you would have your metal, you would have your labor, and then you would have the equipment for the factory itself. Well, there, the long run, it might take another year or even two years or five years to build a factory. In that case, the long run would be the time period greater than the amount it takes to build another factory. Usually capital is the thing that is most fixed for the longest period of time, and that's why I made it hard for us to get our toasters. So I will leave you there."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "In the last video, we saw how there could be an industry that has two firms, a duopoly. And if those two firms coordinate, they could behave as a monopolist, and they could optimize their collective economic profit. And in the last video, we saw that would happen when they produced 50 units per period. And they could split it, assuming these were two identical firms, by each producing half of it. In the case of the last video, it was 250 units per firm. But then we saw that there was an incentive to cheat, that by producing extra units, from a market's point of view, the marginal economic or the economic profit on those incremental units would be negative. So the whole economic profit would shrink a little bit as you produce units beyond that."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And they could split it, assuming these were two identical firms, by each producing half of it. In the case of the last video, it was 250 units per firm. But then we saw that there was an incentive to cheat, that by producing extra units, from a market's point of view, the marginal economic or the economic profit on those incremental units would be negative. So the whole economic profit would shrink a little bit as you produce units beyond that. But the cheater would get a bigger chunk of those units, or the bigger chunk of that economic profit. And so the cheater could actually gain, go from $250 per time period to $280. And it would be all at the expense of the non-cheater, who would lose even more than what the cheater gained."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So the whole economic profit would shrink a little bit as you produce units beyond that. But the cheater would get a bigger chunk of those units, or the bigger chunk of that economic profit. And so the cheater could actually gain, go from $250 per time period to $280. And it would be all at the expense of the non-cheater, who would lose even more than what the cheater gained. And obviously, who was initially the non-cheater has an incentive now to cheat. And they'll both keep increasing production, so that if they wanted to keep doing this one-upsmanship. And so they both have the incentive to keep going, assuming that they don't hold to their cartel agreement, until you get to a quantity where there is no economic profit left."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And it would be all at the expense of the non-cheater, who would lose even more than what the cheater gained. And obviously, who was initially the non-cheater has an incentive now to cheat. And they'll both keep increasing production, so that if they wanted to keep doing this one-upsmanship. And so they both have the incentive to keep going, assuming that they don't hold to their cartel agreement, until you get to a quantity where there is no economic profit left. So right over here, the way I've drawn it, the demand curve intersects the average total cost curve right over here. And there's no economic profit left. We're producing a good quantity."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so they both have the incentive to keep going, assuming that they don't hold to their cartel agreement, until you get to a quantity where there is no economic profit left. So right over here, the way I've drawn it, the demand curve intersects the average total cost curve right over here. And there's no economic profit left. We're producing a good quantity. It looks like it's about 75 units combined, 75 units for the whole market. But at this point, the market price is equal to the average total cost. And so there's no economic profit per unit on average."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "We're producing a good quantity. It looks like it's about 75 units combined, 75 units for the whole market. But at this point, the market price is equal to the average total cost. And so there's no economic profit per unit on average. Now, what I want to do is think about this in kind of a game theoretic way. So let's look at a bunch of states. And so this is the optimal state that we are starting off in."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so there's no economic profit per unit on average. Now, what I want to do is think about this in kind of a game theoretic way. So let's look at a bunch of states. And so this is the optimal state that we are starting off in. And you can actually call it the Pareto optimal state, named after Vilfredo Pareto. And all it means is that's the state where there's no other state where you can make someone better off without making the other person worse off. So any of the states here, there are states, for example, where blue is better off."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so this is the optimal state that we are starting off in. And you can actually call it the Pareto optimal state, named after Vilfredo Pareto. And all it means is that's the state where there's no other state where you can make someone better off without making the other person worse off. So any of the states here, there are states, for example, where blue is better off. So for example, in this state right over here, blue is better off, but green is worse off. So that's why it's called Pareto optimality. Now, what I want to think about is how these characters will change their state due to their incentives."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So any of the states here, there are states, for example, where blue is better off. So for example, in this state right over here, blue is better off, but green is worse off. So that's why it's called Pareto optimality. Now, what I want to think about is how these characters will change their state due to their incentives. And then we'll talk a little bit about Nash equilibrium as well. So on this axis, on the up here, let's say that this is one of the competitors. This is where they produce 25."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now, what I want to think about is how these characters will change their state due to their incentives. And then we'll talk a little bit about Nash equilibrium as well. So on this axis, on the up here, let's say that this is one of the competitors. This is where they produce 25. And let's say on the ultimate cheating quantity of 75, and this is somewhat close to the market, or that is the equilibrium quantity, if this was a completely perfect competition, they produce half of that. So this is them producing 37 and 1 1\u20442 units. And as we go from 25 to 37 and 1 1\u20442 units, they are cheating more."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "This is where they produce 25. And let's say on the ultimate cheating quantity of 75, and this is somewhat close to the market, or that is the equilibrium quantity, if this was a completely perfect competition, they produce half of that. So this is them producing 37 and 1 1\u20442 units. And as we go from 25 to 37 and 1 1\u20442 units, they are cheating more. So this is more cheating. And over here, this was no cheating. And we can do the same thing for the blue player."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And as we go from 25 to 37 and 1 1\u20442 units, they are cheating more. So this is more cheating. And over here, this was no cheating. And we can do the same thing for the blue player. And I'll write them as B. This is them producing 25. This is them producing 37 and 1 1\u20442."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And we can do the same thing for the blue player. And I'll write them as B. This is them producing 25. This is them producing 37 and 1 1\u20442. And as we go up and up and up, they are cheating more. So this is a lot of cheating, or more cheating. So to think of it in a game theoretical way, this is the Pareto optimal state right over here."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "This is them producing 37 and 1 1\u20442. And as we go up and up and up, they are cheating more. So this is a lot of cheating, or more cheating. So to think of it in a game theoretical way, this is the Pareto optimal state right over here. And it's optimal in many ways. This is they've maximized the total economic profit here. There's no other state that one person would benefit without making the other worse."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So to think of it in a game theoretical way, this is the Pareto optimal state right over here. And it's optimal in many ways. This is they've maximized the total economic profit here. There's no other state that one person would benefit without making the other worse. Now, let's think about whether this is a Nash equilibrium. So let's remind ourselves what Nash equilibrium was. This was a state where holding all the other players constant, so in this case, there's only one other player, holding others constant, a player can't gain by changing strategy."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "There's no other state that one person would benefit without making the other worse. Now, let's think about whether this is a Nash equilibrium. So let's remind ourselves what Nash equilibrium was. This was a state where holding all the other players constant, so in this case, there's only one other player, holding others constant, a player can't gain by changing strategy. In this case, changing strategy is changing your output. By changing strategy. So let's see if that is true of this state right over here."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "This was a state where holding all the other players constant, so in this case, there's only one other player, holding others constant, a player can't gain by changing strategy. In this case, changing strategy is changing your output. By changing strategy. So let's see if that is true of this state right over here. Well, let's hold A constant. If A is constant, we're in this column right over here. Is there something B can do?"}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So let's see if that is true of this state right over here. Well, let's hold A constant. If A is constant, we're in this column right over here. Is there something B can do? Is there a change of strategy B can do that would allow B to gain? Well, sure. B can increase production."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Is there something B can do? Is there a change of strategy B can do that would allow B to gain? Well, sure. B can increase production. That's what we saw in the last video. So we would go from this bottom right state to one right above it. Now, B's economic profit is 280."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "B can increase production. That's what we saw in the last video. So we would go from this bottom right state to one right above it. Now, B's economic profit is 280. A's is 200. The pie has shrunk, but B has got a larger chunk of it. So that was not a Nash equilibrium."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now, B's economic profit is 280. A's is 200. The pie has shrunk, but B has got a larger chunk of it. So that was not a Nash equilibrium. There is a player that can gain by changing their strategy. And this is by holding the Nash equilibrium definition just to make sure. They say it's a state where holding others constant, no player can gain by changing strategy."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So that was not a Nash equilibrium. There is a player that can gain by changing their strategy. And this is by holding the Nash equilibrium definition just to make sure. They say it's a state where holding others constant, no player can gain by changing strategy. We just showed that at least one player can gain by changing strategy, holding others constant. And the same would be true if we went the other way around. If we held B constant at 25, A could gain by changing his strategy."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "They say it's a state where holding others constant, no player can gain by changing strategy. We just showed that at least one player can gain by changing strategy, holding others constant. And the same would be true if we went the other way around. If we held B constant at 25, A could gain by changing his strategy. Could go right over there. So this is not a Nash equilibrium. And then regardless of what state we go to, if we go to this state, it's still not a Nash equilibrium."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If we held B constant at 25, A could gain by changing his strategy. Could go right over there. So this is not a Nash equilibrium. And then regardless of what state we go to, if we go to this state, it's still not a Nash equilibrium. If we hold A constant, B can improve by increasing his production. Or if we hold B constant, then A can still improve by cheating even more. So none of these are Nash equilibriums."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And then regardless of what state we go to, if we go to this state, it's still not a Nash equilibrium. If we hold A constant, B can improve by increasing his production. Or if we hold B constant, then A can still improve by cheating even more. So none of these are Nash equilibriums. From any one of these states, if you hold A constant, B could produce more. Or if you hold B constant, A could produce more and get some gain. Over here, A is going from 130 to 160 and getting some gain."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So none of these are Nash equilibriums. From any one of these states, if you hold A constant, B could produce more. Or if you hold B constant, A could produce more and get some gain. Over here, A is going from 130 to 160 and getting some gain. And you can imagine, this keeps happening incrementally. They keep producing more and more and more. We kind of go there."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Over here, A is going from 130 to 160 and getting some gain. And you can imagine, this keeps happening incrementally. They keep producing more and more and more. We kind of go there. Then we go there. Then maybe we go there. Then we go there."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "We kind of go there. Then we go there. Then maybe we go there. Then we go there. Then maybe A cheats some more. Then B cheats some more. Then A cheats a little bit more."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Then we go there. Then maybe A cheats some more. Then B cheats some more. Then A cheats a little bit more. B cheats a little bit more. Maybe a little bit more past that. Then A cheats a little bit more."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Then A cheats a little bit more. B cheats a little bit more. Maybe a little bit more past that. Then A cheats a little bit more. The whole time, the whole economic profit pi, which is the sum of A and B, gets getting smaller and smaller until finally A finally cheats. And they are at zero economic profit. Now let's think about whether this is a Nash equilibrium."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Then A cheats a little bit more. The whole time, the whole economic profit pi, which is the sum of A and B, gets getting smaller and smaller until finally A finally cheats. And they are at zero economic profit. Now let's think about whether this is a Nash equilibrium. Clearly, they won't want to move backwards. If you hold A constant, B would not want to move down. Then he would lose economic profit."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now let's think about whether this is a Nash equilibrium. Clearly, they won't want to move backwards. If you hold A constant, B would not want to move down. Then he would lose economic profit. So that doesn't work. He doesn't gain by doing that. And if you hold B constant, A wouldn't want to move to the right."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Then he would lose economic profit. So that doesn't work. He doesn't gain by doing that. And if you hold B constant, A wouldn't want to move to the right. A would also lose economic profit. Now you might say, well, what if they produced beyond 37.5? Why can't they keep producing and go beyond there?"}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And if you hold B constant, A wouldn't want to move to the right. A would also lose economic profit. Now you might say, well, what if they produced beyond 37.5? Why can't they keep producing and go beyond there? Well, if B were to produce more than 37.5 from this state right over here, then the total pi will get negative. And it doesn't matter if B's getting a larger or smaller chunk of that pi. B's chunk is going to be negative."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Why can't they keep producing and go beyond there? Well, if B were to produce more than 37.5 from this state right over here, then the total pi will get negative. And it doesn't matter if B's getting a larger or smaller chunk of that pi. B's chunk is going to be negative. He's going to drive down the price even more. And you can see it over here. If they increase quantity beyond this market quantity of 75, 37.5 each, if we go beyond that, the price that they would be selling at, at that quantity over there, is lower than the average total cost."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "B's chunk is going to be negative. He's going to drive down the price even more. And you can see it over here. If they increase quantity beyond this market quantity of 75, 37.5 each, if we go beyond that, the price that they would be selling at, at that quantity over there, is lower than the average total cost. And so the average economic profit per unit is going to be negative. There will be a total of negative economic profit. So neither of them will want to produce more from this state either."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If they increase quantity beyond this market quantity of 75, 37.5 each, if we go beyond that, the price that they would be selling at, at that quantity over there, is lower than the average total cost. And so the average economic profit per unit is going to be negative. There will be a total of negative economic profit. So neither of them will want to produce more from this state either. So all of a sudden, in this top-left state, holding others constant, if you hold A constant, B can't gain by changing his strategy. And if you hold B constant, A can't gain by changing his strategy. And so we are up here in a Nash equilibrium."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So neither of them will want to produce more from this state either. So all of a sudden, in this top-left state, holding others constant, if you hold A constant, B can't gain by changing his strategy. And if you hold B constant, A can't gain by changing his strategy. And so we are up here in a Nash equilibrium. This is a Nash equilibrium. And like the prisoner's dilemma equilibrium, it was not the optimal state. The optimal state was here, but because they both wanted to cheat, they both wanted to do this one-upsmanship, they both broke their contracts, they could end up in this state over here."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so we are up here in a Nash equilibrium. This is a Nash equilibrium. And like the prisoner's dilemma equilibrium, it was not the optimal state. The optimal state was here, but because they both wanted to cheat, they both wanted to do this one-upsmanship, they both broke their contracts, they could end up in this state over here. But this state is stable. There's nothing holding the other party equal. There's nothing that they could do to change, to optimize."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "The optimal state was here, but because they both wanted to cheat, they both wanted to do this one-upsmanship, they both broke their contracts, they could end up in this state over here. But this state is stable. There's nothing holding the other party equal. There's nothing that they could do to change, to optimize. Now what they could do, and this is not what Nash applies to, they could say, OK, we've been really ruining each other's business. Let's go coordinate again. And I'm going to decrease production if you decrease production."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "There's nothing that they could do to change, to optimize. Now what they could do, and this is not what Nash applies to, they could say, OK, we've been really ruining each other's business. Let's go coordinate again. And I'm going to decrease production if you decrease production. Now that is not, and they could maybe try to go back to this state. And that does not mean that this is not a Nash equilibrium. Because by coordinating again, we're not holding the others constant."}, {"video_title": "Game theory of cheating firms Game theory and Nash equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And I'm going to decrease production if you decrease production. Now that is not, and they could maybe try to go back to this state. And that does not mean that this is not a Nash equilibrium. Because by coordinating again, we're not holding the others constant. We're saying, I'm changing my strategy while you're changing your strategy. And so maybe only through another agreement they could go over here. But that still doesn't mean that this is not a Nash equilibrium."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "What we're going to do in this video is discuss the difference between normative statements and positive statements. And you'll see these words used usually in an economic context, sometimes a philosophical one. A normative statement is one that really is a matter of opinion, maybe a matter of ethics, something that someone thinks is how the world should be. While a positive statement is something that it doesn't necessarily have to be true, but it's something that can be tested. So what we're going to do in this video is look at a bunch of statements around economics and think about whether they would be classified as normative statements, things that are opinions, that are a matter of ethics or morals, or whether they are positive statements, things that can be tested. So let's look at our first statement. This says, paying people who aren't working, even though they could work, is wrong and unfair."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "While a positive statement is something that it doesn't necessarily have to be true, but it's something that can be tested. So what we're going to do in this video is look at a bunch of statements around economics and think about whether they would be classified as normative statements, things that are opinions, that are a matter of ethics or morals, or whether they are positive statements, things that can be tested. So let's look at our first statement. This says, paying people who aren't working, even though they could work, is wrong and unfair. So regardless of whether or not you agree with this statement, is it a normative statement or a positive statement? Well, the fact that someone's saying it's wrong and it's unfair, this is pretty clearly a matter of opinion. So this would be a normative statement."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "This says, paying people who aren't working, even though they could work, is wrong and unfair. So regardless of whether or not you agree with this statement, is it a normative statement or a positive statement? Well, the fact that someone's saying it's wrong and it's unfair, this is pretty clearly a matter of opinion. So this would be a normative statement. You can't test whether this is wrong or unfair. You would just have to believe that it is wrong and unfair. Now let's look at another statement."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "So this would be a normative statement. You can't test whether this is wrong or unfair. You would just have to believe that it is wrong and unfair. Now let's look at another statement. Programs like welfare reduce the incentive for people to work. Is this a normative statement or a positive statement? Well, it might feel a little normative, it might feel like this is an opinion, but it actually can be tested."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Now let's look at another statement. Programs like welfare reduce the incentive for people to work. Is this a normative statement or a positive statement? Well, it might feel a little normative, it might feel like this is an opinion, but it actually can be tested. You could institute some welfare program on some small scale and compare it to a comparable place where there isn't a welfare program and see what it does for incentives to work. You survey people, you see how many people work in one situation or another. It might be a false statement, it might be a true statement, but either way, it actually can be tested."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Well, it might feel a little normative, it might feel like this is an opinion, but it actually can be tested. You could institute some welfare program on some small scale and compare it to a comparable place where there isn't a welfare program and see what it does for incentives to work. You survey people, you see how many people work in one situation or another. It might be a false statement, it might be a true statement, but either way, it actually can be tested. So this would be a positive statement. So I'll put it in this category right over here. This is a positive, positive statement."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "It might be a false statement, it might be a true statement, but either way, it actually can be tested. So this would be a positive statement. So I'll put it in this category right over here. This is a positive, positive statement. All right, let's look at another one. This says, raising taxes on the wealthy to pay for government programs grows the economy. Is that a normative statement or a positive statement?"}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "This is a positive, positive statement. All right, let's look at another one. This says, raising taxes on the wealthy to pay for government programs grows the economy. Is that a normative statement or a positive statement? Well, once again, this can be tested. It might be true, it might be false. Maybe your test is even inconclusive, but it can be tested."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Is that a normative statement or a positive statement? Well, once again, this can be tested. It might be true, it might be false. Maybe your test is even inconclusive, but it can be tested. You could try to run a simulation. You could look at case studies of countries that did do this and see what happens to their economy versus ones that didn't do it. And so this is, even though it looks like something that someone who favors raising taxes on the wealthy, maybe out of fairness arguments, something that they would say, this statement itself is not normative."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Maybe your test is even inconclusive, but it can be tested. You could try to run a simulation. You could look at case studies of countries that did do this and see what happens to their economy versus ones that didn't do it. And so this is, even though it looks like something that someone who favors raising taxes on the wealthy, maybe out of fairness arguments, something that they would say, this statement itself is not normative. The statement can be tested. So this is a positive statement. A good giveaway for normative statement, if it said something like, it is fair to raise taxes on the wealthy to pay for government programs, that would have been a normative statement, or we should do this."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "And so this is, even though it looks like something that someone who favors raising taxes on the wealthy, maybe out of fairness arguments, something that they would say, this statement itself is not normative. The statement can be tested. So this is a positive statement. A good giveaway for normative statement, if it said something like, it is fair to raise taxes on the wealthy to pay for government programs, that would have been a normative statement, or we should do this. That would have been a normative statement. But here, this is something that's testable. Now, the next statement, raising taxes on the wealthy slows economic growth."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "A good giveaway for normative statement, if it said something like, it is fair to raise taxes on the wealthy to pay for government programs, that would have been a normative statement, or we should do this. That would have been a normative statement. But here, this is something that's testable. Now, the next statement, raising taxes on the wealthy slows economic growth. Is that normative statement or a positive statement? Well, once again, this might feel like someone who is against raising taxes, who think it's unfair to raise taxes on the wealthy, something that they would say. But the statement itself can actually be tested."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Now, the next statement, raising taxes on the wealthy slows economic growth. Is that normative statement or a positive statement? Well, once again, this might feel like someone who is against raising taxes, who think it's unfair to raise taxes on the wealthy, something that they would say. But the statement itself can actually be tested. So this is also a positive statement, even though in some ways it's the opposite statement as the one that we just did. Because, once again, we could look at countries that did this and countries that didn't do this. We could run a computer simulation to try to understand whether this statement is true."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "But the statement itself can actually be tested. So this is also a positive statement, even though in some ways it's the opposite statement as the one that we just did. Because, once again, we could look at countries that did this and countries that didn't do this. We could run a computer simulation to try to understand whether this statement is true. Now, let's do one last statement. This says, the government should raise taxes on the wealthy to pay for helping the poor. Is this normative or positive?"}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "We could run a computer simulation to try to understand whether this statement is true. Now, let's do one last statement. This says, the government should raise taxes on the wealthy to pay for helping the poor. Is this normative or positive? Well, in this situation, the word should is a pretty big giveaway. Should, or it's fair, unfair. This is someone's opinion."}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "Is this normative or positive? Well, in this situation, the word should is a pretty big giveaway. Should, or it's fair, unfair. This is someone's opinion. It's not something that's testable. You can't test whether the statement is right or wrong. It's based on, do you believe ethically, morally, that this is true?"}, {"video_title": "Normative and positive statements Basic economics concepts AP Macroeconomics Khan Academy.mp3", "Sentence": "This is someone's opinion. It's not something that's testable. You can't test whether the statement is right or wrong. It's based on, do you believe ethically, morally, that this is true? And so this is a normative statement. So I'll put it in the normative column. So, big picture, these words normative and positive, these are fancy words, but all they mean is, normative is a matter of morals or opinion and can't really be tested, while a positive statement, whether they're right or wrong or whether you agree or disagree with them, these are things that, in theory, could be tested."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And it's just the idea that everyone agrees on who owns what and what can they do with that property. And for many of us who live in a part of the world with strong property rights, we take all of that for granted. We know who owns that house and what they have the right to do with that house. And if they were to sell that house, how that would occur. But in some parts of the world or in some parts of history, that wasn't so clear. Someone might say they own the house, but then another person might live in that house and they say, well, I've been living here for 10 years. It's my house now, deal with it."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And if they were to sell that house, how that would occur. But in some parts of the world or in some parts of history, that wasn't so clear. Someone might say they own the house, but then another person might live in that house and they say, well, I've been living here for 10 years. It's my house now, deal with it. Or they might go hire some thugs to say, hey, owner, sell me the house for less than you, than the market value, otherwise we're going to hurt you in some way. And so in some ways they're infringing on those property rights. Or the government might just come in and say, we're gonna take that property from you because we want it."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "It's my house now, deal with it. Or they might go hire some thugs to say, hey, owner, sell me the house for less than you, than the market value, otherwise we're going to hurt you in some way. And so in some ways they're infringing on those property rights. Or the government might just come in and say, we're gonna take that property from you because we want it. And in those situations, property rights would be weakened. And what we're going to do is a little bit of a thought experiment to see why it's so crucial for the proper functioning of a market economy. So let's stick with the house analogy."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "Or the government might just come in and say, we're gonna take that property from you because we want it. And in those situations, property rights would be weakened. And what we're going to do is a little bit of a thought experiment to see why it's so crucial for the proper functioning of a market economy. So let's stick with the house analogy. So let's say that we have some blue houses in our economy that look like that. Let's say it's owned by this person right over here. Let's say we have some pink houses that look like that."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "So let's stick with the house analogy. So let's say that we have some blue houses in our economy that look like that. Let's say it's owned by this person right over here. Let's say we have some pink houses that look like that. Let's say it's owned by that person right over there. And let's say that we have some orange houses that look something like that. They have some kind of arch at the top."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "Let's say we have some pink houses that look like that. Let's say it's owned by that person right over there. And let's say that we have some orange houses that look something like that. They have some kind of arch at the top. And let's say it's owned by something like this. And let's say these people are all interested in selling their house. Maybe they're downsizing or they're retiring or they're moving someplace else."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "They have some kind of arch at the top. And let's say it's owned by something like this. And let's say these people are all interested in selling their house. Maybe they're downsizing or they're retiring or they're moving someplace else. And so there's a market of potential buyers. So let me draw the buyers right over here. And so there might be some people, and if we have properly functioning property rights, there might be some people who are really interested in the blue house."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "Maybe they're downsizing or they're retiring or they're moving someplace else. And so there's a market of potential buyers. So let me draw the buyers right over here. And so there might be some people, and if we have properly functioning property rights, there might be some people who are really interested in the blue house. And so whoever is willing to pay the most for that blue house will get it. And so let's say that this person is willing to pay, I'll just say $1 sign for the house. And so the ownership of the house will go to that person."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And so there might be some people, and if we have properly functioning property rights, there might be some people who are really interested in the blue house. And so whoever is willing to pay the most for that blue house will get it. And so let's say that this person is willing to pay, I'll just say $1 sign for the house. And so the ownership of the house will go to that person. Same thing for the pink houses. Maybe this person right over here is the person who really likes the pink houses. They pay a different price, maybe a little bit more."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And so the ownership of the house will go to that person. Same thing for the pink houses. Maybe this person right over here is the person who really likes the pink houses. They pay a different price, maybe a little bit more. I'll do $2 signs to represent that. And then they will get title to the house. And maybe a ton of people are really interested in these arched houses and maybe they bid for it and the bidding keeps going higher and higher and higher."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "They pay a different price, maybe a little bit more. I'll do $2 signs to represent that. And then they will get title to the house. And maybe a ton of people are really interested in these arched houses and maybe they bid for it and the bidding keeps going higher and higher and higher. This person wins at the end and they have to pay up a lot for that orange house and then they get title for it. And let's just assume that for whatever reason that they're all about the same cost to build. Well, what would happen in this market then?"}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And maybe a ton of people are really interested in these arched houses and maybe they bid for it and the bidding keeps going higher and higher and higher. This person wins at the end and they have to pay up a lot for that orange house and then they get title for it. And let's just assume that for whatever reason that they're all about the same cost to build. Well, what would happen in this market then? Well, home builders or even people who own other types of houses will say, wow, I can get a lot more for the orange house. The market is giving us a price signal. So this right over here, this is a price signal."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "Well, what would happen in this market then? Well, home builders or even people who own other types of houses will say, wow, I can get a lot more for the orange house. The market is giving us a price signal. So this right over here, this is a price signal. In fact, they're all price signals. That, and when you take them together, you're saying, hey, I get more for an orange house than a blue house. And so maybe if they all cost the same to build, we'll start producing more of these orange houses."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "So this right over here, this is a price signal. In fact, they're all price signals. That, and when you take them together, you're saying, hey, I get more for an orange house than a blue house. And so maybe if they all cost the same to build, we'll start producing more of these orange houses. So the builders will produce more of these orange houses and maybe some people might remodel their blue houses to have these orange arches on them. And so you could imagine that might happen from that price signal because it's clear that that's where users' preferences are. That's where the demand is."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And so maybe if they all cost the same to build, we'll start producing more of these orange houses. So the builders will produce more of these orange houses and maybe some people might remodel their blue houses to have these orange arches on them. And so you could imagine that might happen from that price signal because it's clear that that's where users' preferences are. That's where the demand is. But now let's imagine a slightly more dystopian world. And this actually is what much of human history was and even some significant parts of the world today where there aren't clear property rights. When this person says they want to, that they have this house for sale, these people are like, is it really your house?"}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "That's where the demand is. But now let's imagine a slightly more dystopian world. And this actually is what much of human history was and even some significant parts of the world today where there aren't clear property rights. When this person says they want to, that they have this house for sale, these people are like, is it really your house? And then this person comes along and says, no, it's my house. And I have this proof that my grandfather owned it and he never sold it to your grandfather. And then this person says, I have a lot of guns and I don't care what y'all say and what paperwork you have, but I'm taking the house."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "When this person says they want to, that they have this house for sale, these people are like, is it really your house? And then this person comes along and says, no, it's my house. And I have this proof that my grandfather owned it and he never sold it to your grandfather. And then this person says, I have a lot of guns and I don't care what y'all say and what paperwork you have, but I'm taking the house. Well, how much would this person be willing to pay this person right over here in that circumstance? And so this person is much less likely to get these $3 signs. This person said, hey, this is kind of a risky investment."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And then this person says, I have a lot of guns and I don't care what y'all say and what paperwork you have, but I'm taking the house. Well, how much would this person be willing to pay this person right over here in that circumstance? And so this person is much less likely to get these $3 signs. This person said, hey, this is kind of a risky investment. I don't really know if I take title from this person whether it's still my house. So they're not willing to give $3 signs. They're only willing to give one dollar sign or maybe no dollar signs."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "This person said, hey, this is kind of a risky investment. I don't really know if I take title from this person whether it's still my house. So they're not willing to give $3 signs. They're only willing to give one dollar sign or maybe no dollar signs. Maybe this house doesn't even sell. Well, then the price signals have broken down. And so then in this market, people will say, oh, maybe we'll build more of the arched orange houses because that's what the market demands."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "They're only willing to give one dollar sign or maybe no dollar signs. Maybe this house doesn't even sell. Well, then the price signals have broken down. And so then in this market, people will say, oh, maybe we'll build more of the arched orange houses because that's what the market demands. And so you can quickly see that when property rights break down, the market system breaks down because the market system is all about people using price to figure out how much they're willing to pay for things. But that assumes that when you get something that it's really yours, that it's not going to be disputed and the person you're buying from really has ownership. And this breakdown would often be characterized as a market failure."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And so then in this market, people will say, oh, maybe we'll build more of the arched orange houses because that's what the market demands. And so you can quickly see that when property rights break down, the market system breaks down because the market system is all about people using price to figure out how much they're willing to pay for things. But that assumes that when you get something that it's really yours, that it's not going to be disputed and the person you're buying from really has ownership. And this breakdown would often be characterized as a market failure. Now, you could say, okay, there's other types of systems that we've talked about in other videos. We talk about command economies. And in the extreme, in a command economy, you have no profit, you have no private ownership of things."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And this breakdown would often be characterized as a market failure. Now, you could say, okay, there's other types of systems that we've talked about in other videos. We talk about command economies. And in the extreme, in a command economy, you have no profit, you have no private ownership of things. And so you might say, maybe that is a solution to this property rights problem. But command economies have significant problems of their own. In fact, very few of them, or really none of them in history have proven to really work because they have a major incentive problem."}, {"video_title": "Property rights in a market system Basic Economic Concepts AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And in the extreme, in a command economy, you have no profit, you have no private ownership of things. And so you might say, maybe that is a solution to this property rights problem. But command economies have significant problems of their own. In fact, very few of them, or really none of them in history have proven to really work because they have a major incentive problem. Because if you're just being told what to build by the government, you're told how to build it by the government, you're told who to gets it by the government, there's very little incentive to try to innovate, to try to build more, to invest, or whatever else. And we talk about that in other videos. So I will let you go there."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In several videos, we have talked already about the price elasticity of supply. In this video, we're going to dig a little bit deeper. We're gonna think about what factors might make a supply curve or a supply schedule or portions of it to be more elastic or inelastic. So we'll think about the determinants of the price elasticity of supply. And to help us think about that, I've drawn two different supply curves. And so remember, price elasticity is thinking about how sensitive is the quantity or the price elasticity of supply. We're thinking about how sensitive is a percent change in quantity supplied to a percent change in price."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So we'll think about the determinants of the price elasticity of supply. And to help us think about that, I've drawn two different supply curves. And so remember, price elasticity is thinking about how sensitive is the quantity or the price elasticity of supply. We're thinking about how sensitive is a percent change in quantity supplied to a percent change in price. So for example, if we were to go from this price to this price, it's a pretty significant percent change in price. It looks like about a 50% change in price. But if we look at this supply curve, where it's getting pretty vertical, it's not quite vertical yet, but it's getting pretty steep, our percent change in quantity is going from here to here."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "We're thinking about how sensitive is a percent change in quantity supplied to a percent change in price. So for example, if we were to go from this price to this price, it's a pretty significant percent change in price. It looks like about a 50% change in price. But if we look at this supply curve, where it's getting pretty vertical, it's not quite vertical yet, but it's getting pretty steep, our percent change in quantity is going from here to here. So it's not as dramatic. So these parts of the curve that are relatively steep as they're approaching more and more vertical, we would consider those to be relatively inelastic. If you had a perfectly vertical or portions of this curve that were perfectly vertical, at those portions, you would say that you have perfect inelasticity."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But if we look at this supply curve, where it's getting pretty vertical, it's not quite vertical yet, but it's getting pretty steep, our percent change in quantity is going from here to here. So it's not as dramatic. So these parts of the curve that are relatively steep as they're approaching more and more vertical, we would consider those to be relatively inelastic. If you had a perfectly vertical or portions of this curve that were perfectly vertical, at those portions, you would say that you have perfect inelasticity. And then if on the other hand, in this example, if we were to change our price from say this to this, that's a relatively small percent change in price. But notice, it could result in a fairly large percent change in quantity supplied. We're going from this to this."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "If you had a perfectly vertical or portions of this curve that were perfectly vertical, at those portions, you would say that you have perfect inelasticity. And then if on the other hand, in this example, if we were to change our price from say this to this, that's a relatively small percent change in price. But notice, it could result in a fairly large percent change in quantity supplied. We're going from this to this. So when we are more horizontal, or the flatter our supply curve is, that would be, we're talking about relative elasticity, or we are much more elastic here than we are there. So elastic. And if you were perfectly horizontal, then you would have a perfectly elastic part of our supply curve, or our supply schedule."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "We're going from this to this. So when we are more horizontal, or the flatter our supply curve is, that would be, we're talking about relative elasticity, or we are much more elastic here than we are there. So elastic. And if you were perfectly horizontal, then you would have a perfectly elastic part of our supply curve, or our supply schedule. Now what would cause, what are the factors that would make us get more inelastic or more elastic? Well, let's think about a situation. Let's say we are in this world."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And if you were perfectly horizontal, then you would have a perfectly elastic part of our supply curve, or our supply schedule. Now what would cause, what are the factors that would make us get more inelastic or more elastic? Well, let's think about a situation. Let's say we are in this world. Let's say we are in the world starting at this price, where this is our quantity. Imagine that the factories that produce whatever good we're talking about here, they're already at full production. And to have, to make more production would take a lot of time, or there might not even be the resources to have more production."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Let's say we are in this world. Let's say we are in the world starting at this price, where this is our quantity. Imagine that the factories that produce whatever good we're talking about here, they're already at full production. And to have, to make more production would take a lot of time, or there might not even be the resources to have more production. Maybe the people who make the factories are doing other things right now. Maybe you have other resources, other inputs into your production that there's just not more of. Maybe oil is, as much oil in the world is being produced, and that's an input into production."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And to have, to make more production would take a lot of time, or there might not even be the resources to have more production. Maybe the people who make the factories are doing other things right now. Maybe you have other resources, other inputs into your production that there's just not more of. Maybe oil is, as much oil in the world is being produced, and that's an input into production. And so in that world, even if the price is, even if the price goes dramatically up, people might wanna produce a lot more quantity, but they just can't. They don't have more factories, or they don't have more inputs to produce them. So the quantity might go up a little bit."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Maybe oil is, as much oil in the world is being produced, and that's an input into production. And so in that world, even if the price is, even if the price goes dramatically up, people might wanna produce a lot more quantity, but they just can't. They don't have more factories, or they don't have more inputs to produce them. So the quantity might go up a little bit. They might run the factory, they might run the factories in overtime, or the people who are trained to do that skill, and maybe there just aren't a lot more people who can do that skill. They're working overtime. But they can't produce a lot more."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So the quantity might go up a little bit. They might run the factory, they might run the factories in overtime, or the people who are trained to do that skill, and maybe there just aren't a lot more people who can do that skill. They're working overtime. But they can't produce a lot more. And so a couple of things that we can glean from that example is this inelasticity of supply tends to happen in the short run, when in the short run, you're not gonna be able to build a new factory in the short run. You're not going to be able to find more sources of, let's say, oil in the short run. You're not going to be able to train a lot more people to produce a lot more in the short run."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But they can't produce a lot more. And so a couple of things that we can glean from that example is this inelasticity of supply tends to happen in the short run, when in the short run, you're not gonna be able to build a new factory in the short run. You're not going to be able to find more sources of, let's say, oil in the short run. You're not going to be able to train a lot more people to produce a lot more in the short run. So if we're talking about a supply curve that's describing more of a short run time frame, then it tends to be more inelastic. And then the other thing is, and we already talked about this, is there's not available resources, or not a lot of available resources. Not a lot of available resources."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "You're not going to be able to train a lot more people to produce a lot more in the short run. So if we're talking about a supply curve that's describing more of a short run time frame, then it tends to be more inelastic. And then the other thing is, and we already talked about this, is there's not available resources, or not a lot of available resources. Not a lot of available resources. Once again, your factory's operating full out. You've hired everyone who can produce that thing you're producing, or some natural resource that you need as an input to make this good. Well, the world is already producing as much as they could."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Not a lot of available resources. Once again, your factory's operating full out. You've hired everyone who can produce that thing you're producing, or some natural resource that you need as an input to make this good. Well, the world is already producing as much as they could. Well, let's then go to the other situation. What would cause elasticity? Well, this could be a world where in the long run, it might be easier to get more resources."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, the world is already producing as much as they could. Well, let's then go to the other situation. What would cause elasticity? Well, this could be a world where in the long run, it might be easier to get more resources. In the long run, you can build more factories. You can find and hire and train more people. So the longer run that we are talking about, that tends to lead to a more elastic supply curve in the longer run."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, this could be a world where in the long run, it might be easier to get more resources. In the long run, you can build more factories. You can find and hire and train more people. So the longer run that we are talking about, that tends to lead to a more elastic supply curve in the longer run. And then another notion here is that you aren't capacity constrained, or maybe I should say aren't resource constrained. Aren't resource constrained. So maybe our factories are running nowhere near capacity."}, {"video_title": "Price elasticity of supply determinants AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So the longer run that we are talking about, that tends to lead to a more elastic supply curve in the longer run. And then another notion here is that you aren't capacity constrained, or maybe I should say aren't resource constrained. Aren't resource constrained. So maybe our factories are running nowhere near capacity. So even a small increase of price, we're saying, hey, I'm gonna just make my factories run a little bit more. Or there might be a lot of people who can help produce, who have the skills to do, to produce that good. So as the price goes up, more and more people are going to start producing that good."}, {"video_title": "Changes in income, population, or preferences Microeconomics Khan Academy.mp3", "Sentence": "And now let's list a few other. And before I do any more of them, let's talk about the ones we already talked about. So one, we said that one of the things we held constant, let me write this down. So held constant. One of the things that we held constant to move along one demand curve for the demand itself to not shift, for the curve to not shift, is price of related goods. The other thing we assumed that's being held constant is price expectations for our good. And now we'll list a couple of them that are fairly intuitive."}, {"video_title": "Changes in income, population, or preferences Microeconomics Khan Academy.mp3", "Sentence": "So held constant. One of the things that we held constant to move along one demand curve for the demand itself to not shift, for the curve to not shift, is price of related goods. The other thing we assumed that's being held constant is price expectations for our good. And now we'll list a couple of them that are fairly intuitive. But you'll see in the next few videos that there are often special cases even to this. So the other thing that we've been holding constant to stay on one demand curve is income. And this one is fairly intuitive."}, {"video_title": "Changes in income, population, or preferences Microeconomics Khan Academy.mp3", "Sentence": "And now we'll list a couple of them that are fairly intuitive. But you'll see in the next few videos that there are often special cases even to this. So the other thing that we've been holding constant to stay on one demand curve is income. And this one is fairly intuitive. If what happens if everyone's income were to increase, and in real terms, it were to actually increase? Well, then all of a sudden, they have more disposable income, maybe to spend on something like e-books. And so for any given price point, the demand would increase."}, {"video_title": "Changes in income, population, or preferences Microeconomics Khan Academy.mp3", "Sentence": "And this one is fairly intuitive. If what happens if everyone's income were to increase, and in real terms, it were to actually increase? Well, then all of a sudden, they have more disposable income, maybe to spend on something like e-books. And so for any given price point, the demand would increase. And so it would increase the demand. And once again, when we talk about increasing demand, we're talking about shifting the entire curve. We're not talking about a particular quantity of demand."}, {"video_title": "Changes in income, population, or preferences Microeconomics Khan Academy.mp3", "Sentence": "And so for any given price point, the demand would increase. And so it would increase the demand. And once again, when we talk about increasing demand, we're talking about shifting the entire curve. We're not talking about a particular quantity of demand. So income goes up, then it increases demand. And remember, when demand goes up, we're talking about the whole curve shifting to the right. At any given price point, we are going to have a larger quantity demanded."}, {"video_title": "Changes in income, population, or preferences Microeconomics Khan Academy.mp3", "Sentence": "We're not talking about a particular quantity of demand. So income goes up, then it increases demand. And remember, when demand goes up, we're talking about the whole curve shifting to the right. At any given price point, we are going to have a larger quantity demanded. So the whole curve, this whole demand schedule would change. And likewise, if income went down, demand would go down. And we're going to see in a future video, it's actually quite interesting, that's always not the case."}, {"video_title": "Changes in income, population, or preferences Microeconomics Khan Academy.mp3", "Sentence": "At any given price point, we are going to have a larger quantity demanded. So the whole curve, this whole demand schedule would change. And likewise, if income went down, demand would go down. And we're going to see in a future video, it's actually quite interesting, that's always not the case. This is only true for normal goods. And in a future video, we'll see goods called inferior goods, where this is not necessarily the case. Or by definition for an inferior good, it would not be the case."}, {"video_title": "Changes in income, population, or preferences Microeconomics Khan Academy.mp3", "Sentence": "And we're going to see in a future video, it's actually quite interesting, that's always not the case. This is only true for normal goods. And in a future video, we'll see goods called inferior goods, where this is not necessarily the case. Or by definition for an inferior good, it would not be the case. Now, the other ones that are somewhat intuitive are population. Once again, if population goes up, obviously at any given price point, more people will want it. So it would shift the demand curve to the right, or it would increase demand."}, {"video_title": "Changes in income, population, or preferences Microeconomics Khan Academy.mp3", "Sentence": "Or by definition for an inferior good, it would not be the case. Now, the other ones that are somewhat intuitive are population. Once again, if population goes up, obviously at any given price point, more people will want it. So it would shift the demand curve to the right, or it would increase demand. If population were to go down, it would decrease demand, which means shifting the whole curve to the left. And then the last one we'll talk about, and remember, we're holding all of these things constant in order for demand not to change. The last thing is just preferences."}, {"video_title": "Changes in income, population, or preferences Microeconomics Khan Academy.mp3", "Sentence": "So it would shift the demand curve to the right, or it would increase demand. If population were to go down, it would decrease demand, which means shifting the whole curve to the left. And then the last one we'll talk about, and remember, we're holding all of these things constant in order for demand not to change. The last thing is just preferences. We're assuming that people's tastes and preferences don't change while we move along a specific demand curve. If preferences actually change, then it will change the curve. So for example, if all of a sudden the author of the book is on some very popular show, talk show, that tells everyone that this is the best book that was ever written, then preferences would go up, and that would increase the total demand."}, {"video_title": "Changes in income, population, or preferences Microeconomics Khan Academy.mp3", "Sentence": "The last thing is just preferences. We're assuming that people's tastes and preferences don't change while we move along a specific demand curve. If preferences actually change, then it will change the curve. So for example, if all of a sudden the author of the book is on some very popular show, talk show, that tells everyone that this is the best book that was ever written, then preferences would go up, and that would increase the total demand. At any given price point, more people would be willing to buy the book. If on the other hand, on that same talk show, it turns out that they do an expose on the author having this sordid past and the author plagiarized the whole book, then the demand will go down, the entire curve, regardless of the price point. At any given price point, the quantity demanded will actually go down."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "And on the left you can see that this equilibrium price which is set by the intersection of the supply and demand curves, that that's just going to be the price that the firms have to take. And we've talked about that at length in other videos. That's going to define that the firm's marginal revenue, not just this firm, but all of the participants in the market. In other videos we've talked about the fact that the rational quantity for this firm to produce would be where marginal revenue intersects marginal cost. And it's also gonna be the point where you have zero economic profit. Where at that quantity, let's say the quantity for the firm, your average total cost is equal to your marginal revenue. If marginal revenue were higher than average total cost at this quantity, well then you would have other entrants into the market because you're having positive economic profit."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "In other videos we've talked about the fact that the rational quantity for this firm to produce would be where marginal revenue intersects marginal cost. And it's also gonna be the point where you have zero economic profit. Where at that quantity, let's say the quantity for the firm, your average total cost is equal to your marginal revenue. If marginal revenue were higher than average total cost at this quantity, well then you would have other entrants into the market because you're having positive economic profit. If marginal revenue is below average total cost at that quantity, well then firms are running economic losses and you will have people exiting the industry. And either of those situations would get us back to an equilibrium state that looks something like this. But now let's imagine a shock to the market somehow."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "If marginal revenue were higher than average total cost at this quantity, well then you would have other entrants into the market because you're having positive economic profit. If marginal revenue is below average total cost at that quantity, well then firms are running economic losses and you will have people exiting the industry. And either of those situations would get us back to an equilibrium state that looks something like this. But now let's imagine a shock to the market somehow. Let's say a new research study comes out that says that the apples that this market produces, that it's incredibly good for you, it'll make you live longer, it'll make you happier, it'll make you have more friends. Well then the demand for apples goes up and so you have a new demand curve that looks something like this, D prime. Well in that situation what's going to happen?"}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "But now let's imagine a shock to the market somehow. Let's say a new research study comes out that says that the apples that this market produces, that it's incredibly good for you, it'll make you live longer, it'll make you happier, it'll make you have more friends. Well then the demand for apples goes up and so you have a new demand curve that looks something like this, D prime. Well in that situation what's going to happen? Well now you have a new equilibrium price, you also have a new equilibrium quantity over here, let's call that P prime. This is going to define a new marginal revenue curve for the participants in the industry, so M marginal revenue prime. And now all of a sudden the rational quantity for them to produce would be out here, at least for this firm to produce, so Q prime for this firm is out here."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "Well in that situation what's going to happen? Well now you have a new equilibrium price, you also have a new equilibrium quantity over here, let's call that P prime. This is going to define a new marginal revenue curve for the participants in the industry, so M marginal revenue prime. And now all of a sudden the rational quantity for them to produce would be out here, at least for this firm to produce, so Q prime for this firm is out here. And you notice at that quantity it is making economic profit. For every unit it gets that much, it costs that much on average for every unit, so it's making that much per unit. And then you multiply that times the number of units, the quantity, this whole area is going to be the economic profit that this firm is getting."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "And now all of a sudden the rational quantity for them to produce would be out here, at least for this firm to produce, so Q prime for this firm is out here. And you notice at that quantity it is making economic profit. For every unit it gets that much, it costs that much on average for every unit, so it's making that much per unit. And then you multiply that times the number of units, the quantity, this whole area is going to be the economic profit that this firm is getting. And it's likely that all of the firms, or most of the firms in this perfectly competitive market are going to be getting it because they all have the same cost structure. But as we've said before, when you have this positive economic profit and there's no barriers to entry, in the long run more firms will enter because there's economic profit to be had. And in previous videos we talked about a situation where as firms enter into a market or exit a market it doesn't change the cost structures of the individual firms."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "And then you multiply that times the number of units, the quantity, this whole area is going to be the economic profit that this firm is getting. And it's likely that all of the firms, or most of the firms in this perfectly competitive market are going to be getting it because they all have the same cost structure. But as we've said before, when you have this positive economic profit and there's no barriers to entry, in the long run more firms will enter because there's economic profit to be had. And in previous videos we talked about a situation where as firms enter into a market or exit a market it doesn't change the cost structures of the individual firms. But let's imagine for a second that because of everyone entering into this market that seems to have economic profit for the firms that are participating into it, some of the inputs of say growing apples, which is what these firms do, start to go up in cost. So we're not talking about constant cost, perfectly competitive market. Now we're not talking about an increasing cost, perfectly competitive market."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "And in previous videos we talked about a situation where as firms enter into a market or exit a market it doesn't change the cost structures of the individual firms. But let's imagine for a second that because of everyone entering into this market that seems to have economic profit for the firms that are participating into it, some of the inputs of say growing apples, which is what these firms do, start to go up in cost. So we're not talking about constant cost, perfectly competitive market. Now we're not talking about an increasing cost, perfectly competitive market. Well then firm A and every firm's cost structure is going to change because as more firms come in you're going to have to pay more for maybe apple seeds, pay more for maybe pesticides or wax or maybe pay more for land on which to grow them. And so you would have a different marginal cost curve. Maybe the marginal cost curve now looks like this."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "Now we're not talking about an increasing cost, perfectly competitive market. Well then firm A and every firm's cost structure is going to change because as more firms come in you're going to have to pay more for maybe apple seeds, pay more for maybe pesticides or wax or maybe pay more for land on which to grow them. And so you would have a different marginal cost curve. Maybe the marginal cost curve now looks like this. So marginal cost curve prime. You would also have a new average total cost curve. Maybe it looks, maybe it looks something like this."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "Maybe the marginal cost curve now looks like this. So marginal cost curve prime. You would also have a new average total cost curve. Maybe it looks, maybe it looks something like this. So average total cost prime. And so you could imagine that firms will jump into the market in order to capture or think that they might be able to get some economic profit but they will only do so until the economic profit for all the firms goes to zero. So what point will the economic profit go to zero?"}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "Maybe it looks, maybe it looks something like this. So average total cost prime. And so you could imagine that firms will jump into the market in order to capture or think that they might be able to get some economic profit but they will only do so until the economic profit for all the firms goes to zero. So what point will the economic profit go to zero? Well that's when the marginal revenue for the firms is equal to our marginal cost, is equal to our average total cost. So it's that point right over there. So we would get to this point right over here."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "So what point will the economic profit go to zero? Well that's when the marginal revenue for the firms is equal to our marginal cost, is equal to our average total cost. So it's that point right over there. So we would get to this point right over here. Let's call that marginal revenue prime. And so more and more firms would enter into the market up until the point that the equilibrium price gets us to P prime. And so the supply would increase."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "So we would get to this point right over here. Let's call that marginal revenue prime. And so more and more firms would enter into the market up until the point that the equilibrium price gets us to P prime. And so the supply would increase. Those folks wanna get that economic profit but it would increase until this point. So it'd shift a little bit to the right and we would get to S prime. As you can see, based on this, we can now start to imagine a long run supply curve in this increasing cost, perfectly competitive market."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "And so the supply would increase. Those folks wanna get that economic profit but it would increase until this point. So it'd shift a little bit to the right and we would get to S prime. As you can see, based on this, we can now start to imagine a long run supply curve in this increasing cost, perfectly competitive market. We were over here. That was our equilibrium point before. Now we are over here."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "As you can see, based on this, we can now start to imagine a long run supply curve in this increasing cost, perfectly competitive market. We were over here. That was our equilibrium point before. Now we are over here. And so our long run supply curve in this increasing cost environment, even though it's perfectly competitive, might look something like this. So in a constant cost world, this was a flat line. Now in an increasing cost world, as more and more people enter the market, the cost structure, the inputs into producing an apple go up."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "Now we are over here. And so our long run supply curve in this increasing cost environment, even though it's perfectly competitive, might look something like this. So in a constant cost world, this was a flat line. Now in an increasing cost world, as more and more people enter the market, the cost structure, the inputs into producing an apple go up. Now long run supply is that. Remember, the long run is enough time to go by for people to enter and exit the market or enough time to go by so fixed costs aren't fixed anymore, that they can be shed or that they could be increased. Now you could do another thought exercise."}, {"video_title": "Long run supply when industry costs are increasing or decreasing Microeconomics Khan Academy (2).mp3", "Sentence": "Now in an increasing cost world, as more and more people enter the market, the cost structure, the inputs into producing an apple go up. Now long run supply is that. Remember, the long run is enough time to go by for people to enter and exit the market or enough time to go by so fixed costs aren't fixed anymore, that they can be shed or that they could be increased. Now you could do another thought exercise. Let's say we're dealing with a market where the more people that enter the market, the inputs actually get cheaper. And if that seems hard to believe, you could imagine, well, now people are able to produce seeds or wax at a new scale so the inputs actually get cheaper. Well, then you would see the opposite thing."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "We're told corn is used as food and as an input in the production of ethanol, an alternative fuel. Assume corn is produced in a perfectly competitive market. Draw correctly labeled side-by-side graphs for the corn market and a representative corn farmer. On your graphs, show each of the following. The equilibrium price and quantity in the corn market, labeled P sub M and Q sub M respectively. The profit maximizing quantity of corn produced by the representative farmer earning zero economic profit, labeled Q sub F. So like always, pause this video and see if you can do this on your own before we work through it together. All right, now let's work through it together."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "On your graphs, show each of the following. The equilibrium price and quantity in the corn market, labeled P sub M and Q sub M respectively. The profit maximizing quantity of corn produced by the representative farmer earning zero economic profit, labeled Q sub F. So like always, pause this video and see if you can do this on your own before we work through it together. All right, now let's work through it together. So we're going to do correctly labeled side-by-side graphs. So let me do, this is going to be my horizontal axis for the market, and then this is going to be the horizontal axis for the farmer. And this is going to be quantity in the market, quantity."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "All right, now let's work through it together. So we're going to do correctly labeled side-by-side graphs. So let me do, this is going to be my horizontal axis for the market, and then this is going to be the horizontal axis for the farmer. And this is going to be quantity in the market, quantity. Quantity, and then this is going to be quantity for the farmer, quantity. And then this is going to be price in the market. And whatever the market price is, that's also going to be the price that the farmer has to take, because it says it's a perfectly competitive market."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "And this is going to be quantity in the market, quantity. Quantity, and then this is going to be quantity for the farmer, quantity. And then this is going to be price in the market. And whatever the market price is, that's also going to be the price that the farmer has to take, because it says it's a perfectly competitive market. So the farmer's going to be a price taker here. So let me make these axes. So this is price right over here, and this is price over here."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "And whatever the market price is, that's also going to be the price that the farmer has to take, because it says it's a perfectly competitive market. So the farmer's going to be a price taker here. So let me make these axes. So this is price right over here, and this is price over here. So first let's draw the corn market. So let me label this corn market. And we've done this multiple times already."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "So this is price right over here, and this is price over here. So first let's draw the corn market. So let me label this corn market. And we've done this multiple times already. Our demand curve might look something like this. This is our demand curve. As when price is high, low quantity demanded."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "And we've done this multiple times already. Our demand curve might look something like this. This is our demand curve. As when price is high, low quantity demanded. When price is low, high quantity demanded. And supply goes the other way around. So our supply curve would look something like this."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "As when price is high, low quantity demanded. When price is low, high quantity demanded. And supply goes the other way around. So our supply curve would look something like this. And then this point, this helps us figure out, this is going to be our equilibrium price. So that's P sub M, P sub M. And then this is going to be our equilibrium quantity. So Q sub M. Now this graph over here, we are going to draw the farmer."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "So our supply curve would look something like this. And then this point, this helps us figure out, this is going to be our equilibrium price. So that's P sub M, P sub M. And then this is going to be our equilibrium quantity. So Q sub M. Now this graph over here, we are going to draw the farmer. So this is going to be the farmer. The farmer's firm right over here. So the farmer's going to be a price taker."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "So Q sub M. Now this graph over here, we are going to draw the farmer. So this is going to be the farmer. The farmer's firm right over here. So the farmer's going to be a price taker. So whatever the equilibrium price in the market, that is going to be the price that the farmer is going to have to take. That market price is going to be the farmer's marginal revenue. Now they say the profit maximizing quantity of corn produced by the farmer, by the represented farmer, earning zero economic profit, labeled Q sub F. So we're gonna have some quantity right over here."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "So the farmer's going to be a price taker. So whatever the equilibrium price in the market, that is going to be the price that the farmer is going to have to take. That market price is going to be the farmer's marginal revenue. Now they say the profit maximizing quantity of corn produced by the farmer, by the represented farmer, earning zero economic profit, labeled Q sub F. So we're gonna have some quantity right over here. It is the profit maximizing quantity, but it's also zero economic profit. So the zero economic profit tells us that the price must be equal to the average total cost at that quantity. So I can make an average total cost curve that looks something like this."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "Now they say the profit maximizing quantity of corn produced by the farmer, by the represented farmer, earning zero economic profit, labeled Q sub F. So we're gonna have some quantity right over here. It is the profit maximizing quantity, but it's also zero economic profit. So the zero economic profit tells us that the price must be equal to the average total cost at that quantity. So I can make an average total cost curve that looks something like this. And I'm going to make its minimum point intersect that market price. Because we know from previous videos that the profit maximizing quantity happens where the marginal cost intersects the marginal revenue, which in this case would be the price that the farmer has to take from the market. And we know that the marginal cost curve intersects the average total cost curve at this minimum point right over here."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "So I can make an average total cost curve that looks something like this. And I'm going to make its minimum point intersect that market price. Because we know from previous videos that the profit maximizing quantity happens where the marginal cost intersects the marginal revenue, which in this case would be the price that the farmer has to take from the market. And we know that the marginal cost curve intersects the average total cost curve at this minimum point right over here. So I could draw a marginal cost curve. It might look something like this. So that is our marginal cost curve."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "And we know that the marginal cost curve intersects the average total cost curve at this minimum point right over here. So I could draw a marginal cost curve. It might look something like this. So that is our marginal cost curve. And notice, the marginal cost curve intersects the average total cost at that minimum point. We explain that in multiple videos already. And we've explained in a previous video that the profit maximizing quantity is the quantity at which the marginal cost and the marginal revenue meet."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "So that is our marginal cost curve. And notice, the marginal cost curve intersects the average total cost at that minimum point. We explain that in multiple videos already. And we've explained in a previous video that the profit maximizing quantity is the quantity at which the marginal cost and the marginal revenue meet. And the price is the marginal revenue. Beyond that point, every incremental unit, the corn farmer's gonna take a loss. It's gonna take them more resources to produce that corn than they're going to be able to get in the market."}, {"video_title": "Profit maximization worked example Free Response Question Microeconomics Khan Academy.mp3", "Sentence": "And we've explained in a previous video that the profit maximizing quantity is the quantity at which the marginal cost and the marginal revenue meet. And the price is the marginal revenue. Beyond that point, every incremental unit, the corn farmer's gonna take a loss. It's gonna take them more resources to produce that corn than they're going to be able to get in the market. And we also mentioned that this has to be a situation of zero economic profit. So the average total cost has to be at that price, at that marginal revenue, right at that point. So this right over here would be our Q sub capital F. And we're done."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "That for any given quantity of the good you're selling, that point on the curve is actually showing the marginal benefit for that incremental unit. So this is the marginal benefit for that first unit. This is the marginal benefit for that second unit. And there's multiple ways that you could view this, assuming that we're talking about this new car here. Maybe if you're going to only sell one unit, someone really wants it really bad, the benefit for them, the marginal benefit for that first unit for them is going to be $60,000. Now let's say if you want to sell two units, that second unit might be bought by that same person, and they might say, well, I already have one car. The benefit of getting that second one is only $50,000."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And there's multiple ways that you could view this, assuming that we're talking about this new car here. Maybe if you're going to only sell one unit, someone really wants it really bad, the benefit for them, the marginal benefit for that first unit for them is going to be $60,000. Now let's say if you want to sell two units, that second unit might be bought by that same person, and they might say, well, I already have one car. The benefit of getting that second one is only $50,000. That's the point at which I am neutral. That's the point at which I'm right on the fence of willing to buy that car. Or it might be another person, another person who's just not as enamored as the first person, says, okay, for $50,000, I do like that car."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "The benefit of getting that second one is only $50,000. That's the point at which I am neutral. That's the point at which I'm right on the fence of willing to buy that car. Or it might be another person, another person who's just not as enamored as the first person, says, okay, for $50,000, I do like that car. And then for the third person there, once again, they're not as enamored as the first two. They would be willing to buy it for $40,000. And what we saw is at some point you could say, look, let's say we decide that the price ends up being, for whatever reason, the price ends up being $30,000."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Or it might be another person, another person who's just not as enamored as the first person, says, okay, for $50,000, I do like that car. And then for the third person there, once again, they're not as enamored as the first two. They would be willing to buy it for $40,000. And what we saw is at some point you could say, look, let's say we decide that the price ends up being, for whatever reason, the price ends up being $30,000. And so when the price is $30,000, this is kind of viewing it in the traditional notion of at a price what quantity you were selling it. But when you think about that reality, what's actually happening is that this fourth person is right on the fence. Their marginal benefit is exactly $30,000."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And what we saw is at some point you could say, look, let's say we decide that the price ends up being, for whatever reason, the price ends up being $30,000. And so when the price is $30,000, this is kind of viewing it in the traditional notion of at a price what quantity you were selling it. But when you think about that reality, what's actually happening is that this fourth person is right on the fence. Their marginal benefit is exactly $30,000. So in their mind they're saying, I am giving away $30,000. And in exchange for that, I'm getting something that is worth $30,000. So it's kind of like, hey, will you be willing to trade this dollar for a dollar?"}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Their marginal benefit is exactly $30,000. So in their mind they're saying, I am giving away $30,000. And in exchange for that, I'm getting something that is worth $30,000. So it's kind of like, hey, will you be willing to trade this dollar for a dollar? Well, you'd probably be kind of on the fence about that. You're very close to going either way. You feel like it's a good deal if you could get it for maybe a penny less."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So it's kind of like, hey, will you be willing to trade this dollar for a dollar? Well, you'd probably be kind of on the fence about that. You're very close to going either way. You feel like it's a good deal if you could get it for maybe a penny less. It's a bad deal if you were getting it for a penny more. So right on the fence. But you're going to just barely get this fourth person to transact at this price."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "You feel like it's a good deal if you could get it for maybe a penny less. It's a bad deal if you were getting it for a penny more. So right on the fence. But you're going to just barely get this fourth person to transact at this price. But what we hinted at is if you do have one price for everybody, and in the future we'll talk about not having one price for everybody, but if you did have one price for everyone, these first units were kind of sold below where they could have been sold. They were sold below their marginal benefit. So remember, we're viewing this the same demand curve."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "But you're going to just barely get this fourth person to transact at this price. But what we hinted at is if you do have one price for everybody, and in the future we'll talk about not having one price for everybody, but if you did have one price for everyone, these first units were kind of sold below where they could have been sold. They were sold below their marginal benefit. So remember, we're viewing this the same demand curve. We're now viewing it as a marginal benefit curve. So this first unit right over here, it could have been sold at $60,000, but now we're selling it for $30,000. So this right over here, this was $30,000."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So remember, we're viewing this the same demand curve. We're now viewing it as a marginal benefit curve. So this first unit right over here, it could have been sold at $60,000, but now we're selling it for $30,000. So this right over here, this was $30,000. I'll just write 30 for $30,000. The marginal benefit is $30,000 higher than the actual price. The marginal benefit of that unit, the benefit that the market got out of it, is $30,000 higher than the price."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So this right over here, this was $30,000. I'll just write 30 for $30,000. The marginal benefit is $30,000 higher than the actual price. The marginal benefit of that unit, the benefit that the market got out of it, is $30,000 higher than the price. The marginal benefit for the second unit is $20,000 higher than the price at which the product is being sold. The marginal benefit for this third unit, for this third unit, assuming this is 40, is $10,000. Or another way to think about it is the consumer surplus for this first unit was $30,000."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "The marginal benefit of that unit, the benefit that the market got out of it, is $30,000 higher than the price. The marginal benefit for the second unit is $20,000 higher than the price at which the product is being sold. The marginal benefit for this third unit, for this third unit, assuming this is 40, is $10,000. Or another way to think about it is the consumer surplus for this first unit was $30,000. The consumers got $30,000 more in benefit, marginal benefit for them, in value for themselves, than they had to pay for it. Here, the consumer surplus was $20,000. The consumer got $20,000 more in value than that second consumer was willing to pay for it."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Or another way to think about it is the consumer surplus for this first unit was $30,000. The consumers got $30,000 more in benefit, marginal benefit for them, in value for themselves, than they had to pay for it. Here, the consumer surplus was $20,000. The consumer got $20,000 more in value than that second consumer was willing to pay for it. And here is $10,000. And then this fourth consumer is neutral. The marginal benefit is what they paid for it."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "The consumer got $20,000 more in value than that second consumer was willing to pay for it. And here is $10,000. And then this fourth consumer is neutral. The marginal benefit is what they paid for it. And so when you think about this, you can say, well, what's the total consumer surplus here? Let me write this down. What is the total consumer surplus?"}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "The marginal benefit is what they paid for it. And so when you think about this, you can say, well, what's the total consumer surplus here? Let me write this down. What is the total consumer surplus? Another way of thinking about it is, what is the total excess of marginal benefit above and beyond the price paid? So how much surplus marginal benefit did they get if you take out the price paid? And over here, the total consumer surplus is going to be the $30,000 for that first unit plus the $20,000 for that second unit plus the $10,000 for that third unit."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "What is the total consumer surplus? Another way of thinking about it is, what is the total excess of marginal benefit above and beyond the price paid? So how much surplus marginal benefit did they get if you take out the price paid? And over here, the total consumer surplus is going to be the $30,000 for that first unit plus the $20,000 for that second unit plus the $10,000 for that third unit. And so the total consumer surplus in this scenario, when we sold four units at $30,000, is, and we're assuming we're selling cars here, so we can't sell parts of cars here. We can't sell 1.1 cars. I guess if we're talking about averages, maybe we could."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And over here, the total consumer surplus is going to be the $30,000 for that first unit plus the $20,000 for that second unit plus the $10,000 for that third unit. And so the total consumer surplus in this scenario, when we sold four units at $30,000, is, and we're assuming we're selling cars here, so we can't sell parts of cars here. We can't sell 1.1 cars. I guess if we're talking about averages, maybe we could. But let's just say we're selling just whole numbers of cars here. The total consumer surplus in this situation was 30 plus 20 plus 10, which is $60,000. Everything's in thousands."}, {"video_title": "Consumer surplus introduction Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "I guess if we're talking about averages, maybe we could. But let's just say we're selling just whole numbers of cars here. The total consumer surplus in this situation was 30 plus 20 plus 10, which is $60,000. Everything's in thousands. So this is $60,000. So in this scenario, in that week, the consumers would get $60,000 more in benefit for them, in perceived benefit for them, than what they actually had to pay for it. And if you think about it, it's a little unideal for the seller because they were selling something at a lower price than maybe what they could have gotten from at least these first few consumers here."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "And to think about marginal revenue, marginal revenue is just how much does our total revenue change given some change in our quantity? And then later we can use that so that we can optimize the profit for our monopoly over here. And I'm going to try to do it without calculus. It'll actually be very straightforward to do it with calculus because we're essentially just trying to find the slope at any point along this curve. But I'll try to do it algebraically, and maybe it'll even give you a little intuition for what we end up doing eventually in calculus. So the first thing I want to do is essentially find the slope right over here. And the best way to find the slope right over here is say, well, how much does my total revenue change if I have a very small change in quantity?"}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "It'll actually be very straightforward to do it with calculus because we're essentially just trying to find the slope at any point along this curve. But I'll try to do it algebraically, and maybe it'll even give you a little intuition for what we end up doing eventually in calculus. So the first thing I want to do is essentially find the slope right over here. And the best way to find the slope right over here is say, well, how much does my total revenue change if I have a very small change in quantity? So if I have a very small change in quantity, how much does my total revenue change? Well, let me think about it this way. And the other ones I will be able to approximate a little bit easier."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "And the best way to find the slope right over here is say, well, how much does my total revenue change if I have a very small change in quantity? So if I have a very small change in quantity, how much does my total revenue change? Well, let me think about it this way. And the other ones I will be able to approximate a little bit easier. So let's think of it this way. If my quantity is 0, my total revenue is 0. That one's easy."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "And the other ones I will be able to approximate a little bit easier. So let's think of it this way. If my quantity is 0, my total revenue is 0. That one's easy. If I increase my quantity very, very, very, very little, so let's just make it 0.001, what is going to be my total revenue? And we could think about it in terms of this curve right over here, or we could just use this expression, which we derived from price times quantity. And we will get, get my calculator out, if we have, if our quantity is 0.001, our total revenue is going to be negative, let me turn the calculator on, total revenue is going to be negative 0.001 squared, squared, so that's that part, plus 6 times 0.001."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "That one's easy. If I increase my quantity very, very, very, very little, so let's just make it 0.001, what is going to be my total revenue? And we could think about it in terms of this curve right over here, or we could just use this expression, which we derived from price times quantity. And we will get, get my calculator out, if we have, if our quantity is 0.001, our total revenue is going to be negative, let me turn the calculator on, total revenue is going to be negative 0.001 squared, squared, so that's that part, plus 6 times 0.001. So that's going to be our total revenue. So it's going to be 0.005999. So it's 0.00599."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "And we will get, get my calculator out, if we have, if our quantity is 0.001, our total revenue is going to be negative, let me turn the calculator on, total revenue is going to be negative 0.001 squared, squared, so that's that part, plus 6 times 0.001. So that's going to be our total revenue. So it's going to be 0.005999. So it's 0.00599. And so now we can figure out or get a pretty good approximation for that marginal revenue right at that point. Our change in quantity is 0.001, so our delta Q, this right over here, is 0.001, that's our change in quantity, and our change in revenue is 0.00599. And so we just have to divide 0.005999, that top one, our change in total revenue, divided by our change in quantity, divided by 0.001, and we get 5.99999."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "So it's 0.00599. And so now we can figure out or get a pretty good approximation for that marginal revenue right at that point. Our change in quantity is 0.001, so our delta Q, this right over here, is 0.001, that's our change in quantity, and our change in revenue is 0.00599. And so we just have to divide 0.005999, that top one, our change in total revenue, divided by our change in quantity, divided by 0.001, and we get 5.99999. It's essentially, and if you try it with even smaller numbers, if you tried this with 0.000001, you'll get 5 point, and you'll get even more 9's going on. So the closer that you get, the smaller your change in, and this is what you essentially do in calculus, you try to find a super small change right over here, this is essentially going to be 6. Our marginal revenue at this point is essentially going to be 6."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "And so we just have to divide 0.005999, that top one, our change in total revenue, divided by our change in quantity, divided by 0.001, and we get 5.99999. It's essentially, and if you try it with even smaller numbers, if you tried this with 0.000001, you'll get 5 point, and you'll get even more 9's going on. So the closer that you get, the smaller your change in, and this is what you essentially do in calculus, you try to find a super small change right over here, this is essentially going to be 6. Our marginal revenue at this point is essentially going to be 6. So what I want to do is I want to plot marginal revenue here on our demand curve as well, or on this axis where we've already plotted our demand curve. So when our quantity is 0, our marginal revenue, if we just barely increase quantity, the incremental total revenue we get is going to be 6. So I'll just plot it right over there."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "Our marginal revenue at this point is essentially going to be 6. So what I want to do is I want to plot marginal revenue here on our demand curve as well, or on this axis where we've already plotted our demand curve. So when our quantity is 0, our marginal revenue, if we just barely increase quantity, the incremental total revenue we get is going to be 6. So I'll just plot it right over there. And that makes sense. The marginal benefit in the market is 6 right at that point. So if we were to just sell a drop of orange juice, or I guess we're selling oranges in this case, not juice, but if we were to sell a millionth of a pound of oranges, we would get the equivalent of roughly $6 per pound for that millionth of a pound, because that's the marginal benefit for that very first incremental chunk of orange out there in the market."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "So I'll just plot it right over there. And that makes sense. The marginal benefit in the market is 6 right at that point. So if we were to just sell a drop of orange juice, or I guess we're selling oranges in this case, not juice, but if we were to sell a millionth of a pound of oranges, we would get the equivalent of roughly $6 per pound for that millionth of a pound, because that's the marginal benefit for that very first incremental chunk of orange out there in the market. So it makes complete sense. Now let's think about the slope at these other points. And these I'm going to approximate."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "So if we were to just sell a drop of orange juice, or I guess we're selling oranges in this case, not juice, but if we were to sell a millionth of a pound of oranges, we would get the equivalent of roughly $6 per pound for that millionth of a pound, because that's the marginal benefit for that very first incremental chunk of orange out there in the market. So it makes complete sense. Now let's think about the slope at these other points. And these I'm going to approximate. I could do it this way, but I'll just approximate it by using other points. So if I want to find the slope right over here, when our quantity is equal to 1, the slope would look like that. And I'm going to approximate it by finding the slope between these two points."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "And these I'm going to approximate. I could do it this way, but I'll just approximate it by using other points. So if I want to find the slope right over here, when our quantity is equal to 1, the slope would look like that. And I'm going to approximate it by finding the slope between these two points. I'm going to approximate it, and actually it's going to be a very good approximation. I'll do it later with calculus to show that it is a very good approximation. But I'm going to approximate it by the slope between these two points."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "And I'm going to approximate it by finding the slope between these two points. I'm going to approximate it, and actually it's going to be a very good approximation. I'll do it later with calculus to show that it is a very good approximation. But I'm going to approximate it by the slope between these two points. And between those two points, our change in quantity is 2, and our change in total revenue is 8. When we produced 2, our total revenue, or 2,000 pounds, our total revenue was $8,000. So we have a change in total revenue of 8, or 8,000 I guess we could say, divided by a change in quantity of 2,000."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "But I'm going to approximate it by the slope between these two points. And between those two points, our change in quantity is 2, and our change in total revenue is 8. When we produced 2, our total revenue, or 2,000 pounds, our total revenue was $8,000. So we have a change in total revenue of 8, or 8,000 I guess we could say, divided by a change in quantity of 2,000. So our marginal revenue at this point is 8 divided by 2, or 8,000 divided by 2,000, which is $4 per pound. So when our quantity is 1, our marginal revenue is $4 per pound. Just like that."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "So we have a change in total revenue of 8, or 8,000 I guess we could say, divided by a change in quantity of 2,000. So our marginal revenue at this point is 8 divided by 2, or 8,000 divided by 2,000, which is $4 per pound. So when our quantity is 1, our marginal revenue is $4 per pound. Just like that. Now let's think about the marginal revenue when our quantity is 2. And to do that, I'm going to find the slope between these two points. We really want to find the slope of that line, but it looks like the slope between these two points is a pretty good approximation."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "Just like that. Now let's think about the marginal revenue when our quantity is 2. And to do that, I'm going to find the slope between these two points. We really want to find the slope of that line, but it looks like the slope between these two points is a pretty good approximation. It's actually almost an exact number because the way that this is just a parabola, so we can actually do this. But anyway, this is fairly straightforward. Once again, our change in quantity is 2, and our change in total revenue is, we're going from 5 to 9, which is 4."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "We really want to find the slope of that line, but it looks like the slope between these two points is a pretty good approximation. It's actually almost an exact number because the way that this is just a parabola, so we can actually do this. But anyway, this is fairly straightforward. Once again, our change in quantity is 2, and our change in total revenue is, we're going from 5 to 9, which is 4. This was 9 right over here from the last video. Or you could say it's $4,000 divided by 2,000 pounds gives you $2 per pound. So our marginal revenue right over here, if we have quantity of 2, is $2 per pound."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "Once again, our change in quantity is 2, and our change in total revenue is, we're going from 5 to 9, which is 4. This was 9 right over here from the last video. Or you could say it's $4,000 divided by 2,000 pounds gives you $2 per pound. So our marginal revenue right over here, if we have quantity of 2, is $2 per pound. Right at that point, for that incremental millionth of an ounce that we're going to sell of oranges, we're getting the equivalent of $2 a pound of increased total revenue from doing that. And let's just do one more point here, and I think you'll see why I'm only going to do one more point. If we try to go up here, and we try to figure out what is the marginal revenue, or if we essentially say what is the slope there, how much do we get an increase in revenue if we just barely increase our quantity?"}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "So our marginal revenue right over here, if we have quantity of 2, is $2 per pound. Right at that point, for that incremental millionth of an ounce that we're going to sell of oranges, we're getting the equivalent of $2 a pound of increased total revenue from doing that. And let's just do one more point here, and I think you'll see why I'm only going to do one more point. If we try to go up here, and we try to figure out what is the marginal revenue, or if we essentially say what is the slope there, how much do we get an increase in revenue if we just barely increase our quantity? And this is actually easier to look at. This is a maximum point right over here in the calculus terms. The slope up there is 0."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "If we try to go up here, and we try to figure out what is the marginal revenue, or if we essentially say what is the slope there, how much do we get an increase in revenue if we just barely increase our quantity? And this is actually easier to look at. This is a maximum point right over here in the calculus terms. The slope up there is 0. We can even see that by approximating the slope between these two points. We have some change in quantity, but we have no change in total revenue. So right at that point, right over here the slope is barely positive."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "The slope up there is 0. We can even see that by approximating the slope between these two points. We have some change in quantity, but we have no change in total revenue. So right at that point, right over here the slope is barely positive. Right at that point the slope is 0, and then right past it it becomes barely negative. But right at that point, our marginal revenue is 0. So when our quantity is 3,000 pounds, our marginal revenue is 0."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "So right at that point, right over here the slope is barely positive. Right at that point the slope is 0, and then right past it it becomes barely negative. But right at that point, our marginal revenue is 0. So when our quantity is 3,000 pounds, our marginal revenue is 0. And then after that, our marginal revenue gets negative. Over here our marginal revenue gets more and more negative. But something very interesting happens."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "So when our quantity is 3,000 pounds, our marginal revenue is 0. And then after that, our marginal revenue gets negative. Over here our marginal revenue gets more and more negative. But something very interesting happens. When we plot our marginal revenue curve, or our line in this case, we are getting a line that is twice as steep as our demand curve. And this is actually generalizable. If we have a linear demand curve like this, it can be defined as a line, then your marginal revenue curve for the monopolist will also be a linear downward sloping curve or downward sloping line, and it will have twice the slope."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "But something very interesting happens. When we plot our marginal revenue curve, or our line in this case, we are getting a line that is twice as steep as our demand curve. And this is actually generalizable. If we have a linear demand curve like this, it can be defined as a line, then your marginal revenue curve for the monopolist will also be a linear downward sloping curve or downward sloping line, and it will have twice the slope. So this slope over here was negative 1. This slope over here is negative 2. For every increase in quantity, the price goes down by 2."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "If we have a linear demand curve like this, it can be defined as a line, then your marginal revenue curve for the monopolist will also be a linear downward sloping curve or downward sloping line, and it will have twice the slope. So this slope over here was negative 1. This slope over here is negative 2. For every increase in quantity, the price goes down by 2. Increase in quantity, price goes down by 2. Increase in quantity, price goes down by 2. So this is marginal revenue."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "For every increase in quantity, the price goes down by 2. Increase in quantity, price goes down by 2. Increase in quantity, price goes down by 2. So this is marginal revenue. And let's remind ourselves. We were doing all of this algebra and all of this math here. What is marginal revenue telling us?"}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "So this is marginal revenue. And let's remind ourselves. We were doing all of this algebra and all of this math here. What is marginal revenue telling us? This was the demand curve. It tells us for any given price, what quantity is demanded, or for any given quantity, what is the incremental marginal benefit, or I guess what's the price at which they could sell that quantity. From that, we were able to figure out the total revenue as a function of quantity."}, {"video_title": "Monopolist optimizing price Marginal revenue Microeconomics Khan Academy.mp3", "Sentence": "What is marginal revenue telling us? This was the demand curve. It tells us for any given price, what quantity is demanded, or for any given quantity, what is the incremental marginal benefit, or I guess what's the price at which they could sell that quantity. From that, we were able to figure out the total revenue as a function of quantity. And from that total revenue, we were able to say, well, look, at any of these quantities, if we were to increase a little bit more, if we were to increase quantity a little bit more, how much is our revenue increasing? And so obviously we want to keep increasing quantity while our revenue is... well, while the marginal revenue we get is larger than our marginal cost. We'll take that up in the next video."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "So when that immigration opens up and more people immigrate into the country, what is going to happen in this labor market? Pause this video and also think about what is going to be the new equilibrium quantity of labor and our new equilibrium wage and how might that affect this particular firm? All right, now let's do this together. So if all of a sudden you have a lot of immigration, new folks who can participate in this labor market, well, that's going to increase the supply at a given wage. So if this is the market labor supply curve, let's call that sub one, it's going to shift to the right. At a given wage, you are going to have more labor. So it's going to be like this."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "So if all of a sudden you have a lot of immigration, new folks who can participate in this labor market, well, that's going to increase the supply at a given wage. So if this is the market labor supply curve, let's call that sub one, it's going to shift to the right. At a given wage, you are going to have more labor. So it's going to be like this. So this is the market labor supply curve two. Now what does that do to the equilibrium wage and the quantity of labor? Well, our new equilibrium wage is going to be lower."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "So it's going to be like this. So this is the market labor supply curve two. Now what does that do to the equilibrium wage and the quantity of labor? Well, our new equilibrium wage is going to be lower. I'll put it right over there. I'll call that W sub two with a little star there. And then we have a higher equilibrium quantity of labor."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "Well, our new equilibrium wage is going to be lower. I'll put it right over there. I'll call that W sub two with a little star there. And then we have a higher equilibrium quantity of labor. So Q sub two, I'll put a star right over there. Now what happens for this firm? Well, our equilibrium wage in the market has gone down and we assume that this firm, it is a perfectly competitive labor market."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "And then we have a higher equilibrium quantity of labor. So Q sub two, I'll put a star right over there. Now what happens for this firm? Well, our equilibrium wage in the market has gone down and we assume that this firm, it is a perfectly competitive labor market. So this firm is just going to pay whatever the market wage is. And so the marginal factor cost for the firm has now shifted down. It is now, this is marginal factor cost one."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "Well, our equilibrium wage in the market has gone down and we assume that this firm, it is a perfectly competitive labor market. So this firm is just going to pay whatever the market wage is. And so the marginal factor cost for the firm has now shifted down. It is now, this is marginal factor cost one. Now this is marginal factor cost two. And now it is actually rational for the firm to produce more. So this is sub one, and let's call this quantity of labor sub two."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "It is now, this is marginal factor cost one. Now this is marginal factor cost two. And now it is actually rational for the firm to produce more. So this is sub one, and let's call this quantity of labor sub two. And so what are other things that might shift the supply curve for labor to the right? We just talked about immigration into a country. You could also imagine more people that are already in the country being willing or being able to participate in that labor market."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "So this is sub one, and let's call this quantity of labor sub two. And so what are other things that might shift the supply curve for labor to the right? We just talked about immigration into a country. You could also imagine more people that are already in the country being willing or being able to participate in that labor market. For example, in the second half of the 20th century, it became more acceptable for women to participate in the labor force. And so something like that, where all of a sudden you have all of these women entering into the labor force or into the labor market for a given market. Well, that could also shift the curve to the right."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "You could also imagine more people that are already in the country being willing or being able to participate in that labor market. For example, in the second half of the 20th century, it became more acceptable for women to participate in the labor force. And so something like that, where all of a sudden you have all of these women entering into the labor force or into the labor market for a given market. Well, that could also shift the curve to the right. Now let's think about the other way. Let's imagine that you have net migration out of a country. What would happen to the market labor supply curve?"}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "Well, that could also shift the curve to the right. Now let's think about the other way. Let's imagine that you have net migration out of a country. What would happen to the market labor supply curve? Well, in that situation, we would shift to the left like this. At a given wage, there would be fewer people that are willing to work. So this is the market labor supply curve."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "What would happen to the market labor supply curve? Well, in that situation, we would shift to the left like this. At a given wage, there would be fewer people that are willing to work. So this is the market labor supply curve. Curve, curve, I will call that sub three. There's other things that could cause it. Maybe people's preferences change, and in this particular labor market, people aren't willing to work there as much."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "So this is the market labor supply curve. Curve, curve, I will call that sub three. There's other things that could cause it. Maybe people's preferences change, and in this particular labor market, people aren't willing to work there as much. Maybe social norms change, where it's just not cool to work in that labor market. Maybe there's another labor market in another industry that all of a sudden is paying better. In that situation, fewer people would be willing to work in this labor market."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "Maybe people's preferences change, and in this particular labor market, people aren't willing to work there as much. Maybe social norms change, where it's just not cool to work in that labor market. Maybe there's another labor market in another industry that all of a sudden is paying better. In that situation, fewer people would be willing to work in this labor market. And so when you shift to the left, your market wages go up. So W sub three, just like that. The quantity of labor is going to go down, Q sub three."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "In that situation, fewer people would be willing to work in this labor market. And so when you shift to the left, your market wages go up. So W sub three, just like that. The quantity of labor is going to go down, Q sub three. And then as we see, if we look at how it impacts a particular firm, in a perfectly competitive labor market, this would be the marginal factor cost for a firm that's participating in that market. So this is MFC sub three. And then now, the quantity of labor that this firm would hire is going to go down."}, {"video_title": "Changes in labor supply Microeconomics Khan Academy.mp3", "Sentence": "The quantity of labor is going to go down, Q sub three. And then as we see, if we look at how it impacts a particular firm, in a perfectly competitive labor market, this would be the marginal factor cost for a firm that's participating in that market. So this is MFC sub three. And then now, the quantity of labor that this firm would hire is going to go down. So quantity that the firm hires, sub three, put a star over there, and it has gone down. So hopefully what we just went through isn't too much of a surprise for you. As you see, labor markets behave very similarly to the markets for many other things."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "We've talked a lot about demand, so now let's talk about supply. We'll use grapes as this example. We'll pretend to be grape farmers of some sort. I will start by introducing you, and maybe I'll do it in purple in honor of the grapes, to the law of supply, which like the law of demand, makes a lot of intuitive sense. If we hold all else equal, in the next few videos we'll talk about what happens when we change some of those things that we're going to hold equal right now. If you hold all else equal, and the only thing that you're doing is you're changing price, then the law of supply says that if the price goes up, I'll just say P for price, if the price goes up, then the supply, or let me be careful, the quantity supplied, the quantity supplied goes up. Then you can imagine if the price goes down, the quantity supplied goes down."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "I will start by introducing you, and maybe I'll do it in purple in honor of the grapes, to the law of supply, which like the law of demand, makes a lot of intuitive sense. If we hold all else equal, in the next few videos we'll talk about what happens when we change some of those things that we're going to hold equal right now. If you hold all else equal, and the only thing that you're doing is you're changing price, then the law of supply says that if the price goes up, I'll just say P for price, if the price goes up, then the supply, or let me be careful, the quantity supplied, the quantity supplied goes up. Then you can imagine if the price goes down, the quantity supplied goes down. You might already notice that I was careful to say quantity supplied. It's just like we saw with demand. When we talk about demand going up or down, we're talking about the entire price-quantity relationship shifting."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Then you can imagine if the price goes down, the quantity supplied goes down. You might already notice that I was careful to say quantity supplied. It's just like we saw with demand. When we talk about demand going up or down, we're talking about the entire price-quantity relationship shifting. When we talk about a particular quantity demanded, we say quantity demanded. We don't just say demanded. This is the exact same thing for supply."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "When we talk about demand going up or down, we're talking about the entire price-quantity relationship shifting. When we talk about a particular quantity demanded, we say quantity demanded. We don't just say demanded. This is the exact same thing for supply. When we're talking about a particular quantity, we'll be careful to say quantity. If we talk about supply increasing, we're talking about the entire relationship shifting, or either up or down. Let's just make sure that this makes intuitive sense for us, and I think it probably does."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "This is the exact same thing for supply. When we're talking about a particular quantity, we'll be careful to say quantity. If we talk about supply increasing, we're talking about the entire relationship shifting, or either up or down. Let's just make sure that this makes intuitive sense for us, and I think it probably does. Let's think about ourselves as grape farmers, and I'll make a little supply schedule right over here. Grape supply schedule, which is really just a table showing the relationship between all else equal, the price, and the quantity supplied. Let's label some scenarios over here, just like we did with the demand schedule."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Let's just make sure that this makes intuitive sense for us, and I think it probably does. Let's think about ourselves as grape farmers, and I'll make a little supply schedule right over here. Grape supply schedule, which is really just a table showing the relationship between all else equal, the price, and the quantity supplied. Let's label some scenarios over here, just like we did with the demand schedule. Scenarios, and then let's put our price over here. This will be in price per pound, the per pound price of grapes. Then this is the quantity produced over the time period."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Let's label some scenarios over here, just like we did with the demand schedule. Scenarios, and then let's put our price over here. This will be in price per pound, the per pound price of grapes. Then this is the quantity produced over the time period. Whenever we do any of these supply or demand schedules, we're talking over a particular time period. It could be per day, it could be per month, it could be per year, but that's the only way to make some sense of, okay, what is the quantity per day going to be produced, if that's the price. If we didn't say per day, we don't know what we're really talking about."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Then this is the quantity produced over the time period. Whenever we do any of these supply or demand schedules, we're talking over a particular time period. It could be per day, it could be per month, it could be per year, but that's the only way to make some sense of, okay, what is the quantity per day going to be produced, if that's the price. If we didn't say per day, we don't know what we're really talking about. Quantity supplied. Let's just say scenario A, if the price per pound of grapes is 50 cents, if it's 50 cents per pound, actually let me just do round numbers, but you get the idea. If the price per pound is $1, let's just say for us, we consider that to be a relatively low price."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If we didn't say per day, we don't know what we're really talking about. Quantity supplied. Let's just say scenario A, if the price per pound of grapes is 50 cents, if it's 50 cents per pound, actually let me just do round numbers, but you get the idea. If the price per pound is $1, let's just say for us, we consider that to be a relatively low price. We'll only do the easiest land, our most fertile land, where it's easy to produce grapes, and maybe the fertile and cheap land, so no one else wants to use that land for other things. It's only good for growing grapes. We will provide, so this is price per pound, and in that situation, we can produce 1,000 pounds in this year."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If the price per pound is $1, let's just say for us, we consider that to be a relatively low price. We'll only do the easiest land, our most fertile land, where it's easy to produce grapes, and maybe the fertile and cheap land, so no one else wants to use that land for other things. It's only good for growing grapes. We will provide, so this is price per pound, and in that situation, we can produce 1,000 pounds in this year. I've never been a grape farmer, so I actually don't know if that's a reasonable amount or not, but I'll just go with it, 1,000 pounds. Now, let's take scenario B. Let's say the price goes up to $2."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "We will provide, so this is price per pound, and in that situation, we can produce 1,000 pounds in this year. I've never been a grape farmer, so I actually don't know if that's a reasonable amount or not, but I'll just go with it, 1,000 pounds. Now, let's take scenario B. Let's say the price goes up to $2. Now, not only would we produce what we were producing before, but we might now want to maybe buy some more land, land that might have had other uses, land that's maybe not as productive for grapes, but we would because now we can get more for grapes. Maybe now we're willing to produce 2,000 pounds. We could keep going."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Let's say the price goes up to $2. Now, not only would we produce what we were producing before, but we might now want to maybe buy some more land, land that might have had other uses, land that's maybe not as productive for grapes, but we would because now we can get more for grapes. Maybe now we're willing to produce 2,000 pounds. We could keep going. The same dynamics keep happening. Let's say if the price were $3 per pound, now we do want to produce more. Maybe we're even willing to work a little harder or plant things closer to each other, or maybe I'll get even more land involved that I would have otherwise used for other crops."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "We could keep going. The same dynamics keep happening. Let's say if the price were $3 per pound, now we do want to produce more. Maybe we're even willing to work a little harder or plant things closer to each other, or maybe I'll get even more land involved that I would have otherwise used for other crops. Then I'm going to produce 2,500 pounds. I'll do one more scenario. Let's say scenario D, the price goes to $4 a pound."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Maybe we're even willing to work a little harder or plant things closer to each other, or maybe I'll get even more land involved that I would have otherwise used for other crops. Then I'm going to produce 2,500 pounds. I'll do one more scenario. Let's say scenario D, the price goes to $4 a pound. Same dynamic. I will stop planting other crops, use them now for grapes because grape prices are so high. I will produce 2,750 pounds."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Let's say scenario D, the price goes to $4 a pound. Same dynamic. I will stop planting other crops, use them now for grapes because grape prices are so high. I will produce 2,750 pounds. We can draw a supply curve just like we have drawn demand curves. It's the same exact convention, which I'm not a fan of, of putting price on the vertical axis because, as you see, we tend to talk about price as the independent variable. We don't always talk about it that way."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "I will produce 2,750 pounds. We can draw a supply curve just like we have drawn demand curves. It's the same exact convention, which I'm not a fan of, of putting price on the vertical axis because, as you see, we tend to talk about price as the independent variable. We don't always talk about it that way. In most of math and science, you put the independent variable on the horizontal axis, but the convention in economics is to put it on the vertical axis. Price on the vertical axis, this is really price per pound. Then in the horizontal axis, quantity produced, I'll say in the next year."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "We don't always talk about it that way. In most of math and science, you put the independent variable on the horizontal axis, but the convention in economics is to put it on the vertical axis. Price on the vertical axis, this is really price per pound. Then in the horizontal axis, quantity produced, I'll say in the next year. We're assuming all of this is for the next year. Next year, and it's in thousands of pounds. I'll put it in thousands of pounds."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Then in the horizontal axis, quantity produced, I'll say in the next year. We're assuming all of this is for the next year. Next year, and it's in thousands of pounds. I'll put it in thousands of pounds. Let's see. We go all the way from 1,000 to close to 3,000. Let's say this is 1,000."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "I'll put it in thousands of pounds. Let's see. We go all the way from 1,000 to close to 3,000. Let's say this is 1,000. That's one for 1,000. That's 2,000, and that is 3,000. Then the price goes all the way up to 4."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Let's say this is 1,000. That's one for 1,000. That's 2,000, and that is 3,000. Then the price goes all the way up to 4. It's 1, 2, 3, and then 4. We can just plot these points. These are specific points on the supply curve."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Then the price goes all the way up to 4. It's 1, 2, 3, and then 4. We can just plot these points. These are specific points on the supply curve. At $1, we would supply 1,000 pounds. At $1, 1,000 pounds. That's scenario A."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "These are specific points on the supply curve. At $1, we would supply 1,000 pounds. At $1, 1,000 pounds. That's scenario A. At $2, we would supply 2,000 pounds. $2, we'd supply 2,000 pounds. That's scenario B."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "That's scenario A. At $2, we would supply 2,000 pounds. $2, we'd supply 2,000 pounds. That's scenario B. At $3, we'd supply 2,500 pounds. $3, I'm sorry. Notice I get my axes confused."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "That's scenario B. At $3, we'd supply 2,500 pounds. $3, I'm sorry. Notice I get my axes confused. This is price. This is what we're kind of, when we talk about it this way, that we're kind of viewing the thing that's changing. Although, you don't always have to view it that way."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Notice I get my axes confused. This is price. This is what we're kind of, when we talk about it this way, that we're kind of viewing the thing that's changing. Although, you don't always have to view it that way. At $1, 1,000 pounds. $2, 2,000 pounds. $3, this isn't $3."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Although, you don't always have to view it that way. At $1, 1,000 pounds. $2, 2,000 pounds. $3, this isn't $3. This is $3. $3, 2,500 pounds. Right about there."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "$3, this isn't $3. This is $3. $3, 2,500 pounds. Right about there. That looks, that's about 2,500. I want to do it in that blue color so we don't get confused. $3, 2,500 pounds."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Right about there. That looks, that's about 2,500. I want to do it in that blue color so we don't get confused. $3, 2,500 pounds. That's about right. This is scenario C. Then scenario D at $4. Actually, let me be a little bit clearer with that because we're getting kind of close."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "$3, 2,500 pounds. That's about right. This is scenario C. Then scenario D at $4. Actually, let me be a little bit clearer with that because we're getting kind of close. This is 2,500 pounds. Gets us right over here. This is scenario C. Then scenario D at $4, $4, 2,750."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Actually, let me be a little bit clearer with that because we're getting kind of close. This is 2,500 pounds. Gets us right over here. This is scenario C. Then scenario D at $4, $4, 2,750. 2,750 is like right over there. That is $4. That is scenario D. If we connect them, they should all be on our supply curve."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "This is scenario C. Then scenario D at $4, $4, 2,750. 2,750 is like right over there. That is $4. That is scenario D. If we connect them, they should all be on our supply curve. They will all be, it will look something like that. There's some minimum price. There's some minimum price we would need to supply some grapes at all."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "That is scenario D. If we connect them, they should all be on our supply curve. They will all be, it will look something like that. There's some minimum price. There's some minimum price we would need to supply some grapes at all. We wouldn't give them away for free. Maybe that's something that minimum price is like over here that just to even get started producing grapes. This right over here is what our supply curve would look like."}, {"video_title": "Law of supply Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "There's some minimum price we would need to supply some grapes at all. We wouldn't give them away for free. Maybe that's something that minimum price is like over here that just to even get started producing grapes. This right over here is what our supply curve would look like. Remember, the only thing we're varying here is the price. If the price were to change all else equal, we would move along this curve here. In the next few videos, I'll talk about all of those other things we've been holding equal and what they would do at any given price point to this curve or in general what they would do to the curve."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "You have probably heard of things like the stock market, or you have probably gone to a supermarket to do your groceries. What's common about these things? Well, if we want to say as broad of a definition of a market, you could view it as a market forms, let me write this down, oh, this is an informal definition, forms when multiple parties, multiple parties, exchange things of value, exchange things of value. And let's see whether our notions of a market hold up, or whether this definition holds up when we think about our notions of a market. Well, in a stock market, you have a bunch of people together and they are trading stocks. And usually what happens is, let's see if this is a stock right over here, these are all different shares of, could be the same stock or of different stocks. What typically happens is if there might be parties who want to sell this stock, and then there's other parties who want to buy this stock, and then whoever of the buyers is willing to offer the most for that share, well, then that money will go to the seller of the stock, and then that stock will go to the party that just paid that amount."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And let's see whether our notions of a market hold up, or whether this definition holds up when we think about our notions of a market. Well, in a stock market, you have a bunch of people together and they are trading stocks. And usually what happens is, let's see if this is a stock right over here, these are all different shares of, could be the same stock or of different stocks. What typically happens is if there might be parties who want to sell this stock, and then there's other parties who want to buy this stock, and then whoever of the buyers is willing to offer the most for that share, well, then that money will go to the seller of the stock, and then that stock will go to the party that just paid that amount. And so you see that there's an exchange of things of value. At a supermarket, you will see aisles and aisles of goods. This is my drawing of a aisle of goods."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "What typically happens is if there might be parties who want to sell this stock, and then there's other parties who want to buy this stock, and then whoever of the buyers is willing to offer the most for that share, well, then that money will go to the seller of the stock, and then that stock will go to the party that just paid that amount. And so you see that there's an exchange of things of value. At a supermarket, you will see aisles and aisles of goods. This is my drawing of a aisle of goods. And there's all sorts of merchandise on them, and you put them in your shopping cart, and then when you're done, you go to the checkout, that's my little shopping cart here, you go to the checkout and you pay for them. So once again, you are picking which items you want. There's a price on them, so the seller, which in this case is the supermarket, tells you what they're willing to take for those items, and then when you put them in your cart and then take it to the checkout, that's you agreeing to pay those prices, and so you exchange, once again, money for those things of value."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "This is my drawing of a aisle of goods. And there's all sorts of merchandise on them, and you put them in your shopping cart, and then when you're done, you go to the checkout, that's my little shopping cart here, you go to the checkout and you pay for them. So once again, you are picking which items you want. There's a price on them, so the seller, which in this case is the supermarket, tells you what they're willing to take for those items, and then when you put them in your cart and then take it to the checkout, that's you agreeing to pay those prices, and so you exchange, once again, money for those things of value. So the money has value, and those groceries or whatever you're buying might have value. Now, we tend to believe that markets are the best way of allocating resources. And different markets work different ways."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "There's a price on them, so the seller, which in this case is the supermarket, tells you what they're willing to take for those items, and then when you put them in your cart and then take it to the checkout, that's you agreeing to pay those prices, and so you exchange, once again, money for those things of value. So the money has value, and those groceries or whatever you're buying might have value. Now, we tend to believe that markets are the best way of allocating resources. And different markets work different ways. As you can just see, the stock market could be very different than a supermarket, and then you could have an auction where things are auctioned off. That would also be a form of a market, but the actual mechanics of how things happen would be a little bit different. But a key factor that you need in order for markets to function properly is that you need to have a notion of property rights."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And different markets work different ways. As you can just see, the stock market could be very different than a supermarket, and then you could have an auction where things are auctioned off. That would also be a form of a market, but the actual mechanics of how things happen would be a little bit different. But a key factor that you need in order for markets to function properly is that you need to have a notion of property rights. And as we've talked about in previous videos, property rights are the idea that things can be owned. Now, what does it mean to own something? We almost just take this for granted, but it's not some law of the universe."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But a key factor that you need in order for markets to function properly is that you need to have a notion of property rights. And as we've talked about in previous videos, property rights are the idea that things can be owned. Now, what does it mean to own something? We almost just take this for granted, but it's not some law of the universe. It's something that we just assume culturally, and it's become so embedded in us that we just say, of course you can own something. But at the end of the day, there's three real properties to owning something. One is the idea of a party being able to exclusively own something."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "We almost just take this for granted, but it's not some law of the universe. It's something that we just assume culturally, and it's become so embedded in us that we just say, of course you can own something. But at the end of the day, there's three real properties to owning something. One is the idea of a party being able to exclusively own something. So let's say that you own a piece of land that you want to farm on. Well, that means that you can exclude others from using that land, and whatever that land produces, it might just be a fun place for you to run around or to sunbathe, or it might be a place where you grow some food, that you have the rights to the benefits of that thing. Now, another key dimension of property rights is that those rights have to be enforceable."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "One is the idea of a party being able to exclusively own something. So let's say that you own a piece of land that you want to farm on. Well, that means that you can exclude others from using that land, and whatever that land produces, it might just be a fun place for you to run around or to sunbathe, or it might be a place where you grow some food, that you have the rights to the benefits of that thing. Now, another key dimension of property rights is that those rights have to be enforceable. Enforceable. What does that mean? Well, if someone obnoxious wants to come and sunbathe on your property that you have enjoyed running around and sunbathing on, you say, hey, you're infringing on my property rights, and you should be able to call the police or some type of enforcers to take that person off your land if you really do have property rights and if they are truly exclusive."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, another key dimension of property rights is that those rights have to be enforceable. Enforceable. What does that mean? Well, if someone obnoxious wants to come and sunbathe on your property that you have enjoyed running around and sunbathing on, you say, hey, you're infringing on my property rights, and you should be able to call the police or some type of enforcers to take that person off your land if you really do have property rights and if they are truly exclusive. Or let's say you have property rights on your shoes, and if someone were to steal your shoes, you should be able to call the police and say, a crime has been committed, and the police should enforce those property rights. They should go and get those shoes back and punish that shoe stealer in some way. And then last but not least, in order for markets to work well, those property rights have to be transferable."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, if someone obnoxious wants to come and sunbathe on your property that you have enjoyed running around and sunbathing on, you say, hey, you're infringing on my property rights, and you should be able to call the police or some type of enforcers to take that person off your land if you really do have property rights and if they are truly exclusive. Or let's say you have property rights on your shoes, and if someone were to steal your shoes, you should be able to call the police and say, a crime has been committed, and the police should enforce those property rights. They should go and get those shoes back and punish that shoe stealer in some way. And then last but not least, in order for markets to work well, those property rights have to be transferable. Remember, a market is all about transferring property rights. In the stock market, the one party is giving, is transferring their property rights to that money to the seller of the stock in exchange for getting the seller of the stock's property rights to the actual stocks. If this was not transferable, then it would actually make no sense to have a market as we know it."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then last but not least, in order for markets to work well, those property rights have to be transferable. Remember, a market is all about transferring property rights. In the stock market, the one party is giving, is transferring their property rights to that money to the seller of the stock in exchange for getting the seller of the stock's property rights to the actual stocks. If this was not transferable, then it would actually make no sense to have a market as we know it. So I'll leave you there. These are things in our daily life that most of us take for granted because we live in a market economy and we are used to things like ownership. But there are definitely ways of organizing society where it's not as based on markets in terms of who gets what."}, {"video_title": "Markets and property rights AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "If this was not transferable, then it would actually make no sense to have a market as we know it. So I'll leave you there. These are things in our daily life that most of us take for granted because we live in a market economy and we are used to things like ownership. But there are definitely ways of organizing society where it's not as based on markets in terms of who gets what. And even today, markets in many sectors or in many parts of the world don't operate as well as they could because some of these dimensions of property rights aren't working as properly as they should. It might be hard to transfer property rights in certain markets. In certain markets, if someone, let's say, just takes over a property, the government might not be so good at enforcing those property rights."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And the first question is, what is her total utility from purchasing three toy cars? So pause this video and see if you can answer that. All right, now let's work through this together. So let's just make sure we understand this table here. So this says that the first bagel that Teresa consumes, she gets eight units of marginal utility from that. Then the second bagel, she gets a little bit less marginal utility. Some of her bagel craving has already been satisfied by that first one."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So let's just make sure we understand this table here. So this says that the first bagel that Teresa consumes, she gets eight units of marginal utility from that. Then the second bagel, she gets a little bit less marginal utility. Some of her bagel craving has already been satisfied by that first one. And then the third bagel, the marginal utility goes down a little bit, and then that keeps happening for each incremental bagel. And on the toy side, we see that that first toy, she gets a lot of marginal utility, 10. And then the next toy gets a little bit less."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Some of her bagel craving has already been satisfied by that first one. And then the third bagel, the marginal utility goes down a little bit, and then that keeps happening for each incremental bagel. And on the toy side, we see that that first toy, she gets a lot of marginal utility, 10. And then the next toy gets a little bit less. And then you see that the marginal utility for each incremental toy gets a little bit lower and lower. So now let's answer the first question. What is her total utility from purchasing three toy cars?"}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then the next toy gets a little bit less. And then you see that the marginal utility for each incremental toy gets a little bit lower and lower. So now let's answer the first question. What is her total utility from purchasing three toy cars? Well, that first toy car, she gets a utility of 10. Then that second toy car, she gets a utility of eight. And then that third toy car, her marginal utility for that incremental car is six."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "What is her total utility from purchasing three toy cars? Well, that first toy car, she gets a utility of 10. Then that second toy car, she gets a utility of eight. And then that third toy car, her marginal utility for that incremental car is six. So the total utility is going to be 10 plus eight plus six, which is what, 10 plus 14? This is going to be equal to 24 units of marginal utility. All right, now let's do part two."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then that third toy car, her marginal utility for that incremental car is six. So the total utility is going to be 10 plus eight plus six, which is what, 10 plus 14? This is going to be equal to 24 units of marginal utility. All right, now let's do part two. Teresa's weekly income is $11. The price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Teresa's utility if she spends her entire weekly income on bagels and toy cars?"}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "All right, now let's do part two. Teresa's weekly income is $11. The price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Teresa's utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. So once again, pause this video and see if you can figure that out. All right, now let's do this together."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "What quantity of bagels and toy cars will maximize Teresa's utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. So once again, pause this video and see if you can figure that out. All right, now let's do this together. And I'll scroll down a little bit so I have some space. So the key thing is is when, once we know the price of a bagel and the price of a toy, and we know the marginal utility for every incremental bagel or toy, we can figure out our bang for our buck. We can figure out what is going to be the marginal utility per dollar from that incremental bagel and that incremental toy car."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "All right, now let's do this together. And I'll scroll down a little bit so I have some space. So the key thing is is when, once we know the price of a bagel and the price of a toy, and we know the marginal utility for every incremental bagel or toy, we can figure out our bang for our buck. We can figure out what is going to be the marginal utility per dollar from that incremental bagel and that incremental toy car. And so we can, let's just explain first. So Teresa, Teresa will maximize, maximize her marginal utility per incremental dollar, per dollar, or let me put it this way, per dollar when making purchases on the margin, making, maybe, making purchases on the margin. So her next incremental purchase, her next incremental, incremental purchase."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "We can figure out what is going to be the marginal utility per dollar from that incremental bagel and that incremental toy car. And so we can, let's just explain first. So Teresa, Teresa will maximize, maximize her marginal utility per incremental dollar, per dollar, or let me put it this way, per dollar when making purchases on the margin, making, maybe, making purchases on the margin. So her next incremental purchase, her next incremental, incremental purchase. So we can write over here, bagel marginal utility per dollar. That'll be one row here. And then we could write car or toy marginal utility per dollar."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So her next incremental purchase, her next incremental, incremental purchase. So we can write over here, bagel marginal utility per dollar. That'll be one row here. And then we could write car or toy marginal utility per dollar. And then, let me set up these rows right over here. And then we could think about it if she, for the first one, for the second one, for the third one, for the fourth one. Let's see, we go up to six."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then we could write car or toy marginal utility per dollar. And then, let me set up these rows right over here. And then we could think about it if she, for the first one, for the second one, for the third one, for the fourth one. Let's see, we go up to six. Fifth one, and then we go to our sixth one. So let's start with bagels. Bagels cost $2."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Let's see, we go up to six. Fifth one, and then we go to our sixth one. So let's start with bagels. Bagels cost $2. So that first bagel, she gets eight marginal utility units. Well, that's going to be four marginal utility units per dollar, eight divided by two. So that's four units per dollar."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Bagels cost $2. So that first bagel, she gets eight marginal utility units. Well, that's going to be four marginal utility units per dollar, eight divided by two. So that's four units per dollar. And then that second bagel, she gets seven units, but it costs $2, so it's seven divided by two units per dollar. So that's going to be 3.5. And then six divided by two is three."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that's four units per dollar. And then that second bagel, she gets seven units, but it costs $2, so it's seven divided by two units per dollar. So that's going to be 3.5. And then six divided by two is three. Five divided by two is 2.5. Four divided by two is two. So that fifth bagel, two marginal utility units per dollar."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then six divided by two is three. Five divided by two is 2.5. Four divided by two is two. So that fifth bagel, two marginal utility units per dollar. And then that sixth bagel, three divided by two, is 1.5 marginal utility units per dollar. And now we can think about toys. Each toy is $1."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that fifth bagel, two marginal utility units per dollar. And then that sixth bagel, three divided by two, is 1.5 marginal utility units per dollar. And now we can think about toys. Each toy is $1. So if she gets 10 marginal utility units from that first toy, it only costs her a dollar, so it's 10 utility units per dollar. So it's 10 there. It would be eight here."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Each toy is $1. So if she gets 10 marginal utility units from that first toy, it only costs her a dollar, so it's 10 utility units per dollar. So it's 10 there. It would be eight here. We're just dividing each of these by one, so six here, so it's just gonna be the same number again. Four, three, and two. So now that we set this up, and let me scroll down a little bit so I have a little bit more space, I have all the data I need."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "It would be eight here. We're just dividing each of these by one, so six here, so it's just gonna be the same number again. Four, three, and two. So now that we set this up, and let me scroll down a little bit so I have a little bit more space, I have all the data I need. We can think about what would be rational for her for thinking about how she's going to spend that $11 per week. Her first purchase, she's like, wow, from the get-go, that if I'm picking between bagels and toys that first toy has a much higher marginal utility per dollar than that first bagel. So she's going to start here, and then she says, okay, next do I wanna buy a bagel or a toy?"}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So now that we set this up, and let me scroll down a little bit so I have a little bit more space, I have all the data I need. We can think about what would be rational for her for thinking about how she's going to spend that $11 per week. Her first purchase, she's like, wow, from the get-go, that if I'm picking between bagels and toys that first toy has a much higher marginal utility per dollar than that first bagel. So she's going to start here, and then she says, okay, next do I wanna buy a bagel or a toy? But even that second toy, the marginal utility per dollar, is still higher than that first bagel. So then she'll buy a second toy. Then she'll think about it, and so far she's only spent $2, so we have a lot of money still left."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So she's going to start here, and then she says, okay, next do I wanna buy a bagel or a toy? But even that second toy, the marginal utility per dollar, is still higher than that first bagel. So then she'll buy a second toy. Then she'll think about it, and so far she's only spent $2, so we have a lot of money still left. Then she'll think about, okay, do I wanna spend that next incremental amount on a toy or a bagel? Well, still, she gets more marginal utility per dollar from the toy, so she'll spend that. She has spent $3 so far, $1, $2, $3."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Then she'll think about it, and so far she's only spent $2, so we have a lot of money still left. Then she'll think about, okay, do I wanna spend that next incremental amount on a toy or a bagel? Well, still, she gets more marginal utility per dollar from the toy, so she'll spend that. She has spent $3 so far, $1, $2, $3. And now, when she thinks about how to spend her next few dollars, she says, well, now I'm indifferent between bagels and toys. The marginal utility per dollar is the same. So she might maybe spend the next one on a toy, and then right after that, she'll go to bagels, finally, and buy a bagel."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "She has spent $3 so far, $1, $2, $3. And now, when she thinks about how to spend her next few dollars, she says, well, now I'm indifferent between bagels and toys. The marginal utility per dollar is the same. So she might maybe spend the next one on a toy, and then right after that, she'll go to bagels, finally, and buy a bagel. Well, let's think about how much she has spent so far. She's spent $4 on toys and $2 on bagels, so the order might look something like this, and then she goes and maybe buys her bagel. And now, the marginal utility per dollar for that incremental bagel is higher than for her next toy."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So she might maybe spend the next one on a toy, and then right after that, she'll go to bagels, finally, and buy a bagel. Well, let's think about how much she has spent so far. She's spent $4 on toys and $2 on bagels, so the order might look something like this, and then she goes and maybe buys her bagel. And now, the marginal utility per dollar for that incremental bagel is higher than for her next toy. And so then she'll probably buy, she would buy another bagel right here, and let's see how much money she has spent. Two bagels are $4, plus she spent $4 on toys because their dollar each was $8, so she still has $3 to spend. Now, her marginal utility per dollar is neutral between bagels and toys, between the incremental, that third bagel, and that fifth toy, so she's indifferent between the two, so she could probably get both of them."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And now, the marginal utility per dollar for that incremental bagel is higher than for her next toy. And so then she'll probably buy, she would buy another bagel right here, and let's see how much money she has spent. Two bagels are $4, plus she spent $4 on toys because their dollar each was $8, so she still has $3 to spend. Now, her marginal utility per dollar is neutral between bagels and toys, between the incremental, that third bagel, and that fifth toy, so she's indifferent between the two, so she could probably get both of them. So she might do something like that, buy that, and then she could buy that, or she could do that in the other order. And let's see how much money she has spent. She has spent $5 on toys, and she has spent $6 on bagels, and so she has spent her $11."}, {"video_title": "Marginal utllity free response example AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, her marginal utility per dollar is neutral between bagels and toys, between the incremental, that third bagel, and that fifth toy, so she's indifferent between the two, so she could probably get both of them. So she might do something like that, buy that, and then she could buy that, or she could do that in the other order. And let's see how much money she has spent. She has spent $5 on toys, and she has spent $6 on bagels, and so she has spent her $11. And so to answer the first question, so she would buy, she would buy five toys, five toys, and three bagels, and three bagels, based on this strategy of maximizing marginal utility per dollar for each incremental purchase. Did I answer all of the questions? We said the quantity of bagels and toys that will maximize her marginal utility if she spends her weekly income, and then we have explained using marginal analysis."}, {"video_title": "Market demand as the sum of individual demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "It's to appreciate that the demand curves for a market are really the sum of the individual demand curves for every member of that market. And most markets will have many tens or hundreds of thousands of actors in it, maybe millions or tens of millions of actors in it, but for the sake of simplifying things, we're going to assume that the apple market has only two buyers. And we have their demand curves right over here. This is the demand curve for buyer one, and this is the demand curve for buyer two. And so if the vertical axis is price, and maybe this is price per pound of apples, and quantity, let's just say that's pounds per time period, maybe pounds per week, we can see that from buyer one's demand curve that at a price of one, two, three, four, five dollars per pound, they don't want to buy any pounds. At a price of three dollars per pound, they're willing to buy one pound per week. At a price of one dollar per pound, they're willing to buy two pounds per week."}, {"video_title": "Market demand as the sum of individual demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "This is the demand curve for buyer one, and this is the demand curve for buyer two. And so if the vertical axis is price, and maybe this is price per pound of apples, and quantity, let's just say that's pounds per time period, maybe pounds per week, we can see that from buyer one's demand curve that at a price of one, two, three, four, five dollars per pound, they don't want to buy any pounds. At a price of three dollars per pound, they're willing to buy one pound per week. At a price of one dollar per pound, they're willing to buy two pounds per week. We can similarly look at the demand curve for buyer two, and sometimes you'll see this in table form where it's called a demand schedule. But you can see at one, two, three, four, five, six, seven, at seven dollars, buyer two is not interested in apples. It's seven dollars a pound."}, {"video_title": "Market demand as the sum of individual demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "At a price of one dollar per pound, they're willing to buy two pounds per week. We can similarly look at the demand curve for buyer two, and sometimes you'll see this in table form where it's called a demand schedule. But you can see at one, two, three, four, five, six, seven, at seven dollars, buyer two is not interested in apples. It's seven dollars a pound. At five dollars a pound, they are interested in buying two pounds of apples per week. At three dollars per pound, they're interested in buying, so let's see, this is one, two, three, four, five pounds per week. And at one dollar per pound, they're interested in buying six, seven, eight pounds per week."}, {"video_title": "Market demand as the sum of individual demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "It's seven dollars a pound. At five dollars a pound, they are interested in buying two pounds of apples per week. At three dollars per pound, they're interested in buying, so let's see, this is one, two, three, four, five pounds per week. And at one dollar per pound, they're interested in buying six, seven, eight pounds per week. So based on this data here, buyer one and buyer two are the only individuals in this market. Once again, a huge oversimplification. What would the market demand curve look like?"}, {"video_title": "Market demand as the sum of individual demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And at one dollar per pound, they're interested in buying six, seven, eight pounds per week. So based on this data here, buyer one and buyer two are the only individuals in this market. Once again, a huge oversimplification. What would the market demand curve look like? Pause this video and try to think that through. Well, if we go to the various prices, so let's see, at a price of seven dollars, there is not going to be any interest in any apples. So I could maybe put that right over there at a price of seven dollars."}, {"video_title": "Market demand as the sum of individual demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "What would the market demand curve look like? Pause this video and try to think that through. Well, if we go to the various prices, so let's see, at a price of seven dollars, there is not going to be any interest in any apples. So I could maybe put that right over there at a price of seven dollars. But what happens as the price goes down? And we could just sample what happens when we get to a price of five dollars? Buyer one is still not interested, but buyer two is now willing to buy two pounds per week."}, {"video_title": "Market demand as the sum of individual demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So I could maybe put that right over there at a price of seven dollars. But what happens as the price goes down? And we could just sample what happens when we get to a price of five dollars? Buyer one is still not interested, but buyer two is now willing to buy two pounds per week. And so at a price of five dollars, the market as a whole is willing to buy two pounds from buyer two and zero pounds from buyer one, so we'll have a total of two pounds. So right over there. So that is at five dollars per pound, the market is willing to, is demanding a quantity of two pounds per week."}, {"video_title": "Market demand as the sum of individual demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Buyer one is still not interested, but buyer two is now willing to buy two pounds per week. And so at a price of five dollars, the market as a whole is willing to buy two pounds from buyer two and zero pounds from buyer one, so we'll have a total of two pounds. So right over there. So that is at five dollars per pound, the market is willing to, is demanding a quantity of two pounds per week. And then let's go to three dollars. At three dollars, now buyer one would buy one pound per week, and buyer two would buy five pounds per week. So in total, there would be six pounds demanded, or the quantity demanded would be six pounds."}, {"video_title": "Market demand as the sum of individual demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that is at five dollars per pound, the market is willing to, is demanding a quantity of two pounds per week. And then let's go to three dollars. At three dollars, now buyer one would buy one pound per week, and buyer two would buy five pounds per week. So in total, there would be six pounds demanded, or the quantity demanded would be six pounds. So three dollars, the quantity demanded is three, four, five, six, so that would put us right about there. And then last but not least, once again, I'm just sampling these points to make the point to you that we really would just add, we would take the sum of these two curves, but we're kind of stacking them, we are stacking them horizontally as opposed to vertical, because for any given price, we're adding up the quantities. So let's go to one dollar a pound."}, {"video_title": "Market demand as the sum of individual demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So in total, there would be six pounds demanded, or the quantity demanded would be six pounds. So three dollars, the quantity demanded is three, four, five, six, so that would put us right about there. And then last but not least, once again, I'm just sampling these points to make the point to you that we really would just add, we would take the sum of these two curves, but we're kind of stacking them, we are stacking them horizontally as opposed to vertical, because for any given price, we're adding up the quantities. So let's go to one dollar a pound. At one dollar a pound, buyer one is willing to buy two pounds, and at one dollar a pound, buyer two is willing to buy eight pounds. You put those together, two plus eight, you get to 10 pounds. So this was two, three, four, five, six, seven, eight, and then nine and 10, we're going a little bit off the screen here, I could have planned better for it, but let me go all the way over here, so I'll extend my axis, so that's nine, and then this is 10, so that at one dollar, the market would be willing to buy 10 pounds per week."}, {"video_title": "Market demand as the sum of individual demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So let's go to one dollar a pound. At one dollar a pound, buyer one is willing to buy two pounds, and at one dollar a pound, buyer two is willing to buy eight pounds. You put those together, two plus eight, you get to 10 pounds. So this was two, three, four, five, six, seven, eight, and then nine and 10, we're going a little bit off the screen here, I could have planned better for it, but let me go all the way over here, so I'll extend my axis, so that's nine, and then this is 10, so that at one dollar, the market would be willing to buy 10 pounds per week. And you could sum at any other point, or any other points in between, and what you would do is you would get a market demand curve that looks something like this. And you can see visually what has happened here. For any price value, we are summing the quantities for all of the buyers in the market."}, {"video_title": "Market demand as the sum of individual demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this was two, three, four, five, six, seven, eight, and then nine and 10, we're going a little bit off the screen here, I could have planned better for it, but let me go all the way over here, so I'll extend my axis, so that's nine, and then this is 10, so that at one dollar, the market would be willing to buy 10 pounds per week. And you could sum at any other point, or any other points in between, and what you would do is you would get a market demand curve that looks something like this. And you can see visually what has happened here. For any price value, we are summing the quantities for all of the buyers in the market. Now here there's only two buyers. Now if you were doing this in the real world, you might be dealing with millions of buyers. But this is just to understand how a market, or where a market demand curve is actually coming from."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "And we wanna think about why you would have, and under what scenarios would you have these different shapes? Here, our production possibilities curve or our PPC, it looks like a straight line. Here, it looks like it's bowed out from the origin. It looks like it's popping out in that direction. And here, it looks like it's bowed in to the origin. It's popping in in this direction. So the first thing I'm going to do is ask you a question."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "It looks like it's popping out in that direction. And here, it looks like it's bowed in to the origin. It's popping in in this direction. So the first thing I'm going to do is ask you a question. Which one describes a scenario where for every extra rabbit I catch, every incremental rabbit, I'm giving up more and more in terms of berries? Or another way of thinking about it is as I catch more and more rabbits, the opportunity cost in terms of berries is increasing. Which one of these curves describes that?"}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "So the first thing I'm going to do is ask you a question. Which one describes a scenario where for every extra rabbit I catch, every incremental rabbit, I'm giving up more and more in terms of berries? Or another way of thinking about it is as I catch more and more rabbits, 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 Khan Academy on increasing opportunity cost, and you might recognize this curve here. But let's just review it. So there's a world where I'm eating all berries and I can pick 300 berries a day."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "Which one of these curves describes that? Well, some of you might have already seen the video on Khan Academy on increasing opportunity cost, and you might recognize this curve here. But let's just review it. So there's a world where I'm eating all berries and I can pick 300 berries a day. But maybe I decide to go after that first rabbit that just 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, especially because I'm probably not, the berries I'm giving up are probably the ones that are hardest to pick."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "So there's a world where I'm eating all berries and I can pick 300 berries a day. But maybe I decide to go after that first rabbit that just 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, especially because 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 first rabbit, the opportunity cost, I pick 20 less berries. So notice, when I increase the rabbits by one, my berries go down by 20. So my opportunity cost is 20 berries for that first rabbit."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "So I don't give up a lot in terms of berries, especially because 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 first rabbit, the opportunity cost, I pick 20 less berries. So notice, when I increase the rabbits by one, my berries go down by 20. So my opportunity cost is 20 berries for that first rabbit. But let's say that second rabbit is a little bit harder to catch, 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, then I've given up 40 berries. So notice, my opportunity cost has increased."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "So my opportunity cost is 20 berries for that first rabbit. But let's say that second rabbit is a little bit harder to catch, 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, then I've given up 40 berries. So notice, my opportunity cost has increased. For that first rabbit, my opportunity cost was 20 berries. For that second rabbit, my opportunity cost is 40 berries. And it keeps going."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "So notice, my opportunity cost has increased. For that first rabbit, my opportunity cost was 20 berries. For that second rabbit, my opportunity cost is 40 berries. And it keeps going. Then third rabbit, I'm going to give up 60 berries. That fourth rabbit, I'm gonna give up 80 berries, 80 berries. And then last but not least, that fifth rabbit, which is the most that I can hunt in a day, I'm gonna give up 100 berries."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "And it keeps going. Then third rabbit, I'm going to give up 60 berries. That fourth rabbit, I'm gonna give up 80 berries, 80 berries. And then last but not least, that fifth rabbit, which is the most that I can hunt in a day, I'm gonna give up 100 berries. Because here, I'm going after the really nimble rabbit, the really sly rabbit, and I'm giving up literally the low-hanging fruit in terms of berries. The one I might be even, 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."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "And then last but not least, that fifth rabbit, which is the most that I can hunt in a day, I'm gonna give up 100 berries. Because here, I'm going after the really nimble rabbit, the really sly rabbit, and I'm giving up literally the low-hanging fruit in terms of berries. The one I might be even, 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 an increasing opportunity cost. Let me write that down. Increasing, increasing OC for opportunity cost."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "And so the important realization from this video is this bowed-out shape right over here. This is describing an increasing opportunity cost. Let me write that down. Increasing, increasing OC for opportunity cost. So with that out of the way, which of these would describe a decreasing opportunity cost? Maybe you could imagine a scenario where every incremental rabbit I catch, I get better and better at catching rabbits. Well, you might guess that, well, look, if this one is increasing and I'm bowed out, then being bowed in would be a decreasing opportunity cost."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "Increasing, increasing OC for opportunity cost. So with that out of the way, which of these would describe a decreasing opportunity cost? Maybe you could imagine a scenario where every incremental rabbit I catch, I get better and better at catching rabbits. Well, you might guess that, well, look, if this one is increasing and I'm bowed out, then being bowed in would be a decreasing opportunity cost. Decreasing opportunity cost. And let's make sure that that makes sense. So we could go back to the scenario where we're doing nothing but picking berries."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "Well, you might guess that, well, look, if this one is increasing and I'm bowed out, then being bowed in would be a decreasing opportunity cost. Decreasing opportunity cost. And let's make sure that that makes sense. So we could go back to the scenario where we're doing nothing but picking berries. And let's say that first rabbit, so we're gonna talk about a different scenario now. That first rabbit, I had to train myself to be able to get rabbits. I had to buy the tools."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "So we could go back to the scenario where we're doing nothing but picking berries. And let's say that first rabbit, so we're gonna talk about a different scenario now. That first rabbit, I had to train myself to be able to get rabbits. I had to buy the tools. I had to stretch. It's real, it takes me a lot of effort to get that first rabbit. And so there, I give up 100 berries."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "I had to buy the tools. I had to stretch. It's real, it takes me a lot of effort to get that first rabbit. And so there, I give up 100 berries. So my opportunity cost for that first rabbit was 100 berries. But then for that second rabbit, my opportunity cost is 80 berries. Maybe now I've kind of gotten the hang of it."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "And so there, I give up 100 berries. So my opportunity cost for that first rabbit was 100 berries. But then for that second rabbit, my opportunity cost is 80 berries. Maybe now I've kind of gotten the hang of it. I've already bought my rabbit-catching shoes. I've already invested in that. I'm all stretched and limber."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "Maybe now I've kind of gotten the hang of it. I've already bought my rabbit-catching shoes. I've already invested in that. I'm all stretched and limber. Maybe the rabbits like to hang out together. And so that keeps on going. So that third rabbit, my opportunity cost is 60 berries."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "I'm all stretched and limber. Maybe the rabbits like to hang out together. And so that keeps on going. So that third rabbit, my opportunity cost is 60 berries. I'm getting really good at catching rabbits. So clearly you see here that for each incremental rabbit I get, my opportunity cost is decreasing. All the way to that fifth rabbit, maybe my opportunity cost is 20, is 20 berries."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "So that third rabbit, my opportunity cost is 60 berries. I'm getting really good at catching rabbits. So clearly you see here that for each incremental rabbit I get, my opportunity cost is decreasing. All the way to that fifth rabbit, maybe my opportunity cost is 20, is 20 berries. To catch that next extra rabbit, I'm giving up those 20 berries. So very clearly you see a decreasing opportunity cost. And so by deductive reasoning, you might be able to say, well, okay, this straight line must represent a constant opportunity cost."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "All the way to that fifth rabbit, maybe my opportunity cost is 20, is 20 berries. To catch that next extra rabbit, I'm giving up those 20 berries. So very clearly you see a decreasing opportunity cost. And so by deductive reasoning, you might be able to say, well, okay, this straight line 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."}, {"video_title": "PPCs for increasing, decreasing and constant opportunity cost AP Macroeconomics Khan Academy.mp3", "Sentence": "And so by deductive reasoning, you might be able to say, well, okay, this straight line 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 of berries is just a constant 60. And so this is a scenario, if you were imagining this fictional world we created, where every rabbit is about as easy to catch as any other one, and every berry is about as easy to pick or find as any other one. And so the trade-off, the amount of time I spent for each incremental rabbit, I'm giving up a fixed amount of berries, no matter how many rabbits I go for, and no matter how many berries I am currently at."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "And the way we did it was very rational. We thought about how much bang would we get for each buck. And we saw, look, starting off our first dollar, we got a lot of bang for our buck. And this is really just another way of saying bang for the buck. Marginal utility per price. So we got a lot of utility per price starting off for that first chocolate bar, a little less for that next chocolate bar, but still more than we would get for a pound of fruit. Then more for the next chocolate bar."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "And this is really just another way of saying bang for the buck. Marginal utility per price. So we got a lot of utility per price starting off for that first chocolate bar, a little less for that next chocolate bar, but still more than we would get for a pound of fruit. Then more for the next chocolate bar. And only then did we start buying some fruit, buying some pounds of fruit. What I want to do in this video is generalize it. I want to think about maybe a more continuous case where we can buy very, very, very small increments of each of the products."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "Then more for the next chocolate bar. And only then did we start buying some fruit, buying some pounds of fruit. What I want to do in this video is generalize it. I want to think about maybe a more continuous case where we can buy very, very, very small increments of each of the products. It doesn't have to be in chunks like chocolate bars. And what I'm going to do is I'm just going to plot the marginal utility per price, which is really bang for your buck, on the vertical axis. So this right over here on this axis, let's say this is the marginal utility per price."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "I want to think about maybe a more continuous case where we can buy very, very, very small increments of each of the products. It doesn't have to be in chunks like chocolate bars. And what I'm going to do is I'm just going to plot the marginal utility per price, which is really bang for your buck, on the vertical axis. So this right over here on this axis, let's say this is the marginal utility per price. And let's say it also goes from 0 to 100. So that would be 50. And the numbers actually don't matter so much here."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "So this right over here on this axis, let's say this is the marginal utility per price. And let's say it also goes from 0 to 100. So that would be 50. And the numbers actually don't matter so much here. And then this will be dollars spent. So your buck. So this is bang for your buck, and then this is your buck."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "And the numbers actually don't matter so much here. And then this will be dollars spent. So your buck. So this is bang for your buck, and then this is your buck. So this is 1, 2, 3, 4, 5, and 6. Now we're going to do two arbitrary products. So let's say one product looks something like this."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "So this is bang for your buck, and then this is your buck. So this is 1, 2, 3, 4, 5, and 6. Now we're going to do two arbitrary products. So let's say one product looks something like this. And then once again you have diminishing utility as you get more and more of that product. In the case of fruit, the more pounds of fruit you get, the more tired you get of fruit, the less fruit you need for that, or the less you want fruit for that next incremental pound. But it could be anything."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "So let's say one product looks something like this. And then once again you have diminishing utility as you get more and more of that product. In the case of fruit, the more pounds of fruit you get, the more tired you get of fruit, the less fruit you need for that, or the less you want fruit for that next incremental pound. But it could be anything. This is true of most things. So this is product A. It could be a service as well."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "But it could be anything. This is true of most things. So this is product A. It could be a service as well. So product A, let me write it this way. So this is the marginal utility for A per price of A. And let me get another product right over here."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "It could be a service as well. So product A, let me write it this way. So this is the marginal utility for A per price of A. And let me get another product right over here. So let's say my other product looks something like this. So this is my marginal utility for product B per price of B. So it's really saying bang for the buck."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "And let me get another product right over here. So let's say my other product looks something like this. So this is my marginal utility for product B per price of B. So it's really saying bang for the buck. So just to start off, and I won't even constrain how much money we have. I just want to think about how we would spend that money. So if I were to spend, if I had a penny, where would I spend that penny?"}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "So it's really saying bang for the buck. So just to start off, and I won't even constrain how much money we have. I just want to think about how we would spend that money. So if I were to spend, if I had a penny, where would I spend that penny? And I'm assuming I can buy these in super small chunks, as small as maybe the penny, or even maybe fractions of penny. So if I just had a penny, and I think about where am I getting the best bang for my buck for that penny, I'm clearly getting it with product A. So I would spend that penny on product A, and I would get this much bang for my buck, which would be this entire part right over here."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "So if I were to spend, if I had a penny, where would I spend that penny? And I'm assuming I can buy these in super small chunks, as small as maybe the penny, or even maybe fractions of penny. So if I just had a penny, and I think about where am I getting the best bang for my buck for that penny, I'm clearly getting it with product A. So I would spend that penny on product A, and I would get this much bang for my buck, which would be this entire part right over here. Let me color it in. So my first, I'll spend it right on A. Let me do it in a color that's more likely to be seen, so I'll do it in this blue color."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "So I would spend that penny on product A, and I would get this much bang for my buck, which would be this entire part right over here. Let me color it in. So my first, I'll spend it right on A. Let me do it in a color that's more likely to be seen, so I'll do it in this blue color. So I'll spend it on A. My first, in fact, where would I spend my first dollar? Well, the whole first dollar I'm getting a better bang for my buck on A."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "Let me do it in a color that's more likely to be seen, so I'll do it in this blue color. So I'll spend it on A. My first, in fact, where would I spend my first dollar? Well, the whole first dollar I'm getting a better bang for my buck on A. So my first dollar I will spend on A. And the total utility I will get is actually going to be the area under this curve. It's going to be this whole area."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "Well, the whole first dollar I'm getting a better bang for my buck on A. So my first dollar I will spend on A. And the total utility I will get is actually going to be the area under this curve. It's going to be this whole area. It's going to be dollars times marginal utility price. That would give you, obviously, the area of this rectangle right over here. The reason why it wouldn't be the area of this larger rectangle, it would just be the area under the curve, is you're not getting this 100 marginal utility per price for the entire dollar."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "It's going to be this whole area. It's going to be dollars times marginal utility price. That would give you, obviously, the area of this rectangle right over here. The reason why it wouldn't be the area of this larger rectangle, it would just be the area under the curve, is you're not getting this 100 marginal utility per price for the entire dollar. It's going down the entire time. So your actual total marginal utility is actually just the area under this. When you take calculus, you'll get better appreciation for that."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "The reason why it wouldn't be the area of this larger rectangle, it would just be the area under the curve, is you're not getting this 100 marginal utility per price for the entire dollar. It's going down the entire time. So your actual total marginal utility is actually just the area under this. When you take calculus, you'll get better appreciation for that. But let's just think about, once again, where our dollar is going to be spent. Actually, even if we spent already a dollar, our next penny we'd still want to spend on product A because we're still getting more bang for the buck. We're still getting more bang for the buck all the way until right around there."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "When you take calculus, you'll get better appreciation for that. But let's just think about, once again, where our dollar is going to be spent. Actually, even if we spent already a dollar, our next penny we'd still want to spend on product A because we're still getting more bang for the buck. We're still getting more bang for the buck all the way until right around there. Now something interesting is happening. We've spent our first $2 all on product A because we're getting more bang for the buck, even though that bang was diminishing every penny or even every fraction of a penny that we spent. But now where will we spend our next penny?"}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "We're still getting more bang for the buck all the way until right around there. Now something interesting is happening. We've spent our first $2 all on product A because we're getting more bang for the buck, even though that bang was diminishing every penny or even every fraction of a penny that we spent. But now where will we spend our next penny? We could spend it on product A again, but we can get about the same marginal utility spending it on product B. We could jump right over there and spend it on product B. Now where could we spend our next dollar?"}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "But now where will we spend our next penny? We could spend it on product A again, but we can get about the same marginal utility spending it on product B. We could jump right over there and spend it on product B. Now where could we spend our next dollar? We could get about the same marginal utility whether we spend it on a little bit more product B or a little bit more product A. We could do either. If we spent a little bit too much on product A, then we could have gotten more marginal utility spending on product B."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "Now where could we spend our next dollar? We could get about the same marginal utility whether we spend it on a little bit more product B or a little bit more product A. We could do either. If we spent a little bit too much on product A, then we could have gotten more marginal utility spending on product B. What we would do is, once we've gotten to this threshold right about here, we actually are going to spend every incremental fraction of a penny we're actually going to want to split between product A and product B. If we spend too much on one and we go down this curve, we could have gotten higher utility spending on this one. If we spent too much on this one, we could get higher utility spending on this one right over here."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "If we spent a little bit too much on product A, then we could have gotten more marginal utility spending on product B. What we would do is, once we've gotten to this threshold right about here, we actually are going to spend every incremental fraction of a penny we're actually going to want to split between product A and product B. If we spend too much on one and we go down this curve, we could have gotten higher utility spending on this one. If we spent too much on this one, we could get higher utility spending on this one right over here. There's a very interesting phenomenon here. Assuming that we eventually spend enough that we buy some of both, obviously we started just buying product A because it had higher utility at least for those first few dollars, but assuming that we end up buying some mix of the two, which we do end up spending if we spend more than $2, there's an interesting thing. The marginal utility for B, or the marginal utility for price for B, that I spent on that last little increment, is going to be the same as the marginal utility per price for that last increment of A."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "If we spent too much on this one, we could get higher utility spending on this one right over here. There's a very interesting phenomenon here. Assuming that we eventually spend enough that we buy some of both, obviously we started just buying product A because it had higher utility at least for those first few dollars, but assuming that we end up buying some mix of the two, which we do end up spending if we spend more than $2, there's an interesting thing. The marginal utility for B, or the marginal utility for price for B, that I spent on that last little increment, is going to be the same as the marginal utility per price for that last increment of A. If B was fruit and A was chocolate, but we can buy them in very small increments, we're saying for that last fraction of a pound of fruit, you're getting the same marginal utility per price as you're getting for that last fraction of a bar or fraction of a pound of chocolate. There's a general principle over here. It really just comes from this very straightforward thing that as soon as you can get better marginal utility on the other one, you start spending there, but then they start to look equal and you would keep dividing your money between the two."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "The marginal utility for B, or the marginal utility for price for B, that I spent on that last little increment, is going to be the same as the marginal utility per price for that last increment of A. If B was fruit and A was chocolate, but we can buy them in very small increments, we're saying for that last fraction of a pound of fruit, you're getting the same marginal utility per price as you're getting for that last fraction of a bar or fraction of a pound of chocolate. There's a general principle over here. It really just comes from this very straightforward thing that as soon as you can get better marginal utility on the other one, you start spending there, but then they start to look equal and you would keep dividing your money between the two. The general principle, if you're allocating money between two goods for that last increment, not across the board, for that last increment, that's why the word marginal is so important, for that last ounce of chocolate versus that very last ounce of fruit, the marginal utility per price for that last increment of one good will be the same as the marginal utility per price of the second good. I really want to emphasize what this is saying. This is not saying that the marginal utilities for price of the two goods are the same and not even that one is better than the other."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent.mp3", "Sentence": "It really just comes from this very straightforward thing that as soon as you can get better marginal utility on the other one, you start spending there, but then they start to look equal and you would keep dividing your money between the two. The general principle, if you're allocating money between two goods for that last increment, not across the board, for that last increment, that's why the word marginal is so important, for that last ounce of chocolate versus that very last ounce of fruit, the marginal utility per price for that last increment of one good will be the same as the marginal utility per price of the second good. I really want to emphasize what this is saying. This is not saying that the marginal utilities for price of the two goods are the same and not even that one is better than the other. This is just saying as you spend money, let's say you spend enough money to buy both, at some point you're going to get to a threshold where you're neutral between the two, where the marginal utility per price is the same for an incremental of B versus an incremental of A. At that point, you're just going to keep switching between the two products because obviously if you focus too much on this right over here, let's say at that point you switch and you just start buying a bunch of product B right over here. That didn't make sense because you were buying product B when you could have actually gotten higher marginal utility buying some of product A."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "What I want to do in this video is focus a little bit more on the results of the last video and make sure that they make intuitive and mathematical sense to us. Because something slightly strange happened. We had a linear demand curve right over here, which means for any given change in price right over here. So in all of the examples, whether we went from A to B or C to D or E to F, we had a $1 drop in price, and every time we had a $1 drop in price, we had a two-unit increase in quantity demanded. So we had a two-unit increase in quantity demanded. This is a linear demand curve. But despite the fact that for each dollar drop in price, we had the same increase in quantity demanded, the slightly, maybe unintuitive thing that happened was we had a different, and actually a very different, elasticity of demand."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So in all of the examples, whether we went from A to B or C to D or E to F, we had a $1 drop in price, and every time we had a $1 drop in price, we had a two-unit increase in quantity demanded. So we had a two-unit increase in quantity demanded. This is a linear demand curve. But despite the fact that for each dollar drop in price, we had the same increase in quantity demanded, the slightly, maybe unintuitive thing that happened was we had a different, and actually a very different, elasticity of demand. And you might imagine that probably has something to do with the fact that elasticity of demand is based on percentage change in quantity relative to percentage change in price instead of just change in quantity over change in price. If it was just change in quantity over change in price, we would get something. It would be constant."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "But despite the fact that for each dollar drop in price, we had the same increase in quantity demanded, the slightly, maybe unintuitive thing that happened was we had a different, and actually a very different, elasticity of demand. And you might imagine that probably has something to do with the fact that elasticity of demand is based on percentage change in quantity relative to percentage change in price instead of just change in quantity over change in price. If it was just change in quantity over change in price, we would get something. It would be constant. But we saw very, very different results. And when you look closely at these, so let's focus on this region between A and B right over here, we had a $1 change in price. Our $1 change in price was on a relatively large base."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "It would be constant. But we saw very, very different results. And when you look closely at these, so let's focus on this region between A and B right over here, we had a $1 change in price. Our $1 change in price was on a relatively large base. Our price was already high. And remember, to figure out the percent change, we use a dollar over the average of our two points. So we don't do $1 over 9, because then we would have a different elasticity when we went from A to B than when we went from B to A."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Our $1 change in price was on a relatively large base. Our price was already high. And remember, to figure out the percent change, we use a dollar over the average of our two points. So we don't do $1 over 9, because then we would have a different elasticity when we went from A to B than when we went from B to A. $1 over 9 versus $1 over 8 would give you two different percentages. Instead, we say $1 over 8 and 1.5. So this price percent change was in the teens, while this quantity percent change is going to be with 67%, 2 over an average quantity of 3 in this region right over here."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So we don't do $1 over 9, because then we would have a different elasticity when we went from A to B than when we went from B to A. $1 over 9 versus $1 over 8 would give you two different percentages. Instead, we say $1 over 8 and 1.5. So this price percent change was in the teens, while this quantity percent change is going to be with 67%, 2 over an average quantity of 3 in this region right over here. So you had a relatively large, actually quite large, percent change in quantity over a relatively small percent change in price, 67% over something that's roughly in the mid-teens percentage. And so that's why the absolute value of our elasticity of demand was a relatively large number. If you don't think about the absolute value, you get a negative number, because this is a downwards sloping line."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So this price percent change was in the teens, while this quantity percent change is going to be with 67%, 2 over an average quantity of 3 in this region right over here. So you had a relatively large, actually quite large, percent change in quantity over a relatively small percent change in price, 67% over something that's roughly in the mid-teens percentage. And so that's why the absolute value of our elasticity of demand was a relatively large number. If you don't think about the absolute value, you get a negative number, because this is a downwards sloping line. But if you focus on the absolute value, the magnitude of it is a relatively large number, a relatively large percent change in quantity relative to your percent change in price. And it all comes out of your quantities are low here. So if you move 2 on a low base, you're going to have a large percentage change in quantity."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "If you don't think about the absolute value, you get a negative number, because this is a downwards sloping line. But if you focus on the absolute value, the magnitude of it is a relatively large number, a relatively large percent change in quantity relative to your percent change in price. And it all comes out of your quantities are low here. So if you move 2 on a low base, you're going to have a large percentage change in quantity. And your prices are relatively high here. So a change in 1 isn't going to be that large of a percentage. But when your absolute value of your elasticity of demand is greater than 1, like it is right over here, so when your absolute value of your elasticity of demand is greater than 1, it's usually called, this point in the curve, is elastic or generally elastic."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So if you move 2 on a low base, you're going to have a large percentage change in quantity. And your prices are relatively high here. So a change in 1 isn't going to be that large of a percentage. But when your absolute value of your elasticity of demand is greater than 1, like it is right over here, so when your absolute value of your elasticity of demand is greater than 1, it's usually called, this point in the curve, is elastic or generally elastic. So this is elastic. You get some nice percentage movements in quantity for a given change, percentage change in price. Then when you go over here, our prices have gone, our price is lower when we're in this region between C and D. So that dollar difference is going to be a larger percentage change in price."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "But when your absolute value of your elasticity of demand is greater than 1, like it is right over here, so when your absolute value of your elasticity of demand is greater than 1, it's usually called, this point in the curve, is elastic or generally elastic. So this is elastic. You get some nice percentage movements in quantity for a given change, percentage change in price. Then when you go over here, our prices have gone, our price is lower when we're in this region between C and D. So that dollar difference is going to be a larger percentage change in price. And our quantities are higher. So that $2 change is going to be a lower change in quantity. And actually, they end up being the same thing, because you have a dollar change in price over an average base of 5."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Then when you go over here, our prices have gone, our price is lower when we're in this region between C and D. So that dollar difference is going to be a larger percentage change in price. And our quantities are higher. So that $2 change is going to be a lower change in quantity. And actually, they end up being the same thing, because you have a dollar change in price over an average base of 5. The average between 550 and 450 is 5. So you have a 20% change in price, a 20% drop in price, and you have a 20% increase in quantity. So let me write this."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And actually, they end up being the same thing, because you have a dollar change in price over an average base of 5. The average between 550 and 450 is 5. So you have a 20% change in price, a 20% drop in price, and you have a 20% increase in quantity. So let me write this. This is in the teens over here. My writing is getting too small, so I won't do that. So you have a 20% change in price and a 20% increase in quantity."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So let me write this. This is in the teens over here. My writing is getting too small, so I won't do that. So you have a 20% change in price and a 20% increase in quantity. It's 20% because you have 2 over the average here, 2 over 10. So 20% increase. So that's why your elasticity of demand or the magnitude of your elasticity of demand is exactly 1."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So you have a 20% change in price and a 20% increase in quantity. It's 20% because you have 2 over the average here, 2 over 10. So 20% increase. So that's why your elasticity of demand or the magnitude of your elasticity of demand is exactly 1. And if your magnitude of your elasticity of demand is exactly 1, we say that you have unit elasticity at that point. And then finally, if you go all the way down here, our prices end up being quite low. Our prices are quite low."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So that's why your elasticity of demand or the magnitude of your elasticity of demand is exactly 1. And if your magnitude of your elasticity of demand is exactly 1, we say that you have unit elasticity at that point. And then finally, if you go all the way down here, our prices end up being quite low. Our prices are quite low. So a dollar change is actually a huge percentage price change. Our base here is $1.50 in this region right over here. And so $1 over $1.50, it's a huge 67% change in price."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Our prices are quite low. So a dollar change is actually a huge percentage price change. Our base here is $1.50 in this region right over here. And so $1 over $1.50, it's a huge 67% change in price. That's right. It's a 2 thirds change in price. So it's a huge percent change in price."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And so $1 over $1.50, it's a huge 67% change in price. That's right. It's a 2 thirds change in price. So it's a huge percent change in price. But once again, now our quantity is much larger. So $2 increase isn't that large of a change in quantity. So you have a smaller percent change in quantity over a large percent change in price."}, {"video_title": "More on elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So it's a huge percent change in price. But once again, now our quantity is much larger. So $2 increase isn't that large of a change in quantity. So you have a smaller percent change in quantity over a large percent change in price. So that means that you're relatively inelastic. You're not getting a lot of change in quantity for the magnitude of your change in price. And so if the magnitude of the elasticity of demand is less than 1 over here, we call that either relatively inelastic or just inelastic."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Let's say that we run ABC Watch Factory and we want to understand the economics of our business. So what we have in this table is some data that we've already been able to estimate or measure based on how our business is running. And then we're going to be able to figure out some other things based on this data. So this first column is fixed costs, our monthly fixed costs. So these are the things that we can't really change in the short run regardless of how many people we hire or how many units we produce. So that might be the rent on our facilities or the cost of renting the equipment. And so for us, that's $5,000 a month."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this first column is fixed costs, our monthly fixed costs. So these are the things that we can't really change in the short run regardless of how many people we hire or how many units we produce. So that might be the rent on our facilities or the cost of renting the equipment. And so for us, that's $5,000 a month. Then you have your labor units. And for the sake of this model, we'll say that a labor unit is a full-time employee who's at the factory working every working day in a month. And so you can see we can go from one person working full-time every working day in a month all the way up to six."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so for us, that's $5,000 a month. Then you have your labor units. And for the sake of this model, we'll say that a labor unit is a full-time employee who's at the factory working every working day in a month. And so you can see we can go from one person working full-time every working day in a month all the way up to six. Now this is the variable cost. And for simplicity, this is mainly driven by the labor units. In a real-world example, it would be driven by the labor units."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so you can see we can go from one person working full-time every working day in a month all the way up to six. Now this is the variable cost. And for simplicity, this is mainly driven by the labor units. In a real-world example, it would be driven by the labor units. It would be driven by how much material we're using to produce the watches. But we have our variable costs right over here. And then we have our total costs, which is just simply the fixed costs plus the variable costs for any given level of labor units."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In a real-world example, it would be driven by the labor units. It would be driven by how much material we're using to produce the watches. But we have our variable costs right over here. And then we have our total costs, which is just simply the fixed costs plus the variable costs for any given level of labor units. And then we know how many watches we can produce in a month based on our number of labor units. Or you could view it as based on our total costs or based on our fixed and variable costs. Now what we have here are other things that we would wanna look at if we really wanna understand how our factory works."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then we have our total costs, which is just simply the fixed costs plus the variable costs for any given level of labor units. And then we know how many watches we can produce in a month based on our number of labor units. Or you could view it as based on our total costs or based on our fixed and variable costs. Now what we have here are other things that we would wanna look at if we really wanna understand how our factory works. So this is the marginal product of labor, MPL for short. Then you have your marginal cost. Then you have your average variable cost."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now what we have here are other things that we would wanna look at if we really wanna understand how our factory works. So this is the marginal product of labor, MPL for short. Then you have your marginal cost. Then you have your average variable cost. Then you have your average fixed cost. And then you have your average total costs. So like always, pause this video and try to fill out what these values would be for even one row of this table."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Then you have your average variable cost. Then you have your average fixed cost. And then you have your average total costs. So like always, pause this video and try to fill out what these values would be for even one row of this table. And then I'll do it with you. All right, now let's do it together. Let's start with marginal product of labor."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So like always, pause this video and try to fill out what these values would be for even one row of this table. And then I'll do it with you. All right, now let's do it together. Let's start with marginal product of labor. Let's remind ourselves what that is. That says for every incremental labor unit, how much more are we able to produce? And so we'd have to start at the second one because we have to think about an incremental labor unit."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Let's start with marginal product of labor. Let's remind ourselves what that is. That says for every incremental labor unit, how much more are we able to produce? And so we'd have to start at the second one because we have to think about an incremental labor unit. So as we go from one to two labor units, we were able to go from 10 to 25 total outputs. So we were able to produce 15 more watches. I could just type in 15, but it's even better to do it with a formula so I can just scroll it down the rest of the rows."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so we'd have to start at the second one because we have to think about an incremental labor unit. So as we go from one to two labor units, we were able to go from 10 to 25 total outputs. So we were able to produce 15 more watches. I could just type in 15, but it's even better to do it with a formula so I can just scroll it down the rest of the rows. So in this formula, I wanna find the difference in my total output. So 25, that cell minus this cell. So that's saying, hey, look, I was able to grow 15 output or increase my output by 15 when I increased labor by two minus one."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "I could just type in 15, but it's even better to do it with a formula so I can just scroll it down the rest of the rows. So in this formula, I wanna find the difference in my total output. So 25, that cell minus this cell. So that's saying, hey, look, I was able to grow 15 output or increase my output by 15 when I increased labor by two minus one. One. And then I got my marginal product of labor is 15 when I went from one employee to two. And then I can just figure that out for the other rows."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that's saying, hey, look, I was able to grow 15 output or increase my output by 15 when I increased labor by two minus one. One. And then I got my marginal product of labor is 15 when I went from one employee to two. And then I can just figure that out for the other rows. That's the value of using a spreadsheet. My marginal product of labor when I went from two employees to three employees is 20. So that means by adding that third employee, I'm able to produce 20 more watches per month."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then I can just figure that out for the other rows. That's the value of using a spreadsheet. My marginal product of labor when I went from two employees to three employees is 20. So that means by adding that third employee, I'm able to produce 20 more watches per month. And so you might be noticing two interesting trends here. Initially, my marginal product of labor seems to be increasing, and then it seems to be decreasing. And that's consistent with the way a lot of businesses or factories work, which is initially, you're getting the benefits of specialization where if you only have one person working in your factory, they have to do everything."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So that means by adding that third employee, I'm able to produce 20 more watches per month. And so you might be noticing two interesting trends here. Initially, my marginal product of labor seems to be increasing, and then it seems to be decreasing. And that's consistent with the way a lot of businesses or factories work, which is initially, you're getting the benefits of specialization where if you only have one person working in your factory, they have to do everything. They have to polish the glass and bring in the boxes and talk to your suppliers and fit the gears on your watches and whatever and do the wiring, while as you add more people, they can start to specialize. One person can specialize on assembly. Another person can specialize on bringing the boxes in."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And that's consistent with the way a lot of businesses or factories work, which is initially, you're getting the benefits of specialization where if you only have one person working in your factory, they have to do everything. They have to polish the glass and bring in the boxes and talk to your suppliers and fit the gears on your watches and whatever and do the wiring, while as you add more people, they can start to specialize. One person can specialize on assembly. Another person can specialize on bringing the boxes in. And so initially, you have these benefits of specialization, and so people can focus on just one skill and do it well. But then you start getting diminishing returns. The office starts getting crowded."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Another person can specialize on bringing the boxes in. And so initially, you have these benefits of specialization, and so people can focus on just one skill and do it well. But then you start getting diminishing returns. The office starts getting crowded. People are waiting for different supplies. They have to get out of each other's way. And so then you see this diminishing return trend where the marginal product of labor starts going down for those incremental labor units."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "The office starts getting crowded. People are waiting for different supplies. They have to get out of each other's way. And so then you see this diminishing return trend where the marginal product of labor starts going down for those incremental labor units. Next, we'll think about marginal cost. And as we'll see, the marginal cost trends go in the other direction as the marginal product of labor. So marginal cost is just for a certain increment in output, how much is that costing us?"}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so then you see this diminishing return trend where the marginal product of labor starts going down for those incremental labor units. Next, we'll think about marginal cost. And as we'll see, the marginal cost trends go in the other direction as the marginal product of labor. So marginal cost is just for a certain increment in output, how much is that costing us? So for example, if we are going from 10 to 25 output for that 15 increment in output, how much is that costing us? And I would say costing us on average, but I don't want you to get confused. We're not talking about average variable cost or average fixed cost or average total cost."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So marginal cost is just for a certain increment in output, how much is that costing us? So for example, if we are going from 10 to 25 output for that 15 increment in output, how much is that costing us? And I would say costing us on average, but I don't want you to get confused. We're not talking about average variable cost or average fixed cost or average total cost. But that would be, let's see, our costs went from 7,000 to 11,000. So we'll do 11,000 minus 7,000. That is our change in cost divided by our change in total output."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "We're not talking about average variable cost or average fixed cost or average total cost. But that would be, let's see, our costs went from 7,000 to 11,000. So we'll do 11,000 minus 7,000. That is our change in cost divided by our change in total output. So that's going to be divided by the 25 minus the 10. And we can just scroll this down or extend that formula. And you can see this trend."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "That is our change in cost divided by our change in total output. So that's going to be divided by the 25 minus the 10. And we can just scroll this down or extend that formula. And you can see this trend. That is the marginal product of labor is increasing, your marginal cost is decreasing. That makes sense. In some ways, we're getting more efficient through the specialization and what else."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And you can see this trend. That is the marginal product of labor is increasing, your marginal cost is decreasing. That makes sense. In some ways, we're getting more efficient through the specialization and what else. But then once you have diminishing returns, diminishing marginal returns, your marginal cost is going up. And now we can do the, I guess you could say the average cost. So first, average variable cost."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In some ways, we're getting more efficient through the specialization and what else. But then once you have diminishing returns, diminishing marginal returns, your marginal cost is going up. And now we can do the, I guess you could say the average cost. So first, average variable cost. Well, that's just taking your variable cost and dividing it by your total output. And so for at least those first 25 units, the cost on average, or just the variable component, you have to be careful, is $240. If we talk about the fixed component, well, that's just going to be our fixed cost divided by our total units."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So first, average variable cost. Well, that's just taking your variable cost and dividing it by your total output. And so for at least those first 25 units, the cost on average, or just the variable component, you have to be careful, is $240. If we talk about the fixed component, well, that's just going to be our fixed cost divided by our total units. And then our average total cost, well, that's going to be our total cost divided by those 25 units. And so you can see our average total cost for those first 25 units is $440. And then it can be broken up between how much of that $440 is variable versus fixed."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "If we talk about the fixed component, well, that's just going to be our fixed cost divided by our total units. And then our average total cost, well, that's going to be our total cost divided by those 25 units. And so you can see our average total cost for those first 25 units is $440. And then it can be broken up between how much of that $440 is variable versus fixed. And then we can just extend these formulas down, the magic of spreadsheets. And what's interesting here, and it's not going to be so obvious just looking at this spreadsheet, is something interesting is happening when marginal cost seems to intersect either your average variable cost or your average total cost. That at some point, your average variable cost, you see that same trend."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then it can be broken up between how much of that $440 is variable versus fixed. And then we can just extend these formulas down, the magic of spreadsheets. And what's interesting here, and it's not going to be so obvious just looking at this spreadsheet, is something interesting is happening when marginal cost seems to intersect either your average variable cost or your average total cost. That at some point, your average variable cost, you see that same trend. It's trending down, and then it starts to trend up again. Average total cost, it's trending down, but then it trends up again. And as we'll see when we graph it, the point at which marginal cost intersects with the average variable cost, that's when you have that change in direction of average variable cost."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "That at some point, your average variable cost, you see that same trend. It's trending down, and then it starts to trend up again. Average total cost, it's trending down, but then it trends up again. And as we'll see when we graph it, the point at which marginal cost intersects with the average variable cost, that's when you have that change in direction of average variable cost. And the same thing is true of when marginal cost intersects with average total cost. That's when you have that change in direction. Average fixed cost just continues to go down because those fixed costs aren't going up as you have more and more output."}, {"video_title": "Marginal cost, average variable cost, and average total cost AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And as we'll see when we graph it, the point at which marginal cost intersects with the average variable cost, that's when you have that change in direction of average variable cost. And the same thing is true of when marginal cost intersects with average total cost. That's when you have that change in direction. Average fixed cost just continues to go down because those fixed costs aren't going up as you have more and more output. So you have those same fixed costs. You could view it as spread amongst more and more output. So that's just going to keep asymptoting downward."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "So what I've done here, we're going to think about flags, the market for a certain type of flag that's made in China. And to think about this flag, think about it this way. If the price right now, the equilibrium price between where the supply and the demand intersect, the supply curve and the demand curve intersect, is right at about $70 per flag. So this is a pretty nice flag. It's right at $70 per flag. And the quantity demanded in thousands per year, looks like it's about 25,000 flags, are demanded per year. Now, if the price were to go slightly above that equilibrium price, what's going to happen?"}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "So this is a pretty nice flag. It's right at $70 per flag. And the quantity demanded in thousands per year, looks like it's about 25,000 flags, are demanded per year. Now, if the price were to go slightly above that equilibrium price, what's going to happen? Well, if the price goes slightly above that equilibrium price, people are going to say, well, I can go buy the American flags made in Taiwan, or even the ones made in America, or made in Mexico, or made someplace else. At least when it's out on my, people won't be able to tell the difference from a distance. So I'm going to buy one of the substitutes, especially if the ones from Taiwan, or Mexico, or wherever else are identical to the ones made in China."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "Now, if the price were to go slightly above that equilibrium price, what's going to happen? Well, if the price goes slightly above that equilibrium price, people are going to say, well, I can go buy the American flags made in Taiwan, or even the ones made in America, or made in Mexico, or made someplace else. At least when it's out on my, people won't be able to tell the difference from a distance. So I'm going to buy one of the substitutes, especially if the ones from Taiwan, or Mexico, or wherever else are identical to the ones made in China. So if the price were slightly, even slightly higher, the quantity demanded would be much, much, much lower. And if the price were even a little bit lower, then people would say, well, I'm not going to buy the Mexican flags, or the Taiwanese-American flags. I'm going to buy the ones that were made in China."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "So I'm going to buy one of the substitutes, especially if the ones from Taiwan, or Mexico, or wherever else are identical to the ones made in China. So if the price were slightly, even slightly higher, the quantity demanded would be much, much, much lower. And if the price were even a little bit lower, then people would say, well, I'm not going to buy the Mexican flags, or the Taiwanese-American flags. I'm going to buy the ones that were made in China. And then the quantity demanded would be much larger. And so what you have here is a very high elasticity of demand. So this right over here, this is almost perfectly elastic."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "I'm going to buy the ones that were made in China. And then the quantity demanded would be much larger. And so what you have here is a very high elasticity of demand. So this right over here, this is almost perfectly elastic. If it was perfectly elastic, it would be completely horizontal. So this is almost perfectly elastic demand. A very small change in price leads to a huge change in quantity."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "So this right over here, this is almost perfectly elastic. If it was perfectly elastic, it would be completely horizontal. So this is almost perfectly elastic demand. A very small change in price leads to a huge change in quantity. In particular, a very small percent change in price leads to a huge percent change in quantity. So let's say that some government official decides, you know what, they don't like the idea of American flags being made in China. So they decide to tax American flags made in China."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "A very small change in price leads to a huge change in quantity. In particular, a very small percent change in price leads to a huge percent change in quantity. So let's say that some government official decides, you know what, they don't like the idea of American flags being made in China. So they decide to tax American flags made in China. So what they do is that they place a tax. And once again, I'll do a fixed dollar tax. It could be a percentage."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "So they decide to tax American flags made in China. So what they do is that they place a tax. And once again, I'll do a fixed dollar tax. It could be a percentage. And if a percentage, then it'll change the supply plus tax curve. The shift will be a percentage change instead of a fixed change. But the fixed change is a little bit easier to draw."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "It could be a percentage. And if a percentage, then it'll change the supply plus tax curve. The shift will be a percentage change instead of a fixed change. But the fixed change is a little bit easier to draw. So I'll do that. So let's say that there is a tax. Let me do that in a different color."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "But the fixed change is a little bit easier to draw. So I'll do that. So let's say that there is a tax. Let me do that in a different color. Let's say that there is a tax placed of $10 per flag. Actually, let's do even a smaller amount. Let's say there's a tax placed of $1 per flag."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "Let me do that in a different color. Let's say that there is a tax placed of $10 per flag. Actually, let's do even a smaller amount. Let's say there's a tax placed of $1 per flag. I'll make it a little bit larger. Let's say it's $5 per flag. So now what is the supply plus tax curve?"}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "Let's say there's a tax placed of $1 per flag. I'll make it a little bit larger. Let's say it's $5 per flag. So now what is the supply plus tax curve? So the supplier, just to make the flags in China and ship them to the United States and get them to the store here, even to get that first flag done, even if it's done in the most efficient way possible, you need at least, looks like around $52, $53. Now they're still going to need that, plus there's going to be a $5 tax on it. So the supply plus tax is going to be that plus $5."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "So now what is the supply plus tax curve? So the supplier, just to make the flags in China and ship them to the United States and get them to the store here, even to get that first flag done, even if it's done in the most efficient way possible, you need at least, looks like around $52, $53. Now they're still going to need that, plus there's going to be a $5 tax on it. So the supply plus tax is going to be that plus $5. So it's going to be right around there. Over here, you add $5. So at any given point, we're going to add $5 to essentially what the consumer would have to see."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "So the supply plus tax is going to be that plus $5. So it's going to be right around there. Over here, you add $5. So at any given point, we're going to add $5 to essentially what the consumer would have to see. So you would have a curve that looks something like this. So that dotted line right over there is our supply plus tax. This right over here was just our supply."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "So at any given point, we're going to add $5 to essentially what the consumer would have to see. So you would have a curve that looks something like this. So that dotted line right over there is our supply plus tax. This right over here was just our supply. So let's think about what happens here. Our equilibrium price was at 70 before. Now our equilibrium price is still pretty much at 70, but our equilibrium quantity has gone down dramatically."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "This right over here was just our supply. So let's think about what happens here. Our equilibrium price was at 70 before. Now our equilibrium price is still pretty much at 70, but our equilibrium quantity has gone down dramatically. Our equilibrium quantity has gone down to, I don't know, it looks like about 18,000 flags per year. So who bore the bulk of this right over here? So let's think about the tax revenue."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "Now our equilibrium price is still pretty much at 70, but our equilibrium quantity has gone down dramatically. Our equilibrium quantity has gone down to, I don't know, it looks like about 18,000 flags per year. So who bore the bulk of this right over here? So let's think about the tax revenue. So the tax revenue in this situation is going to be 18,000 times the $5. So this is the $5 right over here. That is $5."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "So let's think about the tax revenue. So the tax revenue in this situation is going to be 18,000 times the $5. So this is the $5 right over here. That is $5. And then times 18,000. So this right over here is the tax revenue. That right over there is the tax revenue."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "That is $5. And then times 18,000. So this right over here is the tax revenue. That right over there is the tax revenue. Actually, let me draw it a little bit more carefully. So the tax revenue is going to be between this line right over here and $5. So just like that."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "That right over there is the tax revenue. Actually, let me draw it a little bit more carefully. So the tax revenue is going to be between this line right over here and $5. So just like that. So that's all the tax revenue. And notice, it all came out of the producer surplus. The original producer surplus was, especially if we assume perfect elasticity, the original producer surplus was this green rectangle plus this and plus this."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "So just like that. So that's all the tax revenue. And notice, it all came out of the producer surplus. The original producer surplus was, especially if we assume perfect elasticity, the original producer surplus was this green rectangle plus this and plus this. Now this little area right over here is going to be deadweight loss. And all of that came from the producer's surplus. And then all the tax revenue, especially if you assume this top line was horizontal, also came out of the producer surplus."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "The original producer surplus was, especially if we assume perfect elasticity, the original producer surplus was this green rectangle plus this and plus this. Now this little area right over here is going to be deadweight loss. And all of that came from the producer's surplus. And then all the tax revenue, especially if you assume this top line was horizontal, also came out of the producer surplus. So in this situation where you had almost, or we could say if you do have perfect elasticity, if you have perfect elasticity of demand for the product, the person who's going to bear the brunt of the tax is going to be the producer. The producer surplus is going to be eaten into from the tax. Bears the, actually I'm not talking about the animal bears."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "And then all the tax revenue, especially if you assume this top line was horizontal, also came out of the producer surplus. So in this situation where you had almost, or we could say if you do have perfect elasticity, if you have perfect elasticity of demand for the product, the person who's going to bear the brunt of the tax is going to be the producer. The producer surplus is going to be eaten into from the tax. Bears the, actually I'm not talking about the animal bears. So the producer, well, the producer gets the burden. And this is an interesting thing to think about. Because when you have almost perfectly elastic demand, so almost, or if you said perfectly elastic demand, a flat demand curve right over here, there's actually no consumer surplus."}, {"video_title": "Taxes and perfectly elastic demand Microeconomics Khan Academy.mp3", "Sentence": "Bears the, actually I'm not talking about the animal bears. So the producer, well, the producer gets the burden. And this is an interesting thing to think about. Because when you have almost perfectly elastic demand, so almost, or if you said perfectly elastic demand, a flat demand curve right over here, there's actually no consumer surplus. Because the marginal benefit, even the incremental marginal, or I'm being redundant with the words incremental and marginal, but the marginal benefit at any point for the consumer, for that next unit, is equal to the price they're paying. When you have, especially if the demand curve is perfectly elastic, is perfectly horizontal, there is no area between the demand curve and the price paid. So there isn't even any consumer surplus to take any of the, to eat into."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "On average, we've been catching one rabbit, but gathering 280 berries. We were, I guess, in a berry mood. So this is scenario E right over here. But now all of a sudden we're in the mood for more protein. So let me write it down. We are in scenario E, and we're in the mood for more protein. And so we want to think about what are the tradeoffs if we try to catch more rabbits."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "But now all of a sudden we're in the mood for more protein. So let me write it down. We are in scenario E, and we're in the mood for more protein. And so we want to think about what are the tradeoffs if we try to catch more rabbits. So what I want to do, I want to say, if I want to catch one more rabbit, what am I going to have to give up? So if I catch one more rabbit, so I go from one rabbit on average to two rabbits a day. So I'm really going from scenario E to scenario D. What am I going to give up?"}, {"video_title": "Opportunity Cost.mp3", "Sentence": "And so we want to think about what are the tradeoffs if we try to catch more rabbits. So what I want to do, I want to say, if I want to catch one more rabbit, what am I going to have to give up? So if I catch one more rabbit, so I go from one rabbit on average to two rabbits a day. So I'm really going from scenario E to scenario D. What am I going to give up? So this is plus 1 over here. Well, I'm going to give up 40 berries. And you can see it visually right here."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "So I'm really going from scenario E to scenario D. What am I going to give up? So this is plus 1 over here. Well, I'm going to give up 40 berries. And you can see it visually right here. If I try to get one more rabbit, I can't go into this impossible, this unattainable part right over here. I have to stay on the production possibilities frontier, sometimes abbreviated as PPF, or I guess the acronym for it, I should say, is PPF. But if I want one more rabbit, the production possibilities frontier drops off, and I will have to give up 40 fruit."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "And you can see it visually right here. If I try to get one more rabbit, I can't go into this impossible, this unattainable part right over here. I have to stay on the production possibilities frontier, sometimes abbreviated as PPF, or I guess the acronym for it, I should say, is PPF. But if I want one more rabbit, the production possibilities frontier drops off, and I will have to give up 40 fruit. So one more rabbit means that I have a cost. So I have to give up, on average, 40 berries. And the technical term for what I've just described is the opportunity cost of going after one more rabbit is giving up 40 berries."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "But if I want one more rabbit, the production possibilities frontier drops off, and I will have to give up 40 fruit. So one more rabbit means that I have a cost. So I have to give up, on average, 40 berries. And the technical term for what I've just described is the opportunity cost of going after one more rabbit is giving up 40 berries. So let me write this down. The opportunity cost of one more rabbit. And this is particular to scenario E. As we'll see, it's going to change depending on what scenario we are in, at least for this example."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "And the technical term for what I've just described is the opportunity cost of going after one more rabbit is giving up 40 berries. So let me write this down. The opportunity cost of one more rabbit. And this is particular to scenario E. As we'll see, it's going to change depending on what scenario we are in, at least for this example. So the opportunity cost of one more rabbit is 40 berries, assuming we are in scenario E. One more rabbit, I have to give up 40 berries. And another term, when we talk about the opportunity cost of going after, after producing, I guess we could say, the opportunity cost of producing one more rabbit here, when we talk about the opportunity cost of producing one more unit, that's sometimes called the marginal cost. So this right over here, you can also view as the marginal cost."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "And this is particular to scenario E. As we'll see, it's going to change depending on what scenario we are in, at least for this example. So the opportunity cost of one more rabbit is 40 berries, assuming we are in scenario E. One more rabbit, I have to give up 40 berries. And another term, when we talk about the opportunity cost of going after, after producing, I guess we could say, the opportunity cost of producing one more rabbit here, when we talk about the opportunity cost of producing one more unit, that's sometimes called the marginal cost. So this right over here, you can also view as the marginal cost. In the context of this video, our costs are in terms of the thing that I'm giving up, the opportunity that I'm giving up. In other scenarios, you'll see sometimes a marginal cost be given in actual monetary units, like dollars or whatever else. What was the cost of producing that extra unit, that extra widget right over there?"}, {"video_title": "Opportunity Cost.mp3", "Sentence": "So this right over here, you can also view as the marginal cost. In the context of this video, our costs are in terms of the thing that I'm giving up, the opportunity that I'm giving up. In other scenarios, you'll see sometimes a marginal cost be given in actual monetary units, like dollars or whatever else. What was the cost of producing that extra unit, that extra widget right over there? But let's make sure we understand opportunity cost. So that's when we're sitting in scenario E, the opportunity cost of one more rabbit. But what's the opportunity cost sitting in, let's say we're tired of eating meat."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "What was the cost of producing that extra unit, that extra widget right over there? But let's make sure we understand opportunity cost. So that's when we're sitting in scenario E, the opportunity cost of one more rabbit. But what's the opportunity cost sitting in, let's say we're tired of eating meat. We're sitting in scenario E and we want to become vegetarians altogether. So we want to go to scenario F, essentially not eat any rabbits and eat as much fruit as possible. So another thing that you could ask in scenario E is the opportunity cost of, and just to make the numbers easier, I'm going to say opportunity cost of 20 more berries is, well, I'm going to give up a rabbit."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "But what's the opportunity cost sitting in, let's say we're tired of eating meat. We're sitting in scenario E and we want to become vegetarians altogether. So we want to go to scenario F, essentially not eat any rabbits and eat as much fruit as possible. So another thing that you could ask in scenario E is the opportunity cost of, and just to make the numbers easier, I'm going to say opportunity cost of 20 more berries is, well, I'm going to give up a rabbit. So over here, what we're doing is we're saying, I want to increase my berries by 20, but to do that, I have to decrease my rabbits by 1. So the opportunity cost, assuming we are in scenario E, the opportunity cost of 20 more berries is 1 rabbit. Now, this right over here is not a marginal cost, because I'm talking about the cost of 20 more units, not just 1."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "So another thing that you could ask in scenario E is the opportunity cost of, and just to make the numbers easier, I'm going to say opportunity cost of 20 more berries is, well, I'm going to give up a rabbit. So over here, what we're doing is we're saying, I want to increase my berries by 20, but to do that, I have to decrease my rabbits by 1. So the opportunity cost, assuming we are in scenario E, the opportunity cost of 20 more berries is 1 rabbit. Now, this right over here is not a marginal cost, because I'm talking about the cost of 20 more units, not just 1. If I want to write this as a marginal cost of 1 more berry, then I could just say, well, if 20 berries is 1 rabbit, you could say you could essentially divide both sides by 20. So 1 more berry, and I'll assume for those of you who want to get technical that it's somewhat linear right over here, 1 more berry, if we divide both sides by 20, is 1 twentieth of a rabbit. So if I go for 1 extra berry sitting in scenario E, on average, I'm going to get 1 twentieth less of a berry."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "Now, this right over here is not a marginal cost, because I'm talking about the cost of 20 more units, not just 1. If I want to write this as a marginal cost of 1 more berry, then I could just say, well, if 20 berries is 1 rabbit, you could say you could essentially divide both sides by 20. So 1 more berry, and I'll assume for those of you who want to get technical that it's somewhat linear right over here, 1 more berry, if we divide both sides by 20, is 1 twentieth of a rabbit. So if I go for 1 extra berry sitting in scenario E, on average, I'm going to get 1 twentieth less of a berry. And when I phrase it this way, it is being phrased as a marginal cost. Now, for those of you who want to get a little technical, this is a curve right over here, so it might not be exactly this. Well, I don't want to get too technical."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "So if I go for 1 extra berry sitting in scenario E, on average, I'm going to get 1 twentieth less of a berry. And when I phrase it this way, it is being phrased as a marginal cost. Now, for those of you who want to get a little technical, this is a curve right over here, so it might not be exactly this. Well, I don't want to get too technical. For the sake of this one right over here, this is a safe way to think about it. The opportunity cost of 20 more berries is 1 rabbit, but if you assume that this is somewhat linear right over here, it's not so curved, it's somewhat of a line between those two points, then the opportunity cost of 1 berry is 1 twentieth of a rabbit, or the marginal cost of an extra berry is 1 twentieth of a rabbit. And we could do it at different points in this curve, and I actually encourage you to do."}, {"video_title": "Opportunity Cost.mp3", "Sentence": "Well, I don't want to get too technical. For the sake of this one right over here, this is a safe way to think about it. The opportunity cost of 20 more berries is 1 rabbit, but if you assume that this is somewhat linear right over here, it's not so curved, it's somewhat of a line between those two points, then the opportunity cost of 1 berry is 1 twentieth of a rabbit, or the marginal cost of an extra berry is 1 twentieth of a rabbit. And we could do it at different points in this curve, and I actually encourage you to do. Based on the data that we have in this table that we constructed in the last video, and maybe this curve, think about what the opportunity cost is in the different scenarios. If you're in scenario B, and if you want an extra rabbit, how much is that going to cost you in terms of berries? If you want more berries, what's that going to cost you in terms of rabbits?"}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "And so we've already drawn axes like this multiple times. We're on a horizontal axis. This is the quantity, quantity of labor that's being employed by a firm. And then the vertical axis, this is our wage rate. And so this is, we're looking at the economics for a firm, and we're looking at how much labor is it rational for this firm to employ. And we've talked about the marginal revenue product multiple times. This is a view of how much incremental revenue can the firm get every time it brings on one more labor unit."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "And then the vertical axis, this is our wage rate. And so this is, we're looking at the economics for a firm, and we're looking at how much labor is it rational for this firm to employ. And we've talked about the marginal revenue product multiple times. This is a view of how much incremental revenue can the firm get every time it brings on one more labor unit. And we've talked about that we typically see it like a downward sloping line like this because you have diminishing returns. Every time you add one more labor unit, the marginal revenue product of that labor goes a little bit down. And so, and that's when you have diminishing returns."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "This is a view of how much incremental revenue can the firm get every time it brings on one more labor unit. And we've talked about that we typically see it like a downward sloping line like this because you have diminishing returns. Every time you add one more labor unit, the marginal revenue product of that labor goes a little bit down. And so, and that's when you have diminishing returns. So this marginal revenue product, and I'll be very particular this time, this is of labor. We could do a similar marginal revenue product of other factors like land or capital. Now to change things up in this video, we're not just going to talk about a firm that operates in a perfectly competitive labor market."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "And so, and that's when you have diminishing returns. So this marginal revenue product, and I'll be very particular this time, this is of labor. We could do a similar marginal revenue product of other factors like land or capital. Now to change things up in this video, we're not just going to talk about a firm that operates in a perfectly competitive labor market. If we did, then its marginal factor cost would be whatever the market wage rate would be. It would be a horizontal line like this. So you would have a marginal factor cost of labor."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "Now to change things up in this video, we're not just going to talk about a firm that operates in a perfectly competitive labor market. If we did, then its marginal factor cost would be whatever the market wage rate would be. It would be a horizontal line like this. So you would have a marginal factor cost of labor. But we're not going to talk about a firm that's in a perfectly competitive labor market. We're gonna talk about a firm that is a monopsony employer. Very fancy word."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "So you would have a marginal factor cost of labor. But we're not going to talk about a firm that's in a perfectly competitive labor market. We're gonna talk about a firm that is a monopsony employer. Very fancy word. So it is a monopsony, not a monopoly, a monopsony. Now what does a monopsony mean? Well, you could almost view it as the reverse of what a monopoly is."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "Very fancy word. So it is a monopsony, not a monopoly, a monopsony. Now what does a monopsony mean? Well, you could almost view it as the reverse of what a monopoly is. A monopoly is you have one seller, so one seller, and many buyers. So many, many buyers. So that is a monopoly, monopoly right over there."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "Well, you could almost view it as the reverse of what a monopoly is. A monopoly is you have one seller, so one seller, and many buyers. So many, many buyers. So that is a monopoly, monopoly right over there. A monopsony is when you have one buyer, so one buyer, and many sellers. And so you have many, many sellers. So this right over here is a monopsony firm, monopsony."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "So that is a monopoly, monopoly right over there. A monopsony is when you have one buyer, so one buyer, and many sellers. And so you have many, many sellers. So this right over here is a monopsony firm, monopsony. And in the context that we're talking about, we're talking about labor markets. So this, instead of saying one buyer, you could say this is one buyer of labor. So you could say one employer, one employer."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is a monopsony firm, monopsony. And in the context that we're talking about, we're talking about labor markets. So this, instead of saying one buyer, you could say this is one buyer of labor. So you could say one employer, one employer. And the sellers of labor, well, a seller of labor, well, these are many potential, potential workers, potential workers. And there's many real-world examples that approach monopsony employers. Let's say we're in a small town, and there's only one hospital."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "So you could say one employer, one employer. And the sellers of labor, well, a seller of labor, well, these are many potential, potential workers, potential workers. And there's many real-world examples that approach monopsony employers. Let's say we're in a small town, and there's only one hospital. So they're going to be the monopsony employers of healthcare workers, of, say, nurses. And so what's interesting about a monopsony employer is they're not just going to take whatever the wage rate is. They have to essentially, they have a supply curve for labor in that market."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "Let's say we're in a small town, and there's only one hospital. So they're going to be the monopsony employers of healthcare workers, of, say, nurses. And so what's interesting about a monopsony employer is they're not just going to take whatever the wage rate is. They have to essentially, they have a supply curve for labor in that market. And so, for example, in this market, when wages are low, there's going to be a low supply of labor. Not many people are gonna wanna work for that hospital. And then as wages go up, more and more and more people are going to want to work for that monopsony employer."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "They have to essentially, they have a supply curve for labor in that market. And so, for example, in this market, when wages are low, there's going to be a low supply of labor. Not many people are gonna wanna work for that hospital. And then as wages go up, more and more and more people are going to want to work for that monopsony employer. And so this is our labor, labor supply, supply curve. Now, I'm gonna ask you a question. I'm gonna tell you right now, it is a trick question."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "And then as wages go up, more and more and more people are going to want to work for that monopsony employer. And so this is our labor, labor supply, supply curve. Now, I'm gonna ask you a question. I'm gonna tell you right now, it is a trick question. What is going to be the rational quantity for this firm to hire? Now, you might be tempted to say, well, it's just the same thing. We would just wanna keep hiring as long as our marginal revenue product of labor is higher than the cost of labor."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "I'm gonna tell you right now, it is a trick question. What is going to be the rational quantity for this firm to hire? Now, you might be tempted to say, well, it's just the same thing. We would just wanna keep hiring as long as our marginal revenue product of labor is higher than the cost of labor. And that would be true if you could afford to pay everyone a different rate. If this first unit of labor, you can pay someone this much, and then everyone that you hire, you have to just pay them a little bit more. But that's not the way that it typically works."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "We would just wanna keep hiring as long as our marginal revenue product of labor is higher than the cost of labor. And that would be true if you could afford to pay everyone a different rate. If this first unit of labor, you can pay someone this much, and then everyone that you hire, you have to just pay them a little bit more. But that's not the way that it typically works. In the real world, you often think about having, whatever the wage is, if we decide that this is the quantity of labor that we wanna bring on, you wouldn't pay this wage just to that incremental person. You would have to pay that wage to everyone. And so to think about what is the rational quantity of labor to bring on for this firm, we need to calculate or at least visualize what the marginal factor cost of labor here, which is going to be different than our labor supply curve."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "But that's not the way that it typically works. In the real world, you often think about having, whatever the wage is, if we decide that this is the quantity of labor that we wanna bring on, you wouldn't pay this wage just to that incremental person. You would have to pay that wage to everyone. And so to think about what is the rational quantity of labor to bring on for this firm, we need to calculate or at least visualize what the marginal factor cost of labor here, which is going to be different than our labor supply curve. And to help us visualize that, let me set up a little table here. So I'm just gonna make up some numbers. So we're gonna think about the quantity of labor."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "And so to think about what is the rational quantity of labor to bring on for this firm, we need to calculate or at least visualize what the marginal factor cost of labor here, which is going to be different than our labor supply curve. And to help us visualize that, let me set up a little table here. So I'm just gonna make up some numbers. So we're gonna think about the quantity of labor. So let's just go zero, one, two, three, four. And then let's think about the price of labor. And so let's say when the quantity of labor is one, the price of labor is three."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "So we're gonna think about the quantity of labor. So let's just go zero, one, two, three, four. And then let's think about the price of labor. And so let's say when the quantity of labor is one, the price of labor is three. And then it goes up as we, if we wanna hire more people, well, the price of labor goes up to four, goes up to five, goes up to six, keeps going. And then what would be the total cost of labor? So total labor cost, well, you could figure that out."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "And so let's say when the quantity of labor is one, the price of labor is three. And then it goes up as we, if we wanna hire more people, well, the price of labor goes up to four, goes up to five, goes up to six, keeps going. And then what would be the total cost of labor? So total labor cost, well, you could figure that out. If you hire one unit at $3 per unit, one times three is three, two units at $4 per unit. Remember, you're going to have to pay everyone the same amount. So it's not like you can just pay this first person $3 and only the second person $4, in which case this would be seven."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "So total labor cost, well, you could figure that out. If you hire one unit at $3 per unit, one times three is three, two units at $4 per unit. Remember, you're going to have to pay everyone the same amount. So it's not like you can just pay this first person $3 and only the second person $4, in which case this would be seven. But if you're going to hire two units, you have to pay everyone $4. So your total cost is eight here, two times four, three times five, your total cost is 15. Your total cost here is 24."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "So it's not like you can just pay this first person $3 and only the second person $4, in which case this would be seven. But if you're going to hire two units, you have to pay everyone $4. So your total cost is eight here, two times four, three times five, your total cost is 15. Your total cost here is 24. And so now we could think about what is our marginal factor cost of labor? So when you bring on that incremental unit of labor, how much incremental cost are you taking on? Well, when you go from one to two units, your total cost goes from three to eight."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "Your total cost here is 24. And so now we could think about what is our marginal factor cost of labor? So when you bring on that incremental unit of labor, how much incremental cost are you taking on? Well, when you go from one to two units, your total cost goes from three to eight. So your marginal factor cost has, is five. This is plus five right over here. When you go from two to three, your marginal factor cost, you went from eight to 15."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "Well, when you go from one to two units, your total cost goes from three to eight. So your marginal factor cost has, is five. This is plus five right over here. When you go from two to three, your marginal factor cost, you went from eight to 15. So eight to 15, you went up by seven. And once again, this is because when you wanna hire more people, you're going to have to pay more to attract those incremental people, but you have to pay that higher rate to everyone. And so you see that the marginal factor cost of labor is going up twice as fast as our labor supply curve."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "When you go from two to three, your marginal factor cost, you went from eight to 15. So eight to 15, you went up by seven. And once again, this is because when you wanna hire more people, you're going to have to pay more to attract those incremental people, but you have to pay that higher rate to everyone. And so you see that the marginal factor cost of labor is going up twice as fast as our labor supply curve. Our labor supply curve, every incremental unit we're adding one. Here, every incremental unit we're adding two. And we could see it again."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "And so you see that the marginal factor cost of labor is going up twice as fast as our labor supply curve. Our labor supply curve, every incremental unit we're adding one. Here, every incremental unit we're adding two. And we could see it again. To go from 15 to 24, you have to add nine. So our marginal factor cost of labor is nine. And so looking at this as an example, you see that your marginal factor cost of labor is going to go up at twice the slope of your labor supply curve."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "And we could see it again. To go from 15 to 24, you have to add nine. So our marginal factor cost of labor is nine. And so looking at this as an example, you see that your marginal factor cost of labor is going to go up at twice the slope of your labor supply curve. So your marginal factor cost of labor is going to look something like this. It's going to go up twice as fast. Marginal factor cost of labor."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "And so looking at this as an example, you see that your marginal factor cost of labor is going to go up at twice the slope of your labor supply curve. So your marginal factor cost of labor is going to look something like this. It's going to go up twice as fast. Marginal factor cost of labor. And now this might be ringing a bell. This might seem like what we studied in the past when we looked at a monopoly or an imperfect competitor firm, and we talked about the demand for its goods, and we also talked about its marginal revenue. And the marginal revenue curve had twice the negative slope as the demand curve."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "Marginal factor cost of labor. And now this might be ringing a bell. This might seem like what we studied in the past when we looked at a monopoly or an imperfect competitor firm, and we talked about the demand for its goods, and we also talked about its marginal revenue. And the marginal revenue curve had twice the negative slope as the demand curve. And here we see everything just flipped over because we're now not talking about revenue for the firm and marginal revenue for the firm. We are talking about cost for the firm. These are inputs for the firm."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "And the marginal revenue curve had twice the negative slope as the demand curve. And here we see everything just flipped over because we're now not talking about revenue for the firm and marginal revenue for the firm. We are talking about cost for the firm. These are inputs for the firm. But now, what would be the rational wage rate and what's the rational quantity of labor for this firm? Well, now that we've done the marginal analysis, we would see that it's rational for the firm to keep bringing on more and more people as long as the marginal revenue product of labor for each incremental unit is higher than the marginal factor cost of labor for each incremental unit. And so it would keep hiring until you get to this point right over here."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "These are inputs for the firm. But now, what would be the rational wage rate and what's the rational quantity of labor for this firm? Well, now that we've done the marginal analysis, we would see that it's rational for the firm to keep bringing on more and more people as long as the marginal revenue product of labor for each incremental unit is higher than the marginal factor cost of labor for each incremental unit. And so it would keep hiring until you get to this point right over here. So it would be rational for it to bring on this quantity of labor. And what would be the wage that it would pay? Well, you might be tempted to just go right over here and say it would pay this wage."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "And so it would keep hiring until you get to this point right over here. So it would be rational for it to bring on this quantity of labor. And what would be the wage that it would pay? Well, you might be tempted to just go right over here and say it would pay this wage. But remember, it doesn't have to pay this wage. At this quantity of labor, the labor supply curve tells us that the market wage would be right over here. So it would be paying, it would be paying this wage."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "Well, you might be tempted to just go right over here and say it would pay this wage. But remember, it doesn't have to pay this wage. At this quantity of labor, the labor supply curve tells us that the market wage would be right over here. So it would be paying, it would be paying this wage. It would be paying this wage right over here. So this is something for you to maybe ponder on a little bit more. But the big picture is, is when we're dealing with a monopsony firm, so it is the only person hiring in the market or something that's approaching a monopsony firm, it's going to have its own labor supply curve."}, {"video_title": "A monopsonistic market for labor Microeconomics Khan Academy.mp3", "Sentence": "So it would be paying, it would be paying this wage. It would be paying this wage right over here. So this is something for you to maybe ponder on a little bit more. But the big picture is, is when we're dealing with a monopsony firm, so it is the only person hiring in the market or something that's approaching a monopsony firm, it's going to have its own labor supply curve. And the way you think about what a rational quantity for it to hire is, you would think about the marginal factor cost of labor, which is going to go up at twice the slope. And where that intersects the marginal revenue product, well, that tells you the quantity. And then the labor supply curve will tell you the wage for that quantity."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now what we're going to explore is how we can go across goods. So we're going to talk about the cross-elasticity of demand. Cross-elasticity of demand. And there's multiple different scenarios we can think about, but it's really thinking about how a price change in one good might affect the quantity demanded in another good. And to see an example of this, think about two airlines, two competing airlines. Maybe it's the same exact route going at the exact same time, maybe between New York and London. So airline one right over here."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And there's multiple different scenarios we can think about, but it's really thinking about how a price change in one good might affect the quantity demanded in another good. And to see an example of this, think about two airlines, two competing airlines. Maybe it's the same exact route going at the exact same time, maybe between New York and London. So airline one right over here. Airline two, very competitive. Price right over here is $1,000 for a round trip. Quantity demanded is 200 tickets, let's say in a given week."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So airline one right over here. Airline two, very competitive. Price right over here is $1,000 for a round trip. Quantity demanded is 200 tickets, let's say in a given week. Airline two, price is $1,000 for the round trip. And the quantity demanded is 200 tickets as well. Now let's think about what will happen if airline one raises its price from $1,000 to $1,100."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Quantity demanded is 200 tickets, let's say in a given week. Airline two, price is $1,000 for the round trip. And the quantity demanded is 200 tickets as well. Now let's think about what will happen if airline one raises its price from $1,000 to $1,100. In fact, we could even do something less dramatic than that, to $1,050. So a relatively small increase in price. And remember, when we think about the percentage price increase, when we're thinking about elasticities in general, we don't just say, okay, $50 on top of $1,000, that's a 5% price increase."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now let's think about what will happen if airline one raises its price from $1,000 to $1,100. In fact, we could even do something less dramatic than that, to $1,050. So a relatively small increase in price. And remember, when we think about the percentage price increase, when we're thinking about elasticities in general, we don't just say, okay, $50 on top of $1,000, that's a 5% price increase. That's what we would do in kind of everyday thinking. If you said you went from $1,000 to $1,050, you would say that is a $50 increase on the base of $1,000, or that is a 5% increase. But when you think about elasticities, because we want to have the same percent change between, if you go from $1,000 to $1,050, or if you go from $1,050 down to $1,000, we actually use the average point as the base."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And remember, when we think about the percentage price increase, when we're thinking about elasticities in general, we don't just say, okay, $50 on top of $1,000, that's a 5% price increase. That's what we would do in kind of everyday thinking. If you said you went from $1,000 to $1,050, you would say that is a $50 increase on the base of $1,000, or that is a 5% increase. But when you think about elasticities, because we want to have the same percent change between, if you go from $1,000 to $1,050, or if you go from $1,050 down to $1,000, we actually use the average point as the base. So the percent change in this scenario, let me write it right over here. So our percent change, and I'll write it in quotes because it's a little bit different than what you do in traditional mathematics when you think about percent changes, is you had a 50 change in price, your price went up by 50, and on our base we will use 1025, which is the average of $1,000 and $1,050. And so that gives us a change of 50 divided by 1025 is equal to, let's say roughly 4.9%."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "But when you think about elasticities, because we want to have the same percent change between, if you go from $1,000 to $1,050, or if you go from $1,050 down to $1,000, we actually use the average point as the base. So the percent change in this scenario, let me write it right over here. So our percent change, and I'll write it in quotes because it's a little bit different than what you do in traditional mathematics when you think about percent changes, is you had a 50 change in price, your price went up by 50, and on our base we will use 1025, which is the average of $1,000 and $1,050. And so that gives us a change of 50 divided by 1025 is equal to, let's say roughly 4.9%. So this is approximately 4.9% increase in price, although we're going to put that increase in quotes because we're using it on the average. And we do that so that if we said it was 1050 to 1,000, it would still be a 4.9% decrease using this same idea, using the midpoint as the base. Now, when that happens, you know, everyone today, they use these travel sites where you can compare prices, and people, if these really are the exact same route going from the exact same airport to the exact same to the other airport in London, leaving at the exact same time, everyone is going to gravitate to this one now because it's only $1,000, even just to save $50."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And so that gives us a change of 50 divided by 1025 is equal to, let's say roughly 4.9%. So this is approximately 4.9% increase in price, although we're going to put that increase in quotes because we're using it on the average. And we do that so that if we said it was 1050 to 1,000, it would still be a 4.9% decrease using this same idea, using the midpoint as the base. Now, when that happens, you know, everyone today, they use these travel sites where you can compare prices, and people, if these really are the exact same route going from the exact same airport to the exact same to the other airport in London, leaving at the exact same time, everyone is going to gravitate to this one now because it's only $1,000, even just to save $50. Why would they ride on this airline? So this quantity demanded is going to go to 0, and this quantity demanded is going to go to 400. And we're not going to think about the actual capacity of the planes and all that."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Now, when that happens, you know, everyone today, they use these travel sites where you can compare prices, and people, if these really are the exact same route going from the exact same airport to the exact same to the other airport in London, leaving at the exact same time, everyone is going to gravitate to this one now because it's only $1,000, even just to save $50. Why would they ride on this airline? So this quantity demanded is going to go to 0, and this quantity demanded is going to go to 400. And we're not going to think about the actual capacity of the planes and all that. We're going to have a very simple model here. So what was the percent change in quantity for airline 2 right over here? Well, once again, our change in quantity is 200, not 400."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And we're not going to think about the actual capacity of the planes and all that. We're going to have a very simple model here. So what was the percent change in quantity for airline 2 right over here? Well, once again, our change in quantity is 200, not 400. We went from 200 to 400, so we gained 200. And our base, we want to use the average of 200 and 400, which is 300. And so this is approximately 67%."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Well, once again, our change in quantity is 200, not 400. We went from 200 to 400, so we gained 200. And our base, we want to use the average of 200 and 400, which is 300. And so this is approximately 67%. So we have, all of a sudden, our cross-elasticity of demand for airline 2's tickets relative to A1's price. And we get the percent change in A2's tickets, sorry, the percent change in the quantity demanded for A2's tickets, which is 67%, over the percent change not in A2's price change, but in A1's price change. That's why we call it cross-elasticity."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And so this is approximately 67%. So we have, all of a sudden, our cross-elasticity of demand for airline 2's tickets relative to A1's price. And we get the percent change in A2's tickets, sorry, the percent change in the quantity demanded for A2's tickets, which is 67%, over the percent change not in A2's price change, but in A1's price change. That's why we call it cross-elasticity. We're going from one good to another. So let's just say, for simplicity, roughly 5%. And so you do the math."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "That's why we call it cross-elasticity. We're going from one good to another. So let's just say, for simplicity, roughly 5%. And so you do the math. So if you have 67% divided by 5%, you get to roughly 13.4. So you have a very high cross-elasticity of demand. In fact, if you even increased this maybe by $5, you might have had the same effect."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And so you do the math. So if you have 67% divided by 5%, you get to roughly 13.4. So you have a very high cross-elasticity of demand. In fact, if you even increased this maybe by $5, you might have had the same effect. And so you would have had a very, very large number here. And that situation right here, for this cross-elasticity of demand, it's because these things are near-perfect substitutes. The way that we set up this problem, we said, well, people don't care which one they take."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "In fact, if you even increased this maybe by $5, you might have had the same effect. And so you would have had a very, very large number here. And that situation right here, for this cross-elasticity of demand, it's because these things are near-perfect substitutes. The way that we set up this problem, we said, well, people don't care which one they take. They're just going to go for the cheapest one. And so when you have near substitutes, or nearly perfect substitutes, like this example right here, the cross-elasticity of demand approaches infinity. It gets higher and higher and higher."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "The way that we set up this problem, we said, well, people don't care which one they take. They're just going to go for the cheapest one. And so when you have near substitutes, or nearly perfect substitutes, like this example right here, the cross-elasticity of demand approaches infinity. It gets higher and higher and higher. In theory, if these are really, really, really identical, even if you raise this a penny, people will say, why would I waste a penny? I would just use airline 2. And so this number would be even lower right over here."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "It gets higher and higher and higher. In theory, if these are really, really, really identical, even if you raise this a penny, people will say, why would I waste a penny? I would just use airline 2. And so this number would be even lower right over here. And so this thing might approach infinity. And notice, this was a positive. When we just did regular price elasticity of demand, the only way that you would increase quantity for a traditional good, the way you would increase quantity was by lowering price."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And so this number would be even lower right over here. And so this thing might approach infinity. And notice, this was a positive. When we just did regular price elasticity of demand, the only way that you would increase quantity for a traditional good, the way you would increase quantity was by lowering price. But here we raised price on a substitute competitive product, and we raised demand for your product, or for airline 2's product, which actually made a lot of sense. So it wasn't a negative relationship. It's actually a positive value right over here."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "When we just did regular price elasticity of demand, the only way that you would increase quantity for a traditional good, the way you would increase quantity was by lowering price. But here we raised price on a substitute competitive product, and we raised demand for your product, or for airline 2's product, which actually made a lot of sense. So it wasn't a negative relationship. It's actually a positive value right over here. But you could have things in other, you could have that negative relationship using cross-elasticity of demand. This is an example of a substitute. We could think about the example of a complement."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "It's actually a positive value right over here. But you could have things in other, you could have that negative relationship using cross-elasticity of demand. This is an example of a substitute. We could think about the example of a complement. So what if we're talking about e-books? So let's say I have some type of an e-book, and the current quantity demanded in a given week, I don't know, is 1,000. And let's say that the price of an e-reader that you would need for my e-book, the current price for an e-reader is $100."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "We could think about the example of a complement. So what if we're talking about e-books? So let's say I have some type of an e-book, and the current quantity demanded in a given week, I don't know, is 1,000. And let's say that the price of an e-reader that you would need for my e-book, the current price for an e-reader is $100. But let's say that price of the e-reader goes down from $100 to, I don't know, goes down from $100 to $80. So you had a $20 decrease in price. Well, what's going to happen to my e-book?"}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And let's say that the price of an e-reader that you would need for my e-book, the current price for an e-reader is $100. But let's say that price of the e-reader goes down from $100 to, I don't know, goes down from $100 to $80. So you had a $20 decrease in price. Well, what's going to happen to my e-book? Just even holding its price, assuming its price does not change. Well, then the quantity demanded for my e-book will go up. So let's say the quantity demanded for my e-book goes up by 100, because more people are going to be able to afford this, or they're going to have money left over when they buy this to buy more e-books."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Well, what's going to happen to my e-book? Just even holding its price, assuming its price does not change. Well, then the quantity demanded for my e-book will go up. So let's say the quantity demanded for my e-book goes up by 100, because more people are going to be able to afford this, or they're going to have money left over when they buy this to buy more e-books. And so I don't even know what the price for my e-book is, but at a given price point, the quantity demanded will go up, and so this goes to 1,100. And so I'll leave it to you to calculate this price elasticity of demand, but you will see that you will actually get a negative value, like we're used to seeing for regular price elasticities demand. And when you do calculate it, remember, you want to do your percent price change in e-book quantity over percent change in e-reader price."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So let's say the quantity demanded for my e-book goes up by 100, because more people are going to be able to afford this, or they're going to have money left over when they buy this to buy more e-books. And so I don't even know what the price for my e-book is, but at a given price point, the quantity demanded will go up, and so this goes to 1,100. And so I'll leave it to you to calculate this price elasticity of demand, but you will see that you will actually get a negative value, like we're used to seeing for regular price elasticities demand. And when you do calculate it, remember, you want to do your percent price change in e-book quantity over percent change in e-reader price. And the other thing you have to remember, you don't just take negative 20 over 100, you take negative 20 over the average of these two when you're thinking of it in the elasticity context. So this right over here, actually maybe we'll just work it through. Pause it and try to do it yourself."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And when you do calculate it, remember, you want to do your percent price change in e-book quantity over percent change in e-reader price. And the other thing you have to remember, you don't just take negative 20 over 100, you take negative 20 over the average of these two when you're thinking of it in the elasticity context. So this right over here, actually maybe we'll just work it through. Pause it and try to do it yourself. So this value right over here is negative 20 over 90, the average of those two, and this value right over here is going to be plus 100 over the average of these two. So the average of those two is 1050. And so we get, so this is 100 divided by 1050, which gets you to about 0.95, so about 9.5% change in quantity demanded for my book."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "Pause it and try to do it yourself. So this value right over here is negative 20 over 90, the average of those two, and this value right over here is going to be plus 100 over the average of these two. So the average of those two is 1050. And so we get, so this is 100 divided by 1050, which gets you to about 0.95, so about 9.5% change in quantity demanded for my book. And then this denominator right here, what did I do? The denominator right there is negative 20 divided by 90. So you get a drop of 22%."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And so we get, so this is 100 divided by 1050, which gets you to about 0.95, so about 9.5% change in quantity demanded for my book. And then this denominator right here, what did I do? The denominator right there is negative 20 divided by 90. So you get a drop of 22%. And so if you divide the numerator by the denominator, you get 0.952 divided by negative.22222, I'll just put a couple of twos there, and you get a negative.43. So this is equal to negative.43,.0.43. And this makes sense."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So you get a drop of 22%. And so if you divide the numerator by the denominator, you get 0.952 divided by negative.22222, I'll just put a couple of twos there, and you get a negative.43. So this is equal to negative.43,.0.43. And this makes sense. If you lower the price of an e-reader, this complement product, a product that goes along with my e-book, it increases the demand. So just like you get with price elasticity of demand, you get a negative value over here. And what about completely two unrelated products?"}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And this makes sense. If you lower the price of an e-reader, this complement product, a product that goes along with my e-book, it increases the demand. So just like you get with price elasticity of demand, you get a negative value over here. And what about completely two unrelated products? So let's say that I have basketballs. And the price of basketballs goes from, let's say they go from $20 to $30. What's going to happen to my e-book?"}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "And what about completely two unrelated products? So let's say that I have basketballs. And the price of basketballs goes from, let's say they go from $20 to $30. What's going to happen to my e-book? Well, my e-book's not going to change. It's going to stay at $1,000. So my percent change in the quantity demanded of my e-book is going to be 0 in this example."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "What's going to happen to my e-book? Well, my e-book's not going to change. It's going to stay at $1,000. So my percent change in the quantity demanded of my e-book is going to be 0 in this example. So we're going to have 0 when we want to do this cross elasticity of demand over my percent change in basketballs, which would be 30 over 25. So whatever that is, that's like 30 over 25. That would be a 10 over 25, I should say, which is a 40% increase."}, {"video_title": "Cross elasticity of demand Elasticity Microeconomics Khan Academy.mp3", "Sentence": "So my percent change in the quantity demanded of my e-book is going to be 0 in this example. So we're going to have 0 when we want to do this cross elasticity of demand over my percent change in basketballs, which would be 30 over 25. So whatever that is, that's like 30 over 25. That would be a 10 over 25, I should say, which is a 40% increase. So that would be 0 over 40%, which equals 0. So for unrelated products, products where the price change in one of them does not affect the quantity demanded in the other, it makes complete sense that you have a 0 cross elasticity of demand. If they're complements, you would have a negative cross elasticity of demand."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "When you think about what the field of economics is about, it is quite daunting. An economy is made up of billions or even billions of actors organized in incredibly complex ways. Let me write that. This is complex real world. And each of the actors, human beings or organizations, these are incredibly complex. A human brain, I can't predict what you're going to do the next second, much less what you're going to do the next day or the next year. And imagine trying to make insights about what millions or billions of people will do."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "This is complex real world. And each of the actors, human beings or organizations, these are incredibly complex. A human brain, I can't predict what you're going to do the next second, much less what you're going to do the next day or the next year. And imagine trying to make insights about what millions or billions of people will do. But the field of economics has borrowed an idea from other fields. So for example, in chemistry, chemists have tried to understand at a high level, well, how do molecules in a container behave? Let's say molecules of gas."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "And imagine trying to make insights about what millions or billions of people will do. But the field of economics has borrowed an idea from other fields. So for example, in chemistry, chemists have tried to understand at a high level, well, how do molecules in a container behave? Let's say molecules of gas. Well, you could imagine if you have a container here with trillions upon trillions of molecules, this is incredibly complex. But by making some simplifying assumptions about the type of interactions these particles will have or don't have, they can come up with models like the ideal gas law, which you might be familiar with or not from your chemistry class, that relates the pressure to the volume to the number of particles you have to the actual temperature. And so this right over here, where you're taking something that's hairy and complex and making simplifying assumptions to help you understand it, this thing right over here is a model."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "Let's say molecules of gas. Well, you could imagine if you have a container here with trillions upon trillions of molecules, this is incredibly complex. But by making some simplifying assumptions about the type of interactions these particles will have or don't have, they can come up with models like the ideal gas law, which you might be familiar with or not from your chemistry class, that relates the pressure to the volume to the number of particles you have to the actual temperature. And so this right over here, where you're taking something that's hairy and complex and making simplifying assumptions to help you understand it, this thing right over here is a model. And this is in other fields as well. Sometimes it's not an equation. Sometimes it might be a simpler organism."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "And so this right over here, where you're taking something that's hairy and complex and making simplifying assumptions to help you understand it, this thing right over here is a model. And this is in other fields as well. Sometimes it's not an equation. Sometimes it might be a simpler organism. An organism, for example, in biology, human beings are incredibly complex organisms. And not only are they incredibly complex, but certain forms of experimentation would also feel fairly unethical to our modern moral ethos. And so what do biologists do?"}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "Sometimes it might be a simpler organism. An organism, for example, in biology, human beings are incredibly complex organisms. And not only are they incredibly complex, but certain forms of experimentation would also feel fairly unethical to our modern moral ethos. And so what do biologists do? Well, they make simplifying assumptions or they pare down, they say, okay, we can't do that study on human beings, but maybe we can simplify the problem by looking at simpler organisms. Maybe you can look at an individual cell right over here. Maybe you can look at things like fruit flies, which are famous in the study of genetics."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "And so what do biologists do? Well, they make simplifying assumptions or they pare down, they say, okay, we can't do that study on human beings, but maybe we can simplify the problem by looking at simpler organisms. Maybe you can look at an individual cell right over here. Maybe you can look at things like fruit flies, which are famous in the study of genetics. Maybe you can even look at fairly complex organisms. Even a mouse is a very complex thing, but it's still simpler than a human being, and at least to our modern ethics, we're willing to do certain things to mice that we aren't willing to do to human beings. And so that's why in a biological context, you will hear people talk about things like a mouse model, where they will test a drug on a mouse or try to understand how something happens in a mouse and then say, well, that's a pretty good indication that might be happening to human beings."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "Maybe you can look at things like fruit flies, which are famous in the study of genetics. Maybe you can even look at fairly complex organisms. Even a mouse is a very complex thing, but it's still simpler than a human being, and at least to our modern ethics, we're willing to do certain things to mice that we aren't willing to do to human beings. And so that's why in a biological context, you will hear people talk about things like a mouse model, where they will test a drug on a mouse or try to understand how something happens in a mouse and then say, well, that's a pretty good indication that might be happening to human beings. In fact, when they do drug trials in medicine, they often will do it on mice first, and when they have good confidence that it works there and that it's fairly safe, only then will they start to do the experiments on human beings. Well, economists are doing the same thing. Even before the advent of computers and computer models, economists make simplifying assumptions."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "And so that's why in a biological context, you will hear people talk about things like a mouse model, where they will test a drug on a mouse or try to understand how something happens in a mouse and then say, well, that's a pretty good indication that might be happening to human beings. In fact, when they do drug trials in medicine, they often will do it on mice first, and when they have good confidence that it works there and that it's fairly safe, only then will they start to do the experiments on human beings. Well, economists are doing the same thing. Even before the advent of computers and computer models, economists make simplifying assumptions. Assumptions like all of the actors in an economy are rational, which we already know is not exactly true. I'm not always rational, and I definitely know people who aren't always rational. They're simplifying assumptions that all of the people in an economy have the same access to information or that they all even have perfect information, which we also know isn't necessarily true in a real economy."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "Even before the advent of computers and computer models, economists make simplifying assumptions. Assumptions like all of the actors in an economy are rational, which we already know is not exactly true. I'm not always rational, and I definitely know people who aren't always rational. They're simplifying assumptions that all of the people in an economy have the same access to information or that they all even have perfect information, which we also know isn't necessarily true in a real economy. So depending on the model, there are going to be these simplifying assumptions that take this large, complex, real-world thing and try to break it down into simple equations or lines or charts. We have models early on in our economic study. We will see things like the production possibility frontier, where it assumes that you're only trading off between two things and everything else is equal, this notion of ceteris paribus, which means all things equal."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "They're simplifying assumptions that all of the people in an economy have the same access to information or that they all even have perfect information, which we also know isn't necessarily true in a real economy. So depending on the model, there are going to be these simplifying assumptions that take this large, complex, real-world thing and try to break it down into simple equations or lines or charts. We have models early on in our economic study. We will see things like the production possibility frontier, where it assumes that you're only trading off between two things and everything else is equal, this notion of ceteris paribus, which means all things equal. In a real world, you're not gonna be able to say, hey, let's just pick between these two things and then hold everything else equal. There's hundreds or thousands or millions of variables are operating, but if you wanna make a model, maybe we can make these assumptions. Same thing with famous price equilibria that we're going to study later on, where you have supply and demand, and then you have these notions of equilibrium, prices, and quantities."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "We will see things like the production possibility frontier, where it assumes that you're only trading off between two things and everything else is equal, this notion of ceteris paribus, which means all things equal. In a real world, you're not gonna be able to say, hey, let's just pick between these two things and then hold everything else equal. There's hundreds or thousands or millions of variables are operating, but if you wanna make a model, maybe we can make these assumptions. Same thing with famous price equilibria that we're going to study later on, where you have supply and demand, and then you have these notions of equilibrium, prices, and quantities. These also make similar types of assumptions about rational actors and perfect information. And these economic models can be very useful, and that's why most of your study in a first-year economics course is of these models. Now, with that said, you should also take them with a grain of salt, and you shouldn't just accept them as the absolute description of reality."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "Same thing with famous price equilibria that we're going to study later on, where you have supply and demand, and then you have these notions of equilibrium, prices, and quantities. These also make similar types of assumptions about rational actors and perfect information. And these economic models can be very useful, and that's why most of your study in a first-year economics course is of these models. Now, with that said, you should also take them with a grain of salt, and you shouldn't just accept them as the absolute description of reality. In fact, that's when economic models can get dangerous. You always have to be conscientious of what are those assumptions you made. In fact, Nobel Prizes have been won in economics by revisiting some simplifying assumptions and coming up with new models."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "Now, with that said, you should also take them with a grain of salt, and you shouldn't just accept them as the absolute description of reality. In fact, that's when economic models can get dangerous. You always have to be conscientious of what are those assumptions you made. In fact, Nobel Prizes have been won in economics by revisiting some simplifying assumptions and coming up with new models. The other difficulty about economics is it's hard to test it in as absolute a way, definitely as something like chemistry or physics, but even in biology, where you're dealing with similarly complex systems, a human body and an economy, these are both extremely complex systems. If I wanna see in medicine whether a certain medication works, I can do a clinical trial. I could take hundreds or thousands of people and give maybe half of them the drug, and I could try to control for a bunch of different variables."}, {"video_title": "Economic models Basic economics concepts AP Macroeconomics and Microeconomics Khan Academy.mp3", "Sentence": "In fact, Nobel Prizes have been won in economics by revisiting some simplifying assumptions and coming up with new models. The other difficulty about economics is it's hard to test it in as absolute a way, definitely as something like chemistry or physics, but even in biology, where you're dealing with similarly complex systems, a human body and an economy, these are both extremely complex systems. If I wanna see in medicine whether a certain medication works, I can do a clinical trial. I could take hundreds or thousands of people and give maybe half of them the drug, and I could try to control for a bunch of different variables. But in economics, you can't take 1,000 different economies that look very similar in what you think matters and then apply some type of economic prescription to half of them and then see what happens to see whether your model is exactly true or whether your prescription for what makes an economy grow faster actually works. And so the big takeaway, models are valuable across the various sciences, including in economics. But economics straddles between a social science and the sciences like chemistry or physics because you can't run experiments in the same way, and we often make simplifying assumptions that even though we know aren't exactly true, they're the only way that we're able to make sense of an incredibly complex real world."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So one could say that we're gonna think about the determinants of the price elasticity of demand. Now before we even talk about those determinants or those factors, let's just give ourselves a little bit of a review of what an elastic or an inelastic market might look like. So let me draw my price and quantity axes that we are pretty familiar with at this point. So quantity on the horizontal axis, price on the vertical axis. And remember, price elasticity of demand is percent change in quantity for a given percent change in price. So a high elasticity would say that you have a large percent change in quantity for a given percent change in price. So high elasticity would look something like this."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So quantity on the horizontal axis, price on the vertical axis. And remember, price elasticity of demand is percent change in quantity for a given percent change in price. So a high elasticity would say that you have a large percent change in quantity for a given percent change in price. So high elasticity would look something like this. It would be a flatter demand curve. So this one, it might maybe look something like that. So I'll write that as high, high elasticity."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So high elasticity would look something like this. It would be a flatter demand curve. So this one, it might maybe look something like that. So I'll write that as high, high elasticity. Elasticity. And low elasticity would be that your percent change in quantity does not change much depending on your percent change in price. So low elasticity, the closer and closer we get to a vertical curve, the lower our elasticity."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So I'll write that as high, high elasticity. Elasticity. And low elasticity would be that your percent change in quantity does not change much depending on your percent change in price. So low elasticity, the closer and closer we get to a vertical curve, the lower our elasticity. So a low elasticity would look something like that. A low elasticity demand curve. Low elasticity."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So low elasticity, the closer and closer we get to a vertical curve, the lower our elasticity. So a low elasticity would look something like that. A low elasticity demand curve. Low elasticity. Elasticity. In other videos, we even think about a perfectly inelastic market, in which case you would have a vertical demand curve. But let's now think about the factors that might lead us to be closer to the high elasticity case or closer to the low elasticity case."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Low elasticity. Elasticity. In other videos, we even think about a perfectly inelastic market, in which case you would have a vertical demand curve. But let's now think about the factors that might lead us to be closer to the high elasticity case or closer to the low elasticity case. So the factors that economists will generally point to are substitutes, time frame, income share, whether the market we're talking about is about a luxury or a necessity, and the narrowness of a market. So let's start with substitutes. So let's imagine, first of all, where there are many substitutes for the good or service that we're talking about."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But let's now think about the factors that might lead us to be closer to the high elasticity case or closer to the low elasticity case. So the factors that economists will generally point to are substitutes, time frame, income share, whether the market we're talking about is about a luxury or a necessity, and the narrowness of a market. So let's start with substitutes. So let's imagine, first of all, where there are many substitutes for the good or service that we're talking about. Many substitutes. And we could think of examples in our heads for markets of goods or services where there are many substitutes. Let's say it's the market for Fuji apples."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So let's imagine, first of all, where there are many substitutes for the good or service that we're talking about. Many substitutes. And we could think of examples in our heads for markets of goods or services where there are many substitutes. Let's say it's the market for Fuji apples. Well, the other substitutes are the other types of apples out there, Macintosh apples and Red Delicious apples and all of those. And so for a given percent change in price, would you expect the percent change in quantity demanded of Fuji apples to change dramatically? Well, if there are many substitutes and only the Fuji apples, say, get a lot more expensive, then people will go to the substitutes."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Let's say it's the market for Fuji apples. Well, the other substitutes are the other types of apples out there, Macintosh apples and Red Delicious apples and all of those. And so for a given percent change in price, would you expect the percent change in quantity demanded of Fuji apples to change dramatically? Well, if there are many substitutes and only the Fuji apples, say, get a lot more expensive, then people will go to the substitutes. They're more likely to go to the Red Delicious or the Macintosh apples. So when you have many substitutes, that tends to lead to more elasticity. More elasticity."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, if there are many substitutes and only the Fuji apples, say, get a lot more expensive, then people will go to the substitutes. They're more likely to go to the Red Delicious or the Macintosh apples. So when you have many substitutes, that tends to lead to more elasticity. More elasticity. People, quantity, I guess you could say, would be very sensitive to price. And you could go the other way around if you have few substitutes. Few substitutes."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "More elasticity. People, quantity, I guess you could say, would be very sensitive to price. And you could go the other way around if you have few substitutes. Few substitutes. Well, then, even if the price changes a little bit or even if it changes a lot, people say, well, I don't know what I could substitute that with. So they might still buy a reasonably similar quantity. So this would be less, less elastic."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Few substitutes. Well, then, even if the price changes a little bit or even if it changes a lot, people say, well, I don't know what I could substitute that with. So they might still buy a reasonably similar quantity. So this would be less, less elastic. Less elastic. Now, what about time frame? How does that affect elasticity?"}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this would be less, less elastic. Less elastic. Now, what about time frame? How does that affect elasticity? Well, imagine that you are selling umbrellas and it is raining right now. So if we're thinking about a short time frame while it is raining, then you could probably raise the prices on umbrellas a good bit. And assuming that you have good foot traffic, a lot of people are probably going to be willing to pay that price."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "How does that affect elasticity? Well, imagine that you are selling umbrellas and it is raining right now. So if we're thinking about a short time frame while it is raining, then you could probably raise the prices on umbrellas a good bit. And assuming that you have good foot traffic, a lot of people are probably going to be willing to pay that price. And so in a short time frame, in a short, short time frame, things tend to be less elastic. Less elastic. But over a longer time frame, so longer time frame, people might say, hey, you're trying to really rip me off with those umbrellas and take advantage of me."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And assuming that you have good foot traffic, a lot of people are probably going to be willing to pay that price. And so in a short time frame, in a short, short time frame, things tend to be less elastic. Less elastic. But over a longer time frame, so longer time frame, people might say, hey, you're trying to really rip me off with those umbrellas and take advantage of me. I can go someplace else and find umbrellas. I can go online or whatever else. And so there, people tend to be more sensitive to price on the longer time frame."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But over a longer time frame, so longer time frame, people might say, hey, you're trying to really rip me off with those umbrellas and take advantage of me. I can go someplace else and find umbrellas. I can go online or whatever else. And so there, people tend to be more sensitive to price on the longer time frame. They can find their substitutes going back to the previous determinant. And so things tend to be more elastic. So once again, you could view elasticity as how sensitive quantity is to price."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so there, people tend to be more sensitive to price on the longer time frame. They can find their substitutes going back to the previous determinant. And so things tend to be more elastic. So once again, you could view elasticity as how sensitive quantity is to price. So next, income share. So let's first think about something that makes up a very small percentage of your income, say, bubblegum. And let's say bubblegum right now is 25 cents, and if it were to go to 50 cents."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So once again, you could view elasticity as how sensitive quantity is to price. So next, income share. So let's first think about something that makes up a very small percentage of your income, say, bubblegum. And let's say bubblegum right now is 25 cents, and if it were to go to 50 cents. That would likely reduce the quantity demanded, but it might not be so significant because going from 25 cents to 50 cents isn't gonna make a big difference for most people's pocketbooks. So in general, the lower the income share, lower share of income, the less elastic, the less elastic that market is going to be. But imagine something that is a high share of income."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And let's say bubblegum right now is 25 cents, and if it were to go to 50 cents. That would likely reduce the quantity demanded, but it might not be so significant because going from 25 cents to 50 cents isn't gonna make a big difference for most people's pocketbooks. So in general, the lower the income share, lower share of income, the less elastic, the less elastic that market is going to be. But imagine something that is a high share of income. So let's say we're talking about, let me just write it here. So high share, high share of income. So let's say we're talking about an automobile."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But imagine something that is a high share of income. So let's say we're talking about, let me just write it here. So high share, high share of income. So let's say we're talking about an automobile. And if people are already spending 20% or 30% of their income on that automobile, and that automobile were to double, the cost of that versus the gumball drop or the bubblegum, well then, people just wouldn't even be able to demand the same quantities that they were able to before because their income just can't support it. They have other things to spend that money on, that extra money, because their incomes just can't support it. So they will be highly sensitive to changes in price."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So let's say we're talking about an automobile. And if people are already spending 20% or 30% of their income on that automobile, and that automobile were to double, the cost of that versus the gumball drop or the bubblegum, well then, people just wouldn't even be able to demand the same quantities that they were able to before because their income just can't support it. They have other things to spend that money on, that extra money, because their incomes just can't support it. So they will be highly sensitive to changes in price. So high sensitivity to changes in price, more elastic. Now what about luxuries versus necessities? Well, let's start with necessities."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So they will be highly sensitive to changes in price. So high sensitivity to changes in price, more elastic. Now what about luxuries versus necessities? Well, let's start with necessities. If this is something that you absolutely need, then even if the price were to go up a good bit, as long as you can still afford it, you might still go for that thing. So for example, let's say there's some medicine. Let's say you're a diabetic and you need insulin."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, let's start with necessities. If this is something that you absolutely need, then even if the price were to go up a good bit, as long as you can still afford it, you might still go for that thing. So for example, let's say there's some medicine. Let's say you're a diabetic and you need insulin. If you don't get insulin, really bad things are going to happen. If they were to raise the price of insulin by 20, 30, 40%, assuming that you could still afford it, you would still buy the same quantity because you need that insulin. And so if something is a necessity, necessity, you're going to be less price sensitive."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Let's say you're a diabetic and you need insulin. If you don't get insulin, really bad things are going to happen. If they were to raise the price of insulin by 20, 30, 40%, assuming that you could still afford it, you would still buy the same quantity because you need that insulin. And so if something is a necessity, necessity, you're going to be less price sensitive. The quantity is going to be less sensitive to price. And so you're going to be less elastic. But if something's a luxury, if we're talking about gold tiaras and the price of gold were to go up dramatically, well, then a lot of people say, well, I might not need that gold tiara anymore."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so if something is a necessity, necessity, you're going to be less price sensitive. The quantity is going to be less sensitive to price. And so you're going to be less elastic. But if something's a luxury, if we're talking about gold tiaras and the price of gold were to go up dramatically, well, then a lot of people say, well, I might not need that gold tiara anymore. It's really not going to make a big difference in my life. So in general, luxuries, luxury, will be associated with more elasticity. Now, there could be exceptions."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But if something's a luxury, if we're talking about gold tiaras and the price of gold were to go up dramatically, well, then a lot of people say, well, I might not need that gold tiara anymore. It's really not going to make a big difference in my life. So in general, luxuries, luxury, will be associated with more elasticity. Now, there could be exceptions. If something is in kind of the ultra luxury category and if maybe the price were to go up, maybe the people buying it, it's a very low share of their income and maybe it's a brand that, at least the people buying it feel that there's no substitute for it, well, then maybe it might not be as sensitive. But we're talking about in broad generalities. Now, the last factor that is sometimes talked about is the narrowness of the market."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, there could be exceptions. If something is in kind of the ultra luxury category and if maybe the price were to go up, maybe the people buying it, it's a very low share of their income and maybe it's a brand that, at least the people buying it feel that there's no substitute for it, well, then maybe it might not be as sensitive. But we're talking about in broad generalities. Now, the last factor that is sometimes talked about is the narrowness of the market. Now, what are we talking about there? So for example, we could be talking about the market for apples or you could talk about the market for food. Which of these markets, they're kind of both describing food, but which one is more narrow?"}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, the last factor that is sometimes talked about is the narrowness of the market. Now, what are we talking about there? So for example, we could be talking about the market for apples or you could talk about the market for food. Which of these markets, they're kind of both describing food, but which one is more narrow? Yes, apples are a subset of all food. And so if we're talking about the market for apples, the narrower situation, so if we're talking about the narrower market, you tend to have more substitutes. So if the price of apples go up, people say, well, maybe I'm gonna go buy some pears or bananas or something else instead of the apples."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Which of these markets, they're kind of both describing food, but which one is more narrow? Yes, apples are a subset of all food. And so if we're talking about the market for apples, the narrower situation, so if we're talking about the narrower market, you tend to have more substitutes. So if the price of apples go up, people say, well, maybe I'm gonna go buy some pears or bananas or something else instead of the apples. And so you're going to be more, quantity will be more sensitive to changes in price. And so you're gonna have more elasticity. But if you have a broader definition of your market, the market for food, well, now the food looks a lot more like it's a necessity."}, {"video_title": "Determinants of price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So if the price of apples go up, people say, well, maybe I'm gonna go buy some pears or bananas or something else instead of the apples. And so you're going to be more, quantity will be more sensitive to changes in price. And so you're gonna have more elasticity. But if you have a broader definition of your market, the market for food, well, now the food looks a lot more like it's a necessity. There are very few substitutes for food. If I stop eating food, well, it's not like I can eat change or just live off of air or whatever else. There's really no substitutes for food."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "What I want to do in this video is think about how supply and or demand might change based on changes in some factors in the market and then think about what that might do to the equilibrium price and equilibrium quantity. So let's say at some period this is what the supply curve looks like and this is what the demand curve looks like and then all of a sudden this thing happens. A new disease-resistant apple is invented. What's likely to happen for the next period? Well, a new disease-resistant apple being invented, this is something that clearly impacts the growers, clearly impacts the suppliers. All of a sudden they'll have fewer apples succumbing to disease and so they will be able to produce more apples. So at any given price point, this will shift the quantity supplied up."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "What's likely to happen for the next period? Well, a new disease-resistant apple being invented, this is something that clearly impacts the growers, clearly impacts the suppliers. All of a sudden they'll have fewer apples succumbing to disease and so they will be able to produce more apples. So at any given price point, this will shift the quantity supplied up. So at any given price point it will shift the quantity of apples supplied up or you could say that the entire supply curve is shifted to the right or supply goes up. And let me draw the entire curve. And obviously if now we have disease-resistant apples, even our minimum price to start producing apples is lower."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So at any given price point, this will shift the quantity supplied up. So at any given price point it will shift the quantity of apples supplied up or you could say that the entire supply curve is shifted to the right or supply goes up. And let me draw the entire curve. And obviously if now we have disease-resistant apples, even our minimum price to start producing apples is lower. Now, when we had the supply curve shift in this way, when it shifted to the right, what happens to the equilibrium price? Well, our old equilibrium price was right over here. Our new equilibrium price, so this is the old one, and this is our new equilibrium price."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "And obviously if now we have disease-resistant apples, even our minimum price to start producing apples is lower. Now, when we had the supply curve shift in this way, when it shifted to the right, what happens to the equilibrium price? Well, our old equilibrium price was right over here. Our new equilibrium price, so this is the old one, and this is our new equilibrium price. We're assuming that the demand has not changed at all. So this is our new equilibrium price. So our new equilibrium price is lower."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Our new equilibrium price, so this is the old one, and this is our new equilibrium price. We're assuming that the demand has not changed at all. So this is our new equilibrium price. So our new equilibrium price is lower. So the price went down. And you don't have to, you could have probably reasoned through that before taking an econ class, but this way at least you have some way to think about it and think about how the curves are changing. Now let's think about this scenario."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So our new equilibrium price is lower. So the price went down. And you don't have to, you could have probably reasoned through that before taking an econ class, but this way at least you have some way to think about it and think about how the curves are changing. Now let's think about this scenario. So this is before. So in all of these examples, the graph is what happened before the news came out or the event came out. So this is before."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Now let's think about this scenario. So this is before. So in all of these examples, the graph is what happened before the news came out or the event came out. So this is before. And then a study is released on how apples prevent cancer. So what is that likely to do? Well, no one wants cancer, and so more people are going to be eager to have apples."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So this is before. And then a study is released on how apples prevent cancer. So what is that likely to do? Well, no one wants cancer, and so more people are going to be eager to have apples. This will change customer preferences. They will prefer apples even more when they're at the supermarket. So this is clearly affecting demand, customer preferences."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Well, no one wants cancer, and so more people are going to be eager to have apples. This will change customer preferences. They will prefer apples even more when they're at the supermarket. So this is clearly affecting demand, customer preferences. And so at a given price, people will want to get, people will want, they will demand a higher quantity of apples. The quantity of apples demanded at a given price will go up. So the demand curve will shift to the right."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So this is clearly affecting demand, customer preferences. And so at a given price, people will want to get, people will want, they will demand a higher quantity of apples. The quantity of apples demanded at a given price will go up. So the demand curve will shift to the right. Or you could say that demand would go up. So that's the new demand curve. So here demand goes up."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So the demand curve will shift to the right. Or you could say that demand would go up. So that's the new demand curve. So here demand goes up. And let me write over here, in this situation supply went up. Here demand goes up, and what happens to the price? Well, this is our old equilibrium price."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So here demand goes up. And let me write over here, in this situation supply went up. Here demand goes up, and what happens to the price? Well, this is our old equilibrium price. This is our new equilibrium price. The price clearly went up. So the price went up."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Well, this is our old equilibrium price. This is our new equilibrium price. The price clearly went up. So the price went up. And actually over here, let's think about the quantity too in this first situation. This is our old equilibrium quantity. This is our new equilibrium quantity."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So the price went up. And actually over here, let's think about the quantity too in this first situation. This is our old equilibrium quantity. This is our new equilibrium quantity. Quantity went up, which makes sense. You have fewer apples dying, price went down, more people want to buy them. Here price went up, and what happened to quantity?"}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "This is our new equilibrium quantity. Quantity went up, which makes sense. You have fewer apples dying, price went down, more people want to buy them. Here price went up, and what happened to quantity? What happened to quantity? Quantity, this was our old equilibrium quantity. This is our new equilibrium quantity."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Here price went up, and what happened to quantity? What happened to quantity? Quantity, this was our old equilibrium quantity. This is our new equilibrium quantity. Quantity also went up. More people just want to buy apples. They don't want to get cancer."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "This is our new equilibrium quantity. Quantity also went up. More people just want to buy apples. They don't want to get cancer. Now let's think about these scenarios right over here. The pear cider industry launches an ad campaign. And for the sake of this, let's assume that the same growers who grow apples can also grow pears."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "They don't want to get cancer. Now let's think about these scenarios right over here. The pear cider industry launches an ad campaign. And for the sake of this, let's assume that the same growers who grow apples can also grow pears. That makes it interesting. So you have a couple of interesting things. By launching this advertising campaign, we'll assume it's a good advertising campaign."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "And for the sake of this, let's assume that the same growers who grow apples can also grow pears. That makes it interesting. So you have a couple of interesting things. By launching this advertising campaign, we'll assume it's a good advertising campaign. This clearly will make demand go up for cider, for pear cider, relative to apple cider. Most people, when they think of cider, they think of apple cider. Now all of a sudden pear cider comes out."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "By launching this advertising campaign, we'll assume it's a good advertising campaign. This clearly will make demand go up for cider, for pear cider, relative to apple cider. Most people, when they think of cider, they think of apple cider. Now all of a sudden pear cider comes out. It'll make demand for apple cider go down. So this is apple cider demand will go down. Now if apple cider demand goes down, the apple cider producers are going to demand fewer apples."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Now all of a sudden pear cider comes out. It'll make demand for apple cider go down. So this is apple cider demand will go down. Now if apple cider demand goes down, the apple cider producers are going to demand fewer apples. So this is going to mean that apple demand will go down. At any given price point, apple demand will go down. So the demand curve will shift to the left."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Now if apple cider demand goes down, the apple cider producers are going to demand fewer apples. So this is going to mean that apple demand will go down. At any given price point, apple demand will go down. So the demand curve will shift to the left. I should say at any given price point, the quantity demanded will go down. So the entire demand curve, the entire relationship will shift to the left. Now that's not all that might happen."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So the demand curve will shift to the left. I should say at any given price point, the quantity demanded will go down. So the entire demand curve, the entire relationship will shift to the left. Now that's not all that might happen. Because if you think about it from the supplier's point of view, and I don't know if this really is the case, but let's assume that the farmers who grow apples can also grow pears. Well they might say, well, now that there's more demand for pears, they're doing this advertising campaign, I want to, and probably the price of pears has gone up, they might say, well, I'm going to devote more of my land to pears and less of my land to apples. And so the supply of apples, so apple supply, I want to be clear here that we're talking about apple, the apple supply might go down."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Now that's not all that might happen. Because if you think about it from the supplier's point of view, and I don't know if this really is the case, but let's assume that the farmers who grow apples can also grow pears. Well they might say, well, now that there's more demand for pears, they're doing this advertising campaign, I want to, and probably the price of pears has gone up, they might say, well, I'm going to devote more of my land to pears and less of my land to apples. And so the supply of apples, so apple supply, I want to be clear here that we're talking about apple, the apple supply might go down. So it will also shift to the left. So they're both shifting to the left. Now, what is likely to happen here?"}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "And so the supply of apples, so apple supply, I want to be clear here that we're talking about apple, the apple supply might go down. So it will also shift to the left. So they're both shifting to the left. Now, what is likely to happen here? So the demand went down and the supply went down. They both shifted to the left. Well here, the way I drew it, this was our old equilibrium price, this is our new equilibrium price."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Now, what is likely to happen here? So the demand went down and the supply went down. They both shifted to the left. Well here, the way I drew it, this was our old equilibrium price, this is our new equilibrium price. It actually looks the way that I drew it right over here, that it did not change. The equilibrium quantity definitely did change. So let's see, this is our old equilibrium quantity, this is our new equilibrium quantity."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Well here, the way I drew it, this was our old equilibrium price, this is our new equilibrium price. It actually looks the way that I drew it right over here, that it did not change. The equilibrium quantity definitely did change. So let's see, this is our old equilibrium quantity, this is our new equilibrium quantity. This clearly, the quantity went down. It was a bad day for apples, but the price didn't change because, at least in the example, we assume that the farmers actually also produced fewer apples. It turns out, I could have drawn this in multiple ways, and actually let me draw it in different ways here."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So let's see, this is our old equilibrium quantity, this is our new equilibrium quantity. This clearly, the quantity went down. It was a bad day for apples, but the price didn't change because, at least in the example, we assume that the farmers actually also produced fewer apples. It turns out, I could have drawn this in multiple ways, and actually let me draw it in different ways here. So let's think about other scenarios. Let me draw it slightly different. Let's say that the supply goes down even more dramatically."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "It turns out, I could have drawn this in multiple ways, and actually let me draw it in different ways here. So let's think about other scenarios. Let me draw it slightly different. Let's say that the supply goes down even more dramatically. So let's say the supply shifts all the way. The supply shifts really far back. Now what happened?"}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Let's say that the supply goes down even more dramatically. So let's say the supply shifts all the way. The supply shifts really far back. Now what happened? Well now, our equilibrium price, because the reduction in supply was kind of more extreme than the reduction in demand, and it really depends on how the curve shapes and all of that. The main thing is to reason through it, or to actually see what the actual results are. But in this situation, all of a sudden, the price went up, but the quantity definitely still went down."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Now what happened? Well now, our equilibrium price, because the reduction in supply was kind of more extreme than the reduction in demand, and it really depends on how the curve shapes and all of that. The main thing is to reason through it, or to actually see what the actual results are. But in this situation, all of a sudden, the price went up, but the quantity definitely still went down. So in this case, the one thing that you're always going to be sure of is that the quantity will go down, but the price went up, because this effect, the supply went down much more than the demand did. So the price went up. Now I could have done another scenario."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "But in this situation, all of a sudden, the price went up, but the quantity definitely still went down. So in this case, the one thing that you're always going to be sure of is that the quantity will go down, but the price went up, because this effect, the supply went down much more than the demand did. So the price went up. Now I could have done another scenario. I could have done another scenario where maybe the supply barely budged, or maybe the demand went down dramatically. Let me do it where the supply barely budges. So maybe the supply, it only gets shifted a little bit to the left."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Now I could have done another scenario. I could have done another scenario where maybe the supply barely budged, or maybe the demand went down dramatically. Let me do it where the supply barely budges. So maybe the supply, it only gets shifted a little bit to the left. So maybe the supply curve looks like this. Now all of a sudden, once again, quantity definitely goes down. So in all of the scenarios, the quantity will go down."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So maybe the supply, it only gets shifted a little bit to the left. So maybe the supply curve looks like this. Now all of a sudden, once again, quantity definitely goes down. So in all of the scenarios, the quantity will go down. But I've just done three scenarios where the price could be neutral, the price could go up, or the price could go down. So if you actually don't know what is going to happen to the price based on this, you would actually have to look at the actual curve and see what the new equilibrium prices are. Now let's look at this one."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So in all of the scenarios, the quantity will go down. But I've just done three scenarios where the price could be neutral, the price could go up, or the price could go down. So if you actually don't know what is going to happen to the price based on this, you would actually have to look at the actual curve and see what the new equilibrium prices are. Now let's look at this one. The apple pickers unionize demand, and they demand wage increases. So this is an issue for the suppliers. So all of a sudden, one of their inputs, one of their costs of production, which is labor, has gone up."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "Now let's look at this one. The apple pickers unionize demand, and they demand wage increases. So this is an issue for the suppliers. So all of a sudden, one of their inputs, one of their costs of production, which is labor, has gone up. So if their cost of production has gone up, now at a given price point, they are less profitable, less willing to produce apples. So at a given price point, so we're talking about the suppliers, at a given price point, they will supply a lower quantity. So this is going to lower supply."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So all of a sudden, one of their inputs, one of their costs of production, which is labor, has gone up. So if their cost of production has gone up, now at a given price point, they are less profitable, less willing to produce apples. So at a given price point, so we're talking about the suppliers, at a given price point, they will supply a lower quantity. So this is going to lower supply. And when you lower supply, what's going to happen? Well, your equilibrium quantity, this was our old one, this is our new one, equilibrium quantity definitely goes down, the quantity went down, and what happened to the price? We're assuming nothing changes to the demand."}, {"video_title": "Changes in Market Equilibrium.mp3", "Sentence": "So this is going to lower supply. And when you lower supply, what's going to happen? Well, your equilibrium quantity, this was our old one, this is our new one, equilibrium quantity definitely goes down, the quantity went down, and what happened to the price? We're assuming nothing changes to the demand. So this was our old equilibrium price, this is our new equilibrium price, it went up, quantity went down, and price went up. I encourage you to, well, one, well, I should have told you this at the beginning, so you should have tried to do these yourself and then see what I had to say about them, but I encourage you to try this out with different situations. Think of situations yourself and even think about different markets other than the apple market."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "What we're going to do in this video is take this information, especially total output and all of these things that we just calculated, and we're going to graph it so that we can better appreciate how these various calculations and the curves that we can get from the calculations are interrelated. So let me scroll over a little bit so we have some space, and then let me set up a little coordinate plane here. And so what we have on our vertical axis, this is our cost, and then down here in our horizontal axis, this is our output. So first, let's just hand graph it, and I encourage you to go through the exercise yourself. It's one thing to watch me do it, but when you actually graph something, you digest the numbers that much better. And so let's start with marginal cost, and I'm going to do it in this blue-green color. So let's see, when our total output is 25, our marginal cost is 267."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "So first, let's just hand graph it, and I encourage you to go through the exercise yourself. It's one thing to watch me do it, but when you actually graph something, you digest the numbers that much better. And so let's start with marginal cost, and I'm going to do it in this blue-green color. So let's see, when our total output is 25, our marginal cost is 267. So when our output is 25, 267 would be right about there. And we're just trying to get, be able to visualize what's going on. And then when our total output is 45, our marginal cost is $150."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "So let's see, when our total output is 25, our marginal cost is 267. So when our output is 25, 267 would be right about there. And we're just trying to get, be able to visualize what's going on. And then when our total output is 45, our marginal cost is $150. So 45 is here, and then 150 is right about there. And then when our total output is 58, our marginal cost is 231. So 58 is right about there."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "And then when our total output is 45, our marginal cost is $150. So 45 is here, and then 150 is right about there. And then when our total output is 58, our marginal cost is 231. So 58 is right about there. And then it's going to be 231, so it's about, right about there. And then when our total output is 65, our marginal cost is 429. So 65 is right over there."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "So 58 is right about there. And then it's going to be 231, so it's about, right about there. And then when our total output is 65, our marginal cost is 429. So 65 is right over there. And then 429 will get us right about, right about there. So we see our marginal cost is going up a lot now. Might be a little bit lower than that, so it's gonna be right over there."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "So 65 is right over there. And then 429 will get us right about, right about there. So we see our marginal cost is going up a lot now. Might be a little bit lower than that, so it's gonna be right over there. And then last but not least, when our total output is 70, our marginal cost is $600. So at 70, we get to 600, and I'm eyeballing it. That's not exact graph paper, but this gives you a sense of what the marginal cost curve looks like."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "Might be a little bit lower than that, so it's gonna be right over there. And then last but not least, when our total output is 70, our marginal cost is $600. So at 70, we get to 600, and I'm eyeballing it. That's not exact graph paper, but this gives you a sense of what the marginal cost curve looks like. And here, we've kind of graphed it based on where we are in terms of output. So that's our marginal cost curve. So I'll just label that marginal cost."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "That's not exact graph paper, but this gives you a sense of what the marginal cost curve looks like. And here, we've kind of graphed it based on where we are in terms of output. So that's our marginal cost curve. So I'll just label that marginal cost. And now let's see how that relates to the curves for average variable cost and average total cost. So average variable cost, I'll do it in this orange color. So at an output of 25, our average variable cost is $240."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "So I'll just label that marginal cost. And now let's see how that relates to the curves for average variable cost and average total cost. So average variable cost, I'll do it in this orange color. So at an output of 25, our average variable cost is $240. So 25, we are going to be at $240, which is right about, right about there. And then when we are at 45 units, our average variable cost is 200. So at 45 units, our average variable cost is right over there."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "So at an output of 25, our average variable cost is $240. So 25, we are going to be at $240, which is right about, right about there. And then when we are at 45 units, our average variable cost is 200. So at 45 units, our average variable cost is right over there. And then at, we did that one, and then at 58 units, it's 207. 58 units, it is 207, so it's going to be right about there. And then at, we did this one, and at 65 units, it's 231."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "So at 45 units, our average variable cost is right over there. And then at, we did that one, and then at 58 units, it's 207. 58 units, it is 207, so it's going to be right about there. And then at, we did this one, and at 65 units, it's 231. 65 is, and then we get to 231, which is right, maybe about there. And then, so we did this one, and then at 70 units, we're at 257. So 70 units, 257, looks something like this."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "And then at, we did this one, and at 65 units, it's 231. 65 is, and then we get to 231, which is right, maybe about there. And then, so we did this one, and then at 70 units, we're at 257. So 70 units, 257, looks something like this. Now before I actually draw in this curve, connect the dots, let's just think about how the average variable cost relates to the marginal cost. When the marginal cost is less than the average variable cost, well, that means that as we do more, as we produce more and more, our average variable cost should go down. And we see that happening in this early stage."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "So 70 units, 257, looks something like this. Now before I actually draw in this curve, connect the dots, let's just think about how the average variable cost relates to the marginal cost. When the marginal cost is less than the average variable cost, well, that means that as we do more, as we produce more and more, our average variable cost should go down. And we see that happening in this early stage. I won't go into all of the details of what's happening exactly right over there, but that early stage, as we see that while, while our marginal cost is less than our average variable cost, our average variable cost is trending down. And that makes sense. Every incremental unit is getting, is a little bit cheaper to produce, so it brings down the average."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "And we see that happening in this early stage. I won't go into all of the details of what's happening exactly right over there, but that early stage, as we see that while, while our marginal cost is less than our average variable cost, our average variable cost is trending down. And that makes sense. Every incremental unit is getting, is a little bit cheaper to produce, so it brings down the average. But as soon as the marginal cross, as soon as the marginal curve crosses the average variable cost, and the marginal cost, every incremental unit is now more than the average, well, that should bring up the average. And so then the average variable cost should start sloping up. So it's good to realize, one is a rule of thumb, but even more important to realize why, that where the marginal cost curve and the average variable cost curve intersect, that that's going to be the point at which the average variable cost goes from trending down to trending up."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "Every incremental unit is getting, is a little bit cheaper to produce, so it brings down the average. But as soon as the marginal cross, as soon as the marginal curve crosses the average variable cost, and the marginal cost, every incremental unit is now more than the average, well, that should bring up the average. And so then the average variable cost should start sloping up. So it's good to realize, one is a rule of thumb, but even more important to realize why, that where the marginal cost curve and the average variable cost curve intersect, that that's going to be the point at which the average variable cost goes from trending down to trending up. If you view it as this very wide U shape, that would be the bottom of the U. And we could do the same thing with average total costs. Now, they're going to cross a little bit later because the average total costs are higher, because they're factoring in the fixed costs as well."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "So it's good to realize, one is a rule of thumb, but even more important to realize why, that where the marginal cost curve and the average variable cost curve intersect, that that's going to be the point at which the average variable cost goes from trending down to trending up. If you view it as this very wide U shape, that would be the bottom of the U. And we could do the same thing with average total costs. Now, they're going to cross a little bit later because the average total costs are higher, because they're factoring in the fixed costs as well. But you can imagine that while your marginal costs are lower than your average total costs, every incremental unit is going to bring down the average total costs. But as soon as the marginal cost crosses the average total costs, it's going to start bringing up the average. And we can see that by trying to graph average total cost."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "Now, they're going to cross a little bit later because the average total costs are higher, because they're factoring in the fixed costs as well. But you can imagine that while your marginal costs are lower than your average total costs, every incremental unit is going to bring down the average total costs. But as soon as the marginal cost crosses the average total costs, it's going to start bringing up the average. And we can see that by trying to graph average total cost. And I'll do that in this yellow color. So at 25 units, we're at 440. 25 units, we're at 440."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "And we can see that by trying to graph average total cost. And I'll do that in this yellow color. So at 25 units, we're at 440. 25 units, we're at 440. That makes sense because we have all that fixed cost that we're spreading along amongst not that many units. And then at 45 units, we're at 311. 45, we get to 311, might be right around there."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "25 units, we're at 440. That makes sense because we have all that fixed cost that we're spreading along amongst not that many units. And then at 45 units, we're at 311. 45, we get to 311, might be right around there. Then at 58 units, we're at 293. 58 units, we are at 293, which is right about there. And then at 65 units, we're at 308."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "45, we get to 311, might be right around there. Then at 58 units, we're at 293. 58 units, we are at 293, which is right about there. And then at 65 units, we're at 308. 65 units, we are at 308. And then at 70 units, we're at 329. 70 units, we are at 329, so maybe something like this."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "And then at 65 units, we're at 308. 65 units, we are at 308. And then at 70 units, we're at 329. 70 units, we are at 329, so maybe something like this. And so this is our average total cost. And just as you can imagine, while your marginal cost, every incremental unit, the cost of that is less than your average total cost, it'll bring down, when you do that incremental output, it will bring down your average total cost until the point that they cross. And then now, after these two curves cross, now every incremental unit is bringing up the average cost because it's costing more than the average."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "70 units, we are at 329, so maybe something like this. And so this is our average total cost. And just as you can imagine, while your marginal cost, every incremental unit, the cost of that is less than your average total cost, it'll bring down, when you do that incremental output, it will bring down your average total cost until the point that they cross. And then now, after these two curves cross, now every incremental unit is bringing up the average cost because it's costing more than the average. And so once again, where these two curves intersect, if you view the average total cost curve as this big wide U, it would represent the bottom of the U. Now the last thing that we didn't graph, and this is maybe the most intuitive, is the average fixed cost. And this is just going to asymptote down."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "And then now, after these two curves cross, now every incremental unit is bringing up the average cost because it's costing more than the average. And so once again, where these two curves intersect, if you view the average total cost curve as this big wide U, it would represent the bottom of the U. Now the last thing that we didn't graph, and this is maybe the most intuitive, is the average fixed cost. And this is just going to asymptote down. At 25 units, we're at 200. 25 units, we are at 200. At 45 units, we are at 111."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "And this is just going to asymptote down. At 25 units, we're at 200. 25 units, we are at 200. At 45 units, we are at 111. 45, 111 is maybe right over there. At 58 units, we're at 86. 58 units, 86."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "At 45 units, we are at 111. 45, 111 is maybe right over there. At 58 units, we're at 86. 58 units, 86. At 65 units, we're at 77. 65 units, 77. And then at 70 units, we're at 71."}, {"video_title": "Graphs of MC, AVC and ATC.mp3", "Sentence": "58 units, 86. At 65 units, we're at 77. 65 units, 77. And then at 70 units, we're at 71. And so you can see that that just gets lower and lower and lower over as you produce more and more output because you're able to spread those fixed costs amongst more and more output. So that makes sense, that the average fixed cost just trends downward like this the entire time. But the big takeaways here is not just to understand the rule of thumb that where the marginal cost curve intersects the average variable cost or the average total cost, that that's the, you could view it as the minimum point of the average total cost or the average variable cost curves, but to understand why that is happening."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So let's draw ourselves a little graph here. And we already know this right over here, the vertical axis is the price axis. And this is, we're going to say it's price per pound. And the horizontal axis, this is the quantity. The quantity of apples. Let's put some tick marks here, let's say that's $1 a pound, $2 a pound, $3 a pound, $4 a pound, and $5. And let's say this is thousands of pounds produced."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And the horizontal axis, this is the quantity. The quantity of apples. Let's put some tick marks here, let's say that's $1 a pound, $2 a pound, $3 a pound, $4 a pound, and $5. And let's say this is thousands of pounds produced. And we have to set a period. So let's say this is all for the next week. And so this is 1,000 pounds, 2,000, 3,000, 4,000, and 5,000."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And let's say this is thousands of pounds produced. And we have to set a period. So let's say this is all for the next week. And so this is 1,000 pounds, 2,000, 3,000, 4,000, and 5,000. Now let's think about both the supply and the demand curves for this market, or potential supply and demand curves. So first I will do the demand. So if the price of apples were really high, and I encourage you to always think about this when you're about to draw your demand and supply curves."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so this is 1,000 pounds, 2,000, 3,000, 4,000, and 5,000. Now let's think about both the supply and the demand curves for this market, or potential supply and demand curves. So first I will do the demand. So if the price of apples were really high, and I encourage you to always think about this when you're about to draw your demand and supply curves. If the price of apples were really high, what would happen to consumers? Well, they wouldn't demand much. So the quantity demanded would be low."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So if the price of apples were really high, and I encourage you to always think about this when you're about to draw your demand and supply curves. If the price of apples were really high, what would happen to consumers? Well, they wouldn't demand much. So the quantity demanded would be low. So if the price were high, maybe the quantity demanded is like 500 apples. And once again, I'm being very careful to say the quantity demanded is 500 apples. I'm not saying the demand is 500 apples."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So the quantity demanded would be low. So if the price were high, maybe the quantity demanded is like 500 apples. And once again, I'm being very careful to say the quantity demanded is 500 apples. I'm not saying the demand is 500 apples. The demand is the entire relationship. The actual specific quantity, we call that the quantity demanded. So at a price of $5, the quantity demanded would be about 500."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "I'm not saying the demand is 500 apples. The demand is the entire relationship. The actual specific quantity, we call that the quantity demanded. So at a price of $5, the quantity demanded would be about 500. Maybe at a price of $1, the quantity demanded would be maybe 4,000 pounds. And so our demand curve might look something like this. It might look something like that."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So at a price of $5, the quantity demanded would be about 500. Maybe at a price of $1, the quantity demanded would be maybe 4,000 pounds. And so our demand curve might look something like this. It might look something like that. Let me draw it a little bit less bumpy. So our demand curve might look something like that. I can label it."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "It might look something like that. Let me draw it a little bit less bumpy. So our demand curve might look something like that. I can label it. That is our demand curve. And now let's think about our supply curve. Well, there's some price below which we aren't even willing to produce apples."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "I can label it. That is our demand curve. And now let's think about our supply curve. Well, there's some price below which we aren't even willing to produce apples. So let's say that's like 50 cents. So at 50 cents, that's where we're even just willing to start producing apples. Let's say if the price of apples got to $1, the quantity we'd be willing to supply is about 1,000 pounds, and it just keeps increasing as the price increases."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Well, there's some price below which we aren't even willing to produce apples. So let's say that's like 50 cents. So at 50 cents, that's where we're even just willing to start producing apples. Let's say if the price of apples got to $1, the quantity we'd be willing to supply is about 1,000 pounds, and it just keeps increasing as the price increases. So this is the supply curve. And when I talk about we, I'm talking about all of the suppliers in this market. We could be doing this for a specific supplier."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Let's say if the price of apples got to $1, the quantity we'd be willing to supply is about 1,000 pounds, and it just keeps increasing as the price increases. So this is the supply curve. And when I talk about we, I'm talking about all of the suppliers in this market. We could be doing this for a specific supplier. We could be doing this for a specific market. We could be doing this for the global apple market, however you want to view it. But for the sake of this video, let's assume it's like our little town that is fairly isolated and all of that."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "We could be doing this for a specific supplier. We could be doing this for a specific market. We could be doing this for the global apple market, however you want to view it. But for the sake of this video, let's assume it's like our little town that is fairly isolated and all of that. Now let's think about what happens in different scenarios. What happens if the suppliers of the apples going into that week for their own planning purposes, they just think for whatever reason that they're only going to be able to sell the apples at $1 per pound. And so given that, given this supply curve, they only supply 1,000 pounds."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "But for the sake of this video, let's assume it's like our little town that is fairly isolated and all of that. Now let's think about what happens in different scenarios. What happens if the suppliers of the apples going into that week for their own planning purposes, they just think for whatever reason that they're only going to be able to sell the apples at $1 per pound. And so given that, given this supply curve, they only supply 1,000 pounds. This is what the suppliers plan for, and this is where they set the price point at $1 per pound. Now what's going to happen in that scenario? Well, in that scenario, the quantity supplied is 1,000 pounds."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And so given that, given this supply curve, they only supply 1,000 pounds. This is what the suppliers plan for, and this is where they set the price point at $1 per pound. Now what's going to happen in that scenario? Well, in that scenario, the quantity supplied is 1,000 pounds. So let me write this down. So I'll do it in pink for this scenario. So in this scenario, the quantity supplied is 1,000 pounds."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Well, in that scenario, the quantity supplied is 1,000 pounds. So let me write this down. So I'll do it in pink for this scenario. So in this scenario, the quantity supplied is 1,000 pounds. And what is the quantity demanded? And this is all a scenario where the price, or the initial price that the growers or the producers set, was $1 per pound. Well, the quantity demanded at $1 per pound is 4,000 pounds of apples."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So in this scenario, the quantity supplied is 1,000 pounds. And what is the quantity demanded? And this is all a scenario where the price, or the initial price that the growers or the producers set, was $1 per pound. Well, the quantity demanded at $1 per pound is 4,000 pounds of apples. So what do we have here? Well, here we have a shortage of 3,000 apples at that price point. At $1, a lot more people are going to want to buy apples, and the producers just didn't figure that out right, and they didn't produce enough apples."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Well, the quantity demanded at $1 per pound is 4,000 pounds of apples. So what do we have here? Well, here we have a shortage of 3,000 apples at that price point. At $1, a lot more people are going to want to buy apples, and the producers just didn't figure that out right, and they didn't produce enough apples. Now what will naturally start happening? If you have the shortage, you have all these people who want to buy apples, and you only have so many apples there, well, what might happen in the next period, in the next week? Well, first of all, those apples that are out there, they might get bid up, so the prices are going to start going up."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "At $1, a lot more people are going to want to buy apples, and the producers just didn't figure that out right, and they didn't produce enough apples. Now what will naturally start happening? If you have the shortage, you have all these people who want to buy apples, and you only have so many apples there, well, what might happen in the next period, in the next week? Well, first of all, those apples that are out there, they might get bid up, so the prices are going to start going up. People are going to start bidding up the apples. They want them so badly, they're going to start bidding them up. And as they start getting bid up, the producers are going to say, wow, there's so many people, we're running out of apples, we also need to increase the quantity produced."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Well, first of all, those apples that are out there, they might get bid up, so the prices are going to start going up. People are going to start bidding up the apples. They want them so badly, they're going to start bidding them up. And as they start getting bid up, the producers are going to say, wow, there's so many people, we're running out of apples, we also need to increase the quantity produced. And so the quantity will also go up. So the price will go up. If you look at it from the supplier's point of view, the price will go up and the quantity will go up."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And as they start getting bid up, the producers are going to say, wow, there's so many people, we're running out of apples, we also need to increase the quantity produced. And so the quantity will also go up. So the price will go up. If you look at it from the supplier's point of view, the price will go up and the quantity will go up. They will move along this line there. So maybe in the next period, there's less of a shortage, or they move away from that shortage situation. If the price and quantity increase a little bit, so maybe the price goes to $2, and the quantity goes to, I don't know, this looks like about 1,900 pounds, now all of a sudden, you have less of a shortage."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If you look at it from the supplier's point of view, the price will go up and the quantity will go up. They will move along this line there. So maybe in the next period, there's less of a shortage, or they move away from that shortage situation. If the price and quantity increase a little bit, so maybe the price goes to $2, and the quantity goes to, I don't know, this looks like about 1,900 pounds, now all of a sudden, you have less of a shortage. And I think you see that I'm getting to an interesting point over here. But I won't go there just yet. Now let's think about another situation."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If the price and quantity increase a little bit, so maybe the price goes to $2, and the quantity goes to, I don't know, this looks like about 1,900 pounds, now all of a sudden, you have less of a shortage. And I think you see that I'm getting to an interesting point over here. But I won't go there just yet. Now let's think about another situation. Let's think about after this happens, price and quantity increases so much that it essentially overshoots this interesting point right over here. So in the next week, the suppliers will say, wow, people want our apples so badly, let's set the price really high at $3, and at $3, we're really excited about producing apples, so we, the suppliers, are going to produce, let me do this in a color I haven't used yet, we, the suppliers, are going to produce, at $3 a pound, we're hoping to sell 3,000 pounds of apples. So this is maybe where they adjust to the next week."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Now let's think about another situation. Let's think about after this happens, price and quantity increases so much that it essentially overshoots this interesting point right over here. So in the next week, the suppliers will say, wow, people want our apples so badly, let's set the price really high at $3, and at $3, we're really excited about producing apples, so we, the suppliers, are going to produce, let me do this in a color I haven't used yet, we, the suppliers, are going to produce, at $3 a pound, we're hoping to sell 3,000 pounds of apples. So this is maybe where they adjust to the next week. But what's going to happen there at a price of $3? So that's this scenario right over here, the price of $3. So the price is now $3 per pound."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So this is maybe where they adjust to the next week. But what's going to happen there at a price of $3? So that's this scenario right over here, the price of $3. So the price is now $3 per pound. Well now, the quantity supplied is going to be 3,000 pounds. 3,000 pounds, I could write 3,000 pounds. And what is the quantity demanded?"}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "So the price is now $3 per pound. Well now, the quantity supplied is going to be 3,000 pounds. 3,000 pounds, I could write 3,000 pounds. And what is the quantity demanded? The quantity demanded is now much lower, the price is high now, because consumers might want to go buy other things, or they can't afford an apple, or whatever it might be, and so now the quantity demanded, that looks like about 1,300 pounds. So what situation do we have now? Well now we have a much bigger supply, or the quantity supplied is much bigger than the quantity demanded, so now we face a surplus."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And what is the quantity demanded? The quantity demanded is now much lower, the price is high now, because consumers might want to go buy other things, or they can't afford an apple, or whatever it might be, and so now the quantity demanded, that looks like about 1,300 pounds. So what situation do we have now? Well now we have a much bigger supply, or the quantity supplied is much bigger than the quantity demanded, so now we face a surplus. So now we have a surplus, actually let me not draw that line there, I want to make it clear this is all the same scenario. We now have a surplus of, what is this, 700 will get us to 2,000, we have a surplus of 1,700 pounds of apples. And now what happens in a surplus situation?"}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Well now we have a much bigger supply, or the quantity supplied is much bigger than the quantity demanded, so now we face a surplus. So now we have a surplus, actually let me not draw that line there, I want to make it clear this is all the same scenario. We now have a surplus of, what is this, 700 will get us to 2,000, we have a surplus of 1,700 pounds of apples. And now what happens in a surplus situation? Well apples won't stay good forever, so maybe the producers get a little desperate, so they start selling, they start reducing the price, maybe to start attracting some consumers, so they start reducing the price, and also when they start seeing that the price is going down, and you have this glut of apples, and that they're all going bad, and they're not getting sold, the quantity is also going to start going down, they'll produce fewer and fewer apples. And so we'll move here, along the supply curve. As you decrease the price, what's going to happen to the demand curve?"}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "And now what happens in a surplus situation? Well apples won't stay good forever, so maybe the producers get a little desperate, so they start selling, they start reducing the price, maybe to start attracting some consumers, so they start reducing the price, and also when they start seeing that the price is going down, and you have this glut of apples, and that they're all going bad, and they're not getting sold, the quantity is also going to start going down, they'll produce fewer and fewer apples. And so we'll move here, along the supply curve. As you decrease the price, what's going to happen to the demand curve? Well the demand is going to go up. So over here the price was too high, so it's natural for the sellers to lower the price, and so when you lower the price it also reduces the quantity, we go this way, and when you lower the price it increases demand, you go that way. If the price from the get-go were too low, then you have this huge shortage, things get bid up, the prices go up, as the price goes up, the suppliers want to produce more, they move up the curve, and as the price goes up, then the people will demand less."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "As you decrease the price, what's going to happen to the demand curve? Well the demand is going to go up. So over here the price was too high, so it's natural for the sellers to lower the price, and so when you lower the price it also reduces the quantity, we go this way, and when you lower the price it increases demand, you go that way. If the price from the get-go were too low, then you have this huge shortage, things get bid up, the prices go up, as the price goes up, the suppliers want to produce more, they move up the curve, and as the price goes up, then the people will demand less. And you see that it's all converging on a point right over here, where the two lines intersect. Let me do that in a... It's all converging right over there."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "If the price from the get-go were too low, then you have this huge shortage, things get bid up, the prices go up, as the price goes up, the suppliers want to produce more, they move up the curve, and as the price goes up, then the people will demand less. And you see that it's all converging on a point right over here, where the two lines intersect. Let me do that in a... It's all converging right over there. And that's the point at which supply... That's the price at which, this is the price at which, the quantity supplied will equal the quantity demanded. Now we call this price, we call this, which looks like for this scenario, maybe about $2.15, so let me just write it there, so $2.15, we call that the equilibrium price. Equilibrium."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "It's all converging right over there. And that's the point at which supply... That's the price at which, this is the price at which, the quantity supplied will equal the quantity demanded. Now we call this price, we call this, which looks like for this scenario, maybe about $2.15, so let me just write it there, so $2.15, we call that the equilibrium price. Equilibrium. Equilibrium price is $2.15 a pound, and it's the price at which the quantity supplied is equal to the quantity demanded. And so this quantity, this quantity where the quantity supplied is equal to the quantity demanded, that's the equilibrium quantity. Equilibrium quantity."}, {"video_title": "Market equilibrium Supply, demand, and market equilibrium Microeconomics Khan Academy.mp3", "Sentence": "Equilibrium. Equilibrium price is $2.15 a pound, and it's the price at which the quantity supplied is equal to the quantity demanded. And so this quantity, this quantity where the quantity supplied is equal to the quantity demanded, that's the equilibrium quantity. Equilibrium quantity. And that right over here looks like it's right about, I don't know, 2,200 pounds. And assuming nothing else changes, this is a good scenario for both the consumers and the producers. They keep producing 2,200, they charge this price, and everything's happy, all the apples get sold, and none of them go bad."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So that's quantity, and this is price. And this is going to, of course, be in dollars. And we can first think about the demand for this monopoly firm's product. And the demand curve would look similar to other demand curves that we've seen multiple times, that at a high price, people wouldn't want a lot, wouldn't be demanding a lot. And then at a lower price, or as price goes lower, people are going to demand a higher and higher quantity, or the market will demand a higher and higher quantity. So that might be the demand curve. Now what's interesting about any imperfectly competitive firm, in the extreme case is a monopoly, is what the marginal revenue curve looks like given this demand curve."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And the demand curve would look similar to other demand curves that we've seen multiple times, that at a high price, people wouldn't want a lot, wouldn't be demanding a lot. And then at a lower price, or as price goes lower, people are going to demand a higher and higher quantity, or the market will demand a higher and higher quantity. So that might be the demand curve. Now what's interesting about any imperfectly competitive firm, in the extreme case is a monopoly, is what the marginal revenue curve looks like given this demand curve. In a perfectly competitive firm, the marginal revenue curve is equal to the demand curve, and in that situation, it's actually a horizontal line. But here, because when the monopoly firm reduces price, it doesn't just reduce it on that incremental unit. It would be typical that it would have to reduce its price on all of the units, and we've studied this in other videos."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "Now what's interesting about any imperfectly competitive firm, in the extreme case is a monopoly, is what the marginal revenue curve looks like given this demand curve. In a perfectly competitive firm, the marginal revenue curve is equal to the demand curve, and in that situation, it's actually a horizontal line. But here, because when the monopoly firm reduces price, it doesn't just reduce it on that incremental unit. It would be typical that it would have to reduce its price on all of the units, and we've studied this in other videos. You have a marginal revenue curve that would go down faster than the demand curve. It would look something like this. And if this is unfamiliar to you, I encourage you to watch some of those videos that go into depth why this is happening."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "It would be typical that it would have to reduce its price on all of the units, and we've studied this in other videos. You have a marginal revenue curve that would go down faster than the demand curve. It would look something like this. And if this is unfamiliar to you, I encourage you to watch some of those videos that go into depth why this is happening. So it's a monopoly, or actually, any imperfectly competitive firm, its marginal revenue curve will go down faster than the demand curve. So what would be a rational quantity for this firm to produce? Well, to think about that, we have to think about its marginal cost curve."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And if this is unfamiliar to you, I encourage you to watch some of those videos that go into depth why this is happening. So it's a monopoly, or actually, any imperfectly competitive firm, its marginal revenue curve will go down faster than the demand curve. So what would be a rational quantity for this firm to produce? Well, to think about that, we have to think about its marginal cost curve. So its marginal cost curve, the typical way we often think about it is, at first, you get some economies of scale, but then you start having coordination costs and maybe some diseconomies of scale. Your inputs start getting more expensive, and so your marginal cost curve might look something like that. And the rational quantity produces, as long as your incremental revenue for every unit is higher than your incremental cost for every unit, you would wanna produce more and more and more and more until the point that your marginal cost is equal to your marginal revenue."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "Well, to think about that, we have to think about its marginal cost curve. So its marginal cost curve, the typical way we often think about it is, at first, you get some economies of scale, but then you start having coordination costs and maybe some diseconomies of scale. Your inputs start getting more expensive, and so your marginal cost curve might look something like that. And the rational quantity produces, as long as your incremental revenue for every unit is higher than your incremental cost for every unit, you would wanna produce more and more and more and more until the point that your marginal cost is equal to your marginal revenue. And so the rational quantity to produce right over here would be right over there. I'll do that Q. I could call that Q for the firm. I could also call that Q sub M, because we're dealing with a situation where the firm is, at least from the producer side, it is the market, it is the only producer, it's a monopoly."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And the rational quantity produces, as long as your incremental revenue for every unit is higher than your incremental cost for every unit, you would wanna produce more and more and more and more until the point that your marginal cost is equal to your marginal revenue. And so the rational quantity to produce right over here would be right over there. I'll do that Q. I could call that Q for the firm. I could also call that Q sub M, because we're dealing with a situation where the firm is, at least from the producer side, it is the market, it is the only producer, it's a monopoly. But what's the price here? Well, to know that, we just have to look at the demand curve. At this quantity, the price is right over here."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "I could also call that Q sub M, because we're dealing with a situation where the firm is, at least from the producer side, it is the market, it is the only producer, it's a monopoly. But what's the price here? Well, to know that, we just have to look at the demand curve. At this quantity, the price is right over here. So the price is right over here. Once again, we could call that the market, the market price. And so something interesting has happened here for the monopoly firm."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "At this quantity, the price is right over here. So the price is right over here. Once again, we could call that the market, the market price. And so something interesting has happened here for the monopoly firm. In a perfectly competitive firm, where the marginal cost and demand curves intersect, that's what dictated the demand, because the demand curve and the marginal revenue curve were the same. But here, we are now producing a quantity less than that. We're producing a quantity where price is greater than marginal cost."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And so something interesting has happened here for the monopoly firm. In a perfectly competitive firm, where the marginal cost and demand curves intersect, that's what dictated the demand, because the demand curve and the marginal revenue curve were the same. But here, we are now producing a quantity less than that. We're producing a quantity where price is greater than marginal cost. You can see it right over there. At this quantity, price is greater than marginal cost. And so you can view this difference right over here as kind of a markup that is possible for a monopoly firm to do, that would not be possible with a perfectly competitive firm."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "We're producing a quantity where price is greater than marginal cost. You can see it right over there. At this quantity, price is greater than marginal cost. And so you can view this difference right over here as kind of a markup that is possible for a monopoly firm to do, that would not be possible with a perfectly competitive firm. And this also introduces an idea of deadweight loss, because at least in theory, at a higher quantity, people were willing to pay more than the marginal cost. So you would think that there is some type of a benefit that the market as a whole could gain from that incremental unit, or those incremental units, and then even some more incremental units. It feels like there's the gain, but because of what is rational for this monopoly firm, and there's insurmountable barriers for entry for other people to enter, this is not going to be captured until you have this deadweight loss."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And so you can view this difference right over here as kind of a markup that is possible for a monopoly firm to do, that would not be possible with a perfectly competitive firm. And this also introduces an idea of deadweight loss, because at least in theory, at a higher quantity, people were willing to pay more than the marginal cost. So you would think that there is some type of a benefit that the market as a whole could gain from that incremental unit, or those incremental units, and then even some more incremental units. It feels like there's the gain, but because of what is rational for this monopoly firm, and there's insurmountable barriers for entry for other people to enter, this is not going to be captured until you have this deadweight loss. Now, an interesting question, and this is where I started off is, is well, what would be the economic profit for this monopoly firm? And to think about that, we have to think about the average total cost curve. And so the average total cost, I'll draw a typical average total cost curve."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "It feels like there's the gain, but because of what is rational for this monopoly firm, and there's insurmountable barriers for entry for other people to enter, this is not going to be captured until you have this deadweight loss. Now, an interesting question, and this is where I started off is, is well, what would be the economic profit for this monopoly firm? And to think about that, we have to think about the average total cost curve. And so the average total cost, I'll draw a typical average total cost curve. It might look something, it might look something like this, as while marginal cost is below the average total cost, the average total cost will trend downwards. And as soon as marginal cost is higher than average total cost, well now, of course, average total cost is going to start trending upwards. So marginal cost intersects the average total cost curve at the minimum point right over there."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And so the average total cost, I'll draw a typical average total cost curve. It might look something, it might look something like this, as while marginal cost is below the average total cost, the average total cost will trend downwards. And as soon as marginal cost is higher than average total cost, well now, of course, average total cost is going to start trending upwards. So marginal cost intersects the average total cost curve at the minimum point right over there. And so based on this average total cost curve, it looks like this monopoly firm is earning an economic profit, because at that quantity, this is the price per unit it's getting. This is the average cost per unit. So on average per unit, it's getting this height."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So marginal cost intersects the average total cost curve at the minimum point right over there. And so based on this average total cost curve, it looks like this monopoly firm is earning an economic profit, because at that quantity, this is the price per unit it's getting. This is the average cost per unit. So on average per unit, it's getting this height. It's getting, it's getting, it's getting this difference right over here. And then if you were to multiply it times the number of units, well, that's going to give you its economic profit. So you could view the economic profit in this situation as being this shaded area of this rectangle."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So on average per unit, it's getting this height. It's getting, it's getting, it's getting this difference right over here. And then if you were to multiply it times the number of units, well, that's going to give you its economic profit. So you could view the economic profit in this situation as being this shaded area of this rectangle. So I'll leave you there. The big thing to appreciate is when we're dealing with imperfect competition in an extreme form of a monopoly, your marginal revenue curve is no longer your demand curve. And your marginal revenue curve is downward sloping like this."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "So you could view the economic profit in this situation as being this shaded area of this rectangle. So I'll leave you there. The big thing to appreciate is when we're dealing with imperfect competition in an extreme form of a monopoly, your marginal revenue curve is no longer your demand curve. And your marginal revenue curve is downward sloping like this. It's not the flat curve that we saw with the perfect competition. And because of that, your marginal cost is going to intersect marginal revenue at a quantity where price is greater than marginal cost, which introduces deadweight loss in the market. And this, and the way to think about the economic profit is to compare what that price in the market is at that quantity to the average total cost at that quantity."}, {"video_title": "Economic profit for a monopoly Microeconomics Khan Academy.mp3", "Sentence": "And your marginal revenue curve is downward sloping like this. It's not the flat curve that we saw with the perfect competition. And because of that, your marginal cost is going to intersect marginal revenue at a quantity where price is greater than marginal cost, which introduces deadweight loss in the market. And this, and the way to think about the economic profit is to compare what that price in the market is at that quantity to the average total cost at that quantity. And what's also interesting about this monopoly firm is because of the bearish entry, we talked about in the long run with perfect competition, if there's economic profit going on, more entrants would enter into the market. But that's not going to happen in a monopoly because the bearish to entry are so high. So this monopoly is sitting pretty."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "So when you're thinking about the supply or the demand curve for labor, when you think about quantity, you could just view that as hours worked in a certain time period, hours worked. And then for the price of labor, you could just view that as wages. And we've already thought about what the demand curve for labor would look like. At high wages, not a lot of folks will want to use that labor. It's gonna be so expensive. They might not even be able to afford it. And then as wages come down, more people will generally want, will demand that labor."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "At high wages, not a lot of folks will want to use that labor. It's gonna be so expensive. They might not even be able to afford it. And then as wages come down, more people will generally want, will demand that labor. And so they will want more hours for folks to work. And so this would be our demand curve, or we could call this our labor demand curve. Now what about the labor supply curve?"}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "And then as wages come down, more people will generally want, will demand that labor. And so they will want more hours for folks to work. And so this would be our demand curve, or we could call this our labor demand curve. Now what about the labor supply curve? What do you think that's going to look like? Well, not a trick question. When wages are low, a lot of folks might say, hey, I have other things to do with my time."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "Now what about the labor supply curve? What do you think that's going to look like? Well, not a trick question. When wages are low, a lot of folks might say, hey, I have other things to do with my time. But then as wages get higher and higher, they might trade off those other things. They're doing those other things in some ways has a higher opportunity cost. It gets more expensive."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "When wages are low, a lot of folks might say, hey, I have other things to do with my time. But then as wages get higher and higher, they might trade off those other things. They're doing those other things in some ways has a higher opportunity cost. It gets more expensive. And so they might trade off those other things for working. And so they might collectively work more and more hours. And so as wages go up, generally speaking, hours worked goes up."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "It gets more expensive. And so they might trade off those other things for working. And so they might collectively work more and more hours. And so as wages go up, generally speaking, hours worked goes up. So this is a fairly classic-looking labor supply curve. And this dynamic that I just talked about, where people are trying to trade off whether they work or whether they do other things, this is typically referred to as the labor leisure, leisure trade-off. Now in everyday language, when you use the word leisure, it's usually referred to your relaxing or spending time with friends or enjoying yourself in some ways."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "And so as wages go up, generally speaking, hours worked goes up. So this is a fairly classic-looking labor supply curve. And this dynamic that I just talked about, where people are trying to trade off whether they work or whether they do other things, this is typically referred to as the labor leisure, leisure trade-off. Now in everyday language, when you use the word leisure, it's usually referred to your relaxing or spending time with friends or enjoying yourself in some ways. But when people talk about the labor leisure trade-off in economics, they're really talking about labor or anything that is not labor. So leisure would include sleeping or eating or using the restroom. All of those would be included."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "Now in everyday language, when you use the word leisure, it's usually referred to your relaxing or spending time with friends or enjoying yourself in some ways. But when people talk about the labor leisure trade-off in economics, they're really talking about labor or anything that is not labor. So leisure would include sleeping or eating or using the restroom. All of those would be included. So it really should be called the labor not labor trade-off, but I guess that doesn't sound as good as labor leisure trade-off. And so what you really see happening here is as wages are higher and higher, people are willing to trade off leisure, I'll put that in quotes, for labor. Now the effect that we often talk about why that is, and in a lot of ways it's common sense, that's the substitution effect."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "All of those would be included. So it really should be called the labor not labor trade-off, but I guess that doesn't sound as good as labor leisure trade-off. And so what you really see happening here is as wages are higher and higher, people are willing to trade off leisure, I'll put that in quotes, for labor. Now the effect that we often talk about why that is, and in a lot of ways it's common sense, that's the substitution effect. Substitution effect. As wages go higher, you could view the opportunity cost of leisure gets more and more expensive. And if anything gets more expensive, you try to substitute it with other things."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "Now the effect that we often talk about why that is, and in a lot of ways it's common sense, that's the substitution effect. Substitution effect. As wages go higher, you could view the opportunity cost of leisure gets more and more expensive. And if anything gets more expensive, you try to substitute it with other things. In this case, you could substitute it with more labor by just working more. Now there is an interesting dynamic that some people talk about, which is the income effect. Which is the income effect."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "And if anything gets more expensive, you try to substitute it with other things. In this case, you could substitute it with more labor by just working more. Now there is an interesting dynamic that some people talk about, which is the income effect. Which is the income effect. And the income effect is as your wages go up, you tend to want to buy or demand more of everything. And you could view leisure as a good that you as a worker might want. So there might be a dynamic that if income gets above a certain level, that you actually might not want to work more."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "Which is the income effect. And the income effect is as your wages go up, you tend to want to buy or demand more of everything. And you could view leisure as a good that you as a worker might want. So there might be a dynamic that if income gets above a certain level, that you actually might not want to work more. That you actually might want more leisure because you have more than enough to supply all of your needs. And so if you wanted to imagine what a labor supply curve would look like if you could imagine the income effect kicking in at higher wages, it actually could look something like this. At low wages, it could look very similar to what we just described."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "So there might be a dynamic that if income gets above a certain level, that you actually might not want to work more. That you actually might want more leisure because you have more than enough to supply all of your needs. And so if you wanted to imagine what a labor supply curve would look like if you could imagine the income effect kicking in at higher wages, it actually could look something like this. At low wages, it could look very similar to what we just described. But then there might be some wage where people are like, you know what? I have enough money and rather than just working that extra hour, I actually might want to spend that time with my family or go on vacation. And in a lot of ways, it's a very healthy mindset."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "At low wages, it could look very similar to what we just described. But then there might be some wage where people are like, you know what? I have enough money and rather than just working that extra hour, I actually might want to spend that time with my family or go on vacation. And in a lot of ways, it's a very healthy mindset. My personal opinion, I don't think enough people have that mindset. But if that were the case, at some point, when wages get to a certain point, people actually might want to work less. And so you would have this backward-bending labor supply curve."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "And in a lot of ways, it's a very healthy mindset. My personal opinion, I don't think enough people have that mindset. But if that were the case, at some point, when wages get to a certain point, people actually might want to work less. And so you would have this backward-bending labor supply curve. So let me write this. This is a labor supply curve with the income effect after a certain point. Income effect."}, {"video_title": "Labor-leisure tradeoff Microeconomics Khan Academy.mp3", "Sentence": "And so you would have this backward-bending labor supply curve. So let me write this. This is a labor supply curve with the income effect after a certain point. Income effect. So it's an interesting thing to think about. Is there a certain income level above which people say, you know what? I have enough and rather than work harder, I actually might work a little bit less."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "And just as a bit of a review, we've talked about it in other videos, supply is referring to the entire supply curve. And this curve right over here has a typical shape of a supply curve following the law of supply. At low prices, suppliers would provide low quantities, and at higher prices, suppliers would provide higher quantities. So a change in supply would be a shift in this entire curve. So for example, if you were to go from this curve, let's call this S1 here, and we were to have a shift to the right, this right over here would be a change in supply. So we'd call this S2, and we would have this shift. You could view this to the right or to the right and down."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "So a change in supply would be a shift in this entire curve. So for example, if you were to go from this curve, let's call this S1 here, and we were to have a shift to the right, this right over here would be a change in supply. So we'd call this S2, and we would have this shift. You could view this to the right or to the right and down. So this would be our change in supply. Likewise, you could have a change in supply the other way, where you go to the left and up, depending on how you wanna view it. And so this would be, we could call that supply curve three."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "You could view this to the right or to the right and down. So this would be our change in supply. Likewise, you could have a change in supply the other way, where you go to the left and up, depending on how you wanna view it. And so this would be, we could call that supply curve three. These would all represent shifts in supply or changes in supply. When we talk about quantity supplied, we're talking about shifts along one of these curves. So for example, at some price, so let's say we have this price P1 right over here."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "And so this would be, we could call that supply curve three. These would all represent shifts in supply or changes in supply. When we talk about quantity supplied, we're talking about shifts along one of these curves. So for example, at some price, so let's say we have this price P1 right over here. Associated with that price, we would have some quantity supplied. We have some quantity supplied. Let's call that quantity supplied one."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "So for example, at some price, so let's say we have this price P1 right over here. Associated with that price, we would have some quantity supplied. We have some quantity supplied. Let's call that quantity supplied one. And then let's say for some reason, we have a shift in price with the market forces not changing from a supplier's point of view. And so let's say we go to price two. Let's say we go to price two."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "Let's call that quantity supplied one. And then let's say for some reason, we have a shift in price with the market forces not changing from a supplier's point of view. And so let's say we go to price two. Let's say we go to price two. We would shift along that same curve. The curve itself wouldn't have shifted. And so then you have quantity supplied two."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "Let's say we go to price two. We would shift along that same curve. The curve itself wouldn't have shifted. And so then you have quantity supplied two. So change in supply is a shift of the curve to the left and up or to the right and down, versus a change in quantity supplied is moving along the curve and the associated quantities. Now with that out of the way, let's do some tangible examples and think about what would result in a change in supply or a change in quantity supplied. So let's say that the government decides that gas prices are too high."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "And so then you have quantity supplied two. So change in supply is a shift of the curve to the left and up or to the right and down, versus a change in quantity supplied is moving along the curve and the associated quantities. Now with that out of the way, let's do some tangible examples and think about what would result in a change in supply or a change in quantity supplied. So let's say that the government decides that gas prices are too high. And so they institute a price cap. And we're gonna talk much more about price caps in future videos. But a price cap might just say, and let's say that price cap is below the current price."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "So let's say that the government decides that gas prices are too high. And so they institute a price cap. And we're gonna talk much more about price caps in future videos. But a price cap might just say, and let's say that price cap is below the current price. So let's say the current price is at P2 and that the price cap, the price cap is at P3. So the government says, no one is allowed to charge more than P3 for gasoline. What would that result in?"}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "But a price cap might just say, and let's say that price cap is below the current price. So let's say the current price is at P2 and that the price cap, the price cap is at P3. So the government says, no one is allowed to charge more than P3 for gasoline. What would that result in? Would that result in a change in supply or a change in the quantity supplied? Well, this is a classic case of a shift along a supply curve. The price was there before, now it shifts here."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "What would that result in? Would that result in a change in supply or a change in the quantity supplied? Well, this is a classic case of a shift along a supply curve. The price was there before, now it shifts here. And so now we're going to have a different quantity supplied. So this would be quantity supplied three. So this is a change in quantity, quantity supplied."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "The price was there before, now it shifts here. And so now we're going to have a different quantity supplied. So this would be quantity supplied three. So this is a change in quantity, quantity supplied. And in this case, the change in quantity supplied, the quantity supplied would go down, assuming that the price cap is below what the price was before the price cap. Now let's give another scenario. Let's say that the price of refining gas goes up."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "So this is a change in quantity, quantity supplied. And in this case, the change in quantity supplied, the quantity supplied would go down, assuming that the price cap is below what the price was before the price cap. Now let's give another scenario. Let's say that the price of refining gas goes up. Price of refining goes up. What would that do? Would that be a change in supply or a change in quantity supplied?"}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "Let's say that the price of refining gas goes up. Price of refining goes up. What would that do? Would that be a change in supply or a change in quantity supplied? And pause this video to think about it. Well, this is something that would increase the cost of producing gasoline, which is refined from oil, across the board, regardless of what price we're at. So this would be a general shift."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "Would that be a change in supply or a change in quantity supplied? And pause this video to think about it. Well, this is something that would increase the cost of producing gasoline, which is refined from oil, across the board, regardless of what price we're at. So this would be a general shift. This would be a change in supply. And the entire supply curve, to think about which way it would shift, think about it from a supplier's point of view. At a given quantity, so let's say we're at this quantity right over here, at a given quantity, they would now want to charge a higher price."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "So this would be a general shift. This would be a change in supply. And the entire supply curve, to think about which way it would shift, think about it from a supplier's point of view. At a given quantity, so let's say we're at this quantity right over here, at a given quantity, they would now want to charge a higher price. And so you would have, and this doesn't apply just to that quantity. It could be this point of the curve, this point of the curve, this point of the curve. They'd want to charge a higher price to make up for the fact that refining is now more expensive."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "At a given quantity, so let's say we're at this quantity right over here, at a given quantity, they would now want to charge a higher price. And so you would have, and this doesn't apply just to that quantity. It could be this point of the curve, this point of the curve, this point of the curve. They'd want to charge a higher price to make up for the fact that refining is now more expensive. And so this would be a shift. You could view it to up or shift upward and to the left. You could also view it the other way."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "They'd want to charge a higher price to make up for the fact that refining is now more expensive. And so this would be a shift. You could view it to up or shift upward and to the left. You could also view it the other way. At a given price, suppliers would want to provide less quantity because they need to make up the fact that they're paying more for refining that gasoline. And so you could view that as a shift to the left or a shift of up and to the left. And so that would be in that direction."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "You could also view it the other way. At a given price, suppliers would want to provide less quantity because they need to make up the fact that they're paying more for refining that gasoline. And so you could view that as a shift to the left or a shift of up and to the left. And so that would be in that direction. We're kind of shifting like that. And then of course we could talk about a scenario that goes the other way. Let's say that the property tax, property, in the entire market, property tax on gas stations, gas stations goes down."}, {"video_title": "Change in supply versus change in quantity supplied AP Macroeconomics Khan Academy.mp3", "Sentence": "And so that would be in that direction. We're kind of shifting like that. And then of course we could talk about a scenario that goes the other way. Let's say that the property tax, property, in the entire market, property tax on gas stations, gas stations goes down. So in theory, if the property tax goes down, the cost of running a gas station goes down. And this is for everyone in the market, not just one player in the market. And so they might, for a given price, be able to supply more of a quantity or for a given quantity, be able to lower the price."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "What I want to do in this video is get a better understanding of oligopolies. And we'll be talking about it more in future videos. And as we've already talked about, this part of oligopolies, the ligo, and I know I'm completely mispronouncing it, comes from the Greek word for few, and the poly part comes from the Greek word for sellers. And I don't want to confuse anyone because the prefix poly, like in terms of polynomial or polymath, when it's a prefix, poly often means, poly does mean many. But in this context, this comes from the Greek, and once again, I know I'm mispronouncing it, polyin, I think, or polyeen, which actually comes from seller. So this means few sellers. And what's interesting about oligopolies are that they can sometimes act much more like monopolies if they coordinate, or they can still, even if there are few sellers, even two sellers, they can compete fiercely and look much closer to perfect competition."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "And I don't want to confuse anyone because the prefix poly, like in terms of polynomial or polymath, when it's a prefix, poly often means, poly does mean many. But in this context, this comes from the Greek, and once again, I know I'm mispronouncing it, polyin, I think, or polyeen, which actually comes from seller. So this means few sellers. And what's interesting about oligopolies are that they can sometimes act much more like monopolies if they coordinate, or they can still, even if there are few sellers, even two sellers, they can compete fiercely and look much closer to perfect competition. So an example is if they, so let's say there are these few competitors, and let's say they coordinate with each other. They say, hey, look, we're going to be, because there's a few of enough of them that they can coordinate, they say, hey, look, why don't we restrict quantity so that we can raise price, and then we're essentially maximizing our collective economic profit. So they are getting into, they are agreeing to coordinate."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "And what's interesting about oligopolies are that they can sometimes act much more like monopolies if they coordinate, or they can still, even if there are few sellers, even two sellers, they can compete fiercely and look much closer to perfect competition. So an example is if they, so let's say there are these few competitors, and let's say they coordinate with each other. They say, hey, look, we're going to be, because there's a few of enough of them that they can coordinate, they say, hey, look, why don't we restrict quantity so that we can raise price, and then we're essentially maximizing our collective economic profit. So they are getting into, they are agreeing to coordinate. And this is illegal within the context of most countries. Most companies are not allowed to do this in most countries. But when this is going on, this kind of coordination between the players in an oligopoly, this is called collusion."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "So they are getting into, they are agreeing to coordinate. And this is illegal within the context of most countries. Most companies are not allowed to do this in most countries. But when this is going on, this kind of coordination between the players in an oligopoly, this is called collusion. This is called collusion. Or we're saying that they are colluding. And if they have a formal agreement to collude, we call these players right over here, we call them a cartel."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "But when this is going on, this kind of coordination between the players in an oligopoly, this is called collusion. This is called collusion. Or we're saying that they are colluding. And if they have a formal agreement to collude, we call these players right over here, we call them a cartel. And they are approaching their behavior as much closer to a monopoly than they're essentially trying at least to act together like a monopoly. And the most famous of all of the cartels is OPEC. You sometimes hear about the drug cartel."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "And if they have a formal agreement to collude, we call these players right over here, we call them a cartel. And they are approaching their behavior as much closer to a monopoly than they're essentially trying at least to act together like a monopoly. And the most famous of all of the cartels is OPEC. You sometimes hear about the drug cartel. I'm not an expert there. I guess that's implying that there's some form of coordination there, some form of price setting, some form of quantity restriction. But the most famous, and maybe the one with the largest impact, is OPEC."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "You sometimes hear about the drug cartel. I'm not an expert there. I guess that's implying that there's some form of coordination there, some form of price setting, some form of quantity restriction. But the most famous, and maybe the one with the largest impact, is OPEC. And OPEC stands for Organization of Petroleum Exporting Countries. And it's a group of 12 countries that collectively control 79% this is as of 2012, that collectively control 79% of the world's oil reserves. So oil reserves are the actual oil that's in the ground, or that the oil that we know is in the ground."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "But the most famous, and maybe the one with the largest impact, is OPEC. And OPEC stands for Organization of Petroleum Exporting Countries. And it's a group of 12 countries that collectively control 79% this is as of 2012, that collectively control 79% of the world's oil reserves. So oil reserves are the actual oil that's in the ground, or that the oil that we know is in the ground. Obviously there's other oil that we don't know where it is, but it's in the ground. But this is 79% of the oil that we're aware of that is in the ground. And they control about 44% of the production, of oil production, of current oil production."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "So oil reserves are the actual oil that's in the ground, or that the oil that we know is in the ground. Obviously there's other oil that we don't know where it is, but it's in the ground. But this is 79% of the oil that we're aware of that is in the ground. And they control about 44% of the production, of oil production, of current oil production. So in a given month, 44% of all the oil in the world is coming from these OPEC countries. And they're predominantly countries in the Middle East, but they now include countries that are outside of the Middle East. And they have a formal agreement where they try to restrict output so that they can get the price to whatever price they want it to be."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "And they control about 44% of the production, of oil production, of current oil production. So in a given month, 44% of all the oil in the world is coming from these OPEC countries. And they're predominantly countries in the Middle East, but they now include countries that are outside of the Middle East. And they have a formal agreement where they try to restrict output so that they can get the price to whatever price they want it to be. So they are at least attempting to act somewhat like a monopoly. They don't control all the oil reserves, they don't control all of the oil production, but by coordinating it, they can act like a bigger player than they are individually. But what we'll see in future videos is that even though it is good collectively for them to do this, for them to coordinate in this way, and it can't be illegal because they're all countries coordinating with each other, so no one can say, hey, what you're doing is illegal, because they're essentially acting outside of any one country's laws."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "And they have a formal agreement where they try to restrict output so that they can get the price to whatever price they want it to be. So they are at least attempting to act somewhat like a monopoly. They don't control all the oil reserves, they don't control all of the oil production, but by coordinating it, they can act like a bigger player than they are individually. But what we'll see in future videos is that even though it is good collectively for them to do this, for them to coordinate in this way, and it can't be illegal because they're all countries coordinating with each other, so no one can say, hey, what you're doing is illegal, because they're essentially acting outside of any one country's laws. But what we'll see in the future is that there's a huge incentive for any one of these 12 countries to break the agreement secretly, to say, okay, I'm going to restrict quantity just like all the rest of you guys, but then secretly keep producing more and getting that higher price that is being achieved because everyone else is restricted. So it's actually very hard, even if you have a formal agreement, to maintain discipline within a cartel. Now, that was an example of kind of trying to coordinate, trying to collude, trying to become more like a monopoly."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "But what we'll see in future videos is that even though it is good collectively for them to do this, for them to coordinate in this way, and it can't be illegal because they're all countries coordinating with each other, so no one can say, hey, what you're doing is illegal, because they're essentially acting outside of any one country's laws. But what we'll see in the future is that there's a huge incentive for any one of these 12 countries to break the agreement secretly, to say, okay, I'm going to restrict quantity just like all the rest of you guys, but then secretly keep producing more and getting that higher price that is being achieved because everyone else is restricted. So it's actually very hard, even if you have a formal agreement, to maintain discipline within a cartel. Now, that was an example of kind of trying to coordinate, trying to collude, trying to become more like a monopoly. There are many, many cases of oligopolies that, at least as far as I know, are fiercely, fiercely competitive. Probably the most famous of them are Coke and Pepsi. So this would, I guess, fall under the sugar water market."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "Now, that was an example of kind of trying to coordinate, trying to collude, trying to become more like a monopoly. There are many, many cases of oligopolies that, at least as far as I know, are fiercely, fiercely competitive. Probably the most famous of them are Coke and Pepsi. So this would, I guess, fall under the sugar water market. They both take water and they place a lot of sugar in that water, and then they spend millions, or maybe even billions in some circumstances, on marketing to make you convinced that somehow that sugar in that water will make you cool or trendy or you'll have more friends or you'll be better looking or whatever else. But they are fiercely competitive. They could coordinate and say, hey, let's raise the price of 12 ounces of sugar water to $1 or $5, and if you do it, I'll do it as well."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "So this would, I guess, fall under the sugar water market. They both take water and they place a lot of sugar in that water, and then they spend millions, or maybe even billions in some circumstances, on marketing to make you convinced that somehow that sugar in that water will make you cool or trendy or you'll have more friends or you'll be better looking or whatever else. But they are fiercely competitive. They could coordinate and say, hey, let's raise the price of 12 ounces of sugar water to $1 or $5, and if you do it, I'll do it as well. But they don't. They compete fiercely on price. They compete fiercely on marketing, and that's actually where they really, really, really compete."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "They could coordinate and say, hey, let's raise the price of 12 ounces of sugar water to $1 or $5, and if you do it, I'll do it as well. But they don't. They compete fiercely on price. They compete fiercely on marketing, and that's actually where they really, really, really compete. And this is actually a special case of an oligopoly where you only have two players, two major players, and this you would call a duopoly. Other examples of duopoly, you could imagine Boeing and Airbus. If you fly on a commercial aircraft, especially a new commercial aircraft and especially a large commercial aircraft, it is going to be either a Boeing aircraft or an Airbus aircraft."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "They compete fiercely on marketing, and that's actually where they really, really, really compete. And this is actually a special case of an oligopoly where you only have two players, two major players, and this you would call a duopoly. Other examples of duopoly, you could imagine Boeing and Airbus. If you fly on a commercial aircraft, especially a new commercial aircraft and especially a large commercial aircraft, it is going to be either a Boeing aircraft or an Airbus aircraft. Boeing is the U.S. manufacturer. Airbus is the European manufacturer. And although Boeing is always complaining that Airbus is getting support from the European Union and Airbus is always complaining that Boeing is getting support from the U.S., they do compete quite fiercely on price."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "If you fly on a commercial aircraft, especially a new commercial aircraft and especially a large commercial aircraft, it is going to be either a Boeing aircraft or an Airbus aircraft. Boeing is the U.S. manufacturer. Airbus is the European manufacturer. And although Boeing is always complaining that Airbus is getting support from the European Union and Airbus is always complaining that Boeing is getting support from the U.S., they do compete quite fiercely on price. They're both whining and dining countries and airlines that are looking to buy new planes or whatever. Other examples of oligopolies that are more competitive, especially more competitive than something like OPEC, you have something like the airlines. Just going with that airplane theme, you have the airlines."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "And although Boeing is always complaining that Airbus is getting support from the European Union and Airbus is always complaining that Boeing is getting support from the U.S., they do compete quite fiercely on price. They're both whining and dining countries and airlines that are looking to buy new planes or whatever. Other examples of oligopolies that are more competitive, especially more competitive than something like OPEC, you have something like the airlines. Just going with that airplane theme, you have the airlines. In fact, I gave airlines as an example of an industry that seems to behave in a kind of a perfectly competitive way. An economy class seat on most airlines is fairly undifferentiated. There's a lot of very good price information in the airline industry, better than in almost every industry."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "Just going with that airplane theme, you have the airlines. In fact, I gave airlines as an example of an industry that seems to behave in a kind of a perfectly competitive way. An economy class seat on most airlines is fairly undifferentiated. There's a lot of very good price information in the airline industry, better than in almost every industry. But you do have not too many competitors. They're all aware of each other. They all know each other's prices."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "There's a lot of very good price information in the airline industry, better than in almost every industry. But you do have not too many competitors. They're all aware of each other. They all know each other's prices. To some degree, they're looking at each other's prices to figure out what their own prices should be. It's not like they have a million competitors out there and they can't keep track of everyone. Airlines, they're not a duopoly."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "They all know each other's prices. To some degree, they're looking at each other's prices to figure out what their own prices should be. It's not like they have a million competitors out there and they can't keep track of everyone. Airlines, they're not a duopoly. Let me make a line here. Airlines are not a duopoly, but they are definitely an example of an oligopoly where the market is approaching perfect competition. There's others."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "Airlines, they're not a duopoly. Let me make a line here. Airlines are not a duopoly, but they are definitely an example of an oligopoly where the market is approaching perfect competition. There's others. You could have something like the credit card networks. You have Visa, MasterCard, and American Express. Really, these first two are the dominant ones."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "There's others. You could have something like the credit card networks. You have Visa, MasterCard, and American Express. Really, these first two are the dominant ones. But once again, very few players, and they are not coordinating, or at least as far as we don't know that they're coordinating. So they are competing. But there have been cases of companies, especially in oligopolies, where all of a sudden someone does find out that there's some type of a backroom deal where they say, hey, why don't we coordinate and not raise our production, or we keep our prices high, and both of us kind of hold that discipline."}, {"video_title": "Oligopolies, duopolies, collusion, and cartels Microeconomics Khan Academy.mp3", "Sentence": "Really, these first two are the dominant ones. But once again, very few players, and they are not coordinating, or at least as far as we don't know that they're coordinating. So they are competing. But there have been cases of companies, especially in oligopolies, where all of a sudden someone does find out that there's some type of a backroom deal where they say, hey, why don't we coordinate and not raise our production, or we keep our prices high, and both of us kind of hold that discipline. And that's where the governments have to get involved and regulate and make sure that between parties there really isn't this type of thing. Because from most governments' point of view, they want to push the parties out there as close to perfect competition as possible. And we've seen the closer you get to perfect competition, the further away you get from being a monopoly, the more efficient production you have, the larger total surplus you have, and the more of that total surplus goes to the consumers."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "Or another way to think about it is, in the long run, fixed costs actually become variable. You can shutter factories or you can build factories in the long run. Now in previous videos, we talked about that in the long run, in a perfectly competitive market, the firms that operate in that perfectly competitive market are going to be operating at zero economic profit, and you see that example right over here. As we've talked about in many, many videos, in a perfectly competitive market, the firms are price takers. That price is set by that equilibrium point between the supply and demand curves, and the firms just take that. And so their marginal revenue curve would just be a horizontal line that you see right over there. And zero economic profit happens when you produce a quantity where your average total cost is the same as your marginal revenue."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "As we've talked about in many, many videos, in a perfectly competitive market, the firms are price takers. That price is set by that equilibrium point between the supply and demand curves, and the firms just take that. And so their marginal revenue curve would just be a horizontal line that you see right over there. And zero economic profit happens when you produce a quantity where your average total cost is the same as your marginal revenue. For each unit, the amount that you get, which is that marginal unit, that's also how much it costs you to produce it. Now remember, when we're talking about economic profit, that includes your opportunity cost. So that doesn't mean that these firms are operating at zero accounting profit."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And zero economic profit happens when you produce a quantity where your average total cost is the same as your marginal revenue. For each unit, the amount that you get, which is that marginal unit, that's also how much it costs you to produce it. Now remember, when we're talking about economic profit, that includes your opportunity cost. So that doesn't mean that these firms are operating at zero accounting profit. They could still be making money, but if you were to factor in their opportunity cost, that's when you get things to zero. Now what I wanna think about, what happens in the short and long run if something, say, happens to market demand? Let's say that this is the market for apples, the fruit apples."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "So that doesn't mean that these firms are operating at zero accounting profit. They could still be making money, but if you were to factor in their opportunity cost, that's when you get things to zero. Now what I wanna think about, what happens in the short and long run if something, say, happens to market demand? Let's say that this is the market for apples, the fruit apples. So this is the market for apples we're talking about. This is the market as a whole. This is a firm that produces apples."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "Let's say that this is the market for apples, the fruit apples. So this is the market for apples we're talking about. This is the market as a whole. This is a firm that produces apples. It could be a farm of some kind. And let's say that a new study comes out that apples actually are super good for your health, and they can be used as a performance enhancer for sports, and all sorts of positive results. Well, what is likely to happen in the short run?"}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "This is a firm that produces apples. It could be a farm of some kind. And let's say that a new study comes out that apples actually are super good for your health, and they can be used as a performance enhancer for sports, and all sorts of positive results. Well, what is likely to happen in the short run? And this is a little bit of a review in terms of our supply and demand curves, and also what would happen to firm A's economic profits? Pause this video and think about that. Well, in the short run, your demand curve would shift to the right, and so because at a given price, people are willing to demand more apples because it has all these new and exciting benefits."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "Well, what is likely to happen in the short run? And this is a little bit of a review in terms of our supply and demand curves, and also what would happen to firm A's economic profits? Pause this video and think about that. Well, in the short run, your demand curve would shift to the right, and so because at a given price, people are willing to demand more apples because it has all these new and exciting benefits. And so the demand curve might shift someplace like that. So that is D prime. And if the demand curve shifts like that, now we have a new equilibrium price in the market."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "Well, in the short run, your demand curve would shift to the right, and so because at a given price, people are willing to demand more apples because it has all these new and exciting benefits. And so the demand curve might shift someplace like that. So that is D prime. And if the demand curve shifts like that, now we have a new equilibrium price in the market. Our new equilibrium price in the market is right over here. We also have a new equilibrium quantity. So our quantity has shifted from there to now there."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And if the demand curve shifts like that, now we have a new equilibrium price in the market. Our new equilibrium price in the market is right over here. We also have a new equilibrium quantity. So our quantity has shifted from there to now there. So a new equilibrium quantity, and we have a new equilibrium price. Let's just call this P prime. And at that new equilibrium price, at that new equilibrium price, well, now we have a higher marginal revenue curve for firm A."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "So our quantity has shifted from there to now there. So a new equilibrium quantity, and we have a new equilibrium price. Let's just call this P prime. And at that new equilibrium price, at that new equilibrium price, well, now we have a higher marginal revenue curve for firm A. And now firm A, it would be rational for them to produce. Remember, it's rational for them to produce up until the marginal revenue is equal to marginal cost because each of those incremental units up to that point, they're going to be making money on those incremental units. And so now it's rational for them to produce at this quantity."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And at that new equilibrium price, at that new equilibrium price, well, now we have a higher marginal revenue curve for firm A. And now firm A, it would be rational for them to produce. Remember, it's rational for them to produce up until the marginal revenue is equal to marginal cost because each of those incremental units up to that point, they're going to be making money on those incremental units. And so now it's rational for them to produce at this quantity. Let me call that Q prime. And at this level, now all of a sudden, firm A is making economic profit because at this quantity, that's revenue per unit. This is average total cost per unit."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And so now it's rational for them to produce at this quantity. Let me call that Q prime. And at this level, now all of a sudden, firm A is making economic profit because at this quantity, that's revenue per unit. This is average total cost per unit. So they're making this height per unit, and then you multiply it times your total number of units, which is the base of this rectangle. And so this area would represent this positive economic profit. Now you might be saying, wait, hold on a second."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "This is average total cost per unit. So they're making this height per unit, and then you multiply it times your total number of units, which is the base of this rectangle. And so this area would represent this positive economic profit. Now you might be saying, wait, hold on a second. I thought you said in the long run, firms don't make economic profit in a perfectly competitive market. And that is true, at least based on the models that we are constructing, because what happens when you have this positive economic profit? Well, other firms will enter this market."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "Now you might be saying, wait, hold on a second. I thought you said in the long run, firms don't make economic profit in a perfectly competitive market. And that is true, at least based on the models that we are constructing, because what happens when you have this positive economic profit? Well, other firms will enter this market. Remember, we're talking about a perfectly competitive market. There are no barriers to entry, and everyone is fairly non-differentiated, and they have similar cost structures. And so what you could imagine is in the long run, folks will enter the market, and then the supply curve will also shift to the right."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "Well, other firms will enter this market. Remember, we're talking about a perfectly competitive market. There are no barriers to entry, and everyone is fairly non-differentiated, and they have similar cost structures. And so what you could imagine is in the long run, folks will enter the market, and then the supply curve will also shift to the right. And assuming that that doesn't change the cost structure for the individual firms, and actually let me show someone entering into this market. So now firm B is entering this market, and when firm B enters the market, it has the same cost structure as firm A, and it didn't shift either of their cost structures. So this is known as a constant cost perfectly competitive market, where the entering or the exiting of firms does not affect the cost structures of the firms that are entering or that are in the market."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "And so what you could imagine is in the long run, folks will enter the market, and then the supply curve will also shift to the right. And assuming that that doesn't change the cost structure for the individual firms, and actually let me show someone entering into this market. So now firm B is entering this market, and when firm B enters the market, it has the same cost structure as firm A, and it didn't shift either of their cost structures. So this is known as a constant cost perfectly competitive market, where the entering or the exiting of firms does not affect the cost structures of the firms that are entering or that are in the market. And so in this situation, these graphs look the same, but now we have more firms entering the market. The supply curve will shift to the right, and it's going to keep shifting to the right until these firms that all have identical cost structures are no longer making economic profit again. It wouldn't shift further to the right because no one's going to enter if they're making economic loss."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "So this is known as a constant cost perfectly competitive market, where the entering or the exiting of firms does not affect the cost structures of the firms that are entering or that are in the market. And so in this situation, these graphs look the same, but now we have more firms entering the market. The supply curve will shift to the right, and it's going to keep shifting to the right until these firms that all have identical cost structures are no longer making economic profit again. It wouldn't shift further to the right because no one's going to enter if they're making economic loss. It'll keep shifting until no one is making that economic profit. And so you see what happened in this constant cost perfectly competitive market that now we are back to this equilibrium point where we are at a higher quantity because people like all the benefits of these apples, but we're at the price we were before, which is the same marginal revenue curve that we were before for the various players, for the various players in this market. And so when you see something like this in a constant cost perfectly competitive market, you can actually create a long-run supply curve."}, {"video_title": "Long run supply curve in constant cost perfectly competitive markets Microeconomics Khan Academy.mp3", "Sentence": "It wouldn't shift further to the right because no one's going to enter if they're making economic loss. It'll keep shifting until no one is making that economic profit. And so you see what happened in this constant cost perfectly competitive market that now we are back to this equilibrium point where we are at a higher quantity because people like all the benefits of these apples, but we're at the price we were before, which is the same marginal revenue curve that we were before for the various players, for the various players in this market. And so when you see something like this in a constant cost perfectly competitive market, you can actually create a long-run supply curve. You could view this S and S prime as a short-run supply curve. The long-run supply curve, on the other hand, for a perfectly competitive market in which the cost structure of the participating firms do not depend on the number of firms that are in or out of the market, then your long-run supply curve in what we could call a constant cost perfectly competitive market is going to be a horizontal line like this. So I will leave you there."}, {"video_title": "Graphical impact of cost changes on marginal and average costs.mp3", "Sentence": "In the last video, we numerically studied how changes in productivity or cost might affect your marginal cost, your average variable cost, your average fixed cost, or your average total cost. In this video, we're gonna think about it visually. So we constructed these curves several videos ago to visualize how average fixed cost trends over time as you take that fixed cost and then you spread it over more and more and more units, you see that that just asymptotes towards zero as you get more and more units. You see your marginal cost curve, and this is something that you'll typically see in a lot of textbooks, it's kind of U-shaped, and we talked about where it intersects the average variable cost, that's where the average variable cost goes from trending down to trending up, so it hits that minimum point, and the same thing happens at average total cost. It hits the bottom of that U of average total cost. It goes from trending down to trending up, and then over time, this difference that you see between your average total cost and your average variable cost, that difference right over there, that is your average fixed cost. And so, since your average fixed cost are asymptoting downwards, you see that this difference between average total cost and average variable cost gets less and less over time, that they are going to over time converge to each other as your average fixed cost gets closer, and closer, and closer to zero."}, {"video_title": "Graphical impact of cost changes on marginal and average costs.mp3", "Sentence": "You see your marginal cost curve, and this is something that you'll typically see in a lot of textbooks, it's kind of U-shaped, and we talked about where it intersects the average variable cost, that's where the average variable cost goes from trending down to trending up, so it hits that minimum point, and the same thing happens at average total cost. It hits the bottom of that U of average total cost. It goes from trending down to trending up, and then over time, this difference that you see between your average total cost and your average variable cost, that difference right over there, that is your average fixed cost. And so, since your average fixed cost are asymptoting downwards, you see that this difference between average total cost and average variable cost gets less and less over time, that they are going to over time converge to each other as your average fixed cost gets closer, and closer, and closer to zero. But now let's think about how these curves might be impacted if you have changes in productivity or cost. So let's start with a change in your fixed costs. Let's say your rent goes up."}, {"video_title": "Graphical impact of cost changes on marginal and average costs.mp3", "Sentence": "And so, since your average fixed cost are asymptoting downwards, you see that this difference between average total cost and average variable cost gets less and less over time, that they are going to over time converge to each other as your average fixed cost gets closer, and closer, and closer to zero. But now let's think about how these curves might be impacted if you have changes in productivity or cost. So let's start with a change in your fixed costs. Let's say your rent goes up. What would happen then? Pause this video and think about what would happen visually. Well then your average fixed costs would shift up and it might look something like this."}, {"video_title": "Graphical impact of cost changes on marginal and average costs.mp3", "Sentence": "Let's say your rent goes up. What would happen then? Pause this video and think about what would happen visually. Well then your average fixed costs would shift up and it might look something like this. Your average fixed costs might look something like this. And then which of these other curves also have fixed costs embedded in it? Well your average total costs is a combination of your average variable costs and your average fixed costs."}, {"video_title": "Graphical impact of cost changes on marginal and average costs.mp3", "Sentence": "Well then your average fixed costs would shift up and it might look something like this. Your average fixed costs might look something like this. And then which of these other curves also have fixed costs embedded in it? Well your average total costs is a combination of your average variable costs and your average fixed costs. So the amount that your average fixed costs went up for any quantity, your average total costs would also go up that amount for that quantity. So it would look something like this. It would look something like this."}, {"video_title": "Graphical impact of cost changes on marginal and average costs.mp3", "Sentence": "Well your average total costs is a combination of your average variable costs and your average fixed costs. So the amount that your average fixed costs went up for any quantity, your average total costs would also go up that amount for that quantity. So it would look something like this. It would look something like this. And once again, just as before, it will trend downwards until you intersect with your marginal cost curve and then it'll start trending upwards. So a change in your fixed costs, either upwards or downwards, would affect your average fixed costs. It would affect your average total costs."}, {"video_title": "Graphical impact of cost changes on marginal and average costs.mp3", "Sentence": "It would look something like this. And once again, just as before, it will trend downwards until you intersect with your marginal cost curve and then it'll start trending upwards. So a change in your fixed costs, either upwards or downwards, would affect your average fixed costs. It would affect your average total costs. The reason why it doesn't affect your average variable costs is because your average variable costs are taking out your fixed costs, they're just thinking about the variable costs. And your marginal costs are thinking about a difference in costs between two different states of output. And the fixed costs are in either of those so they will cancel out."}, {"video_title": "Graphical impact of cost changes on marginal and average costs.mp3", "Sentence": "It would affect your average total costs. The reason why it doesn't affect your average variable costs is because your average variable costs are taking out your fixed costs, they're just thinking about the variable costs. And your marginal costs are thinking about a difference in costs between two different states of output. And the fixed costs are in either of those so they will cancel out. What would be a change in your variable costs? Let's say you have to give everyone a pay increase. Well then your variable costs will go up and your variable costs might look something like this."}, {"video_title": "Graphical impact of cost changes on marginal and average costs.mp3", "Sentence": "And the fixed costs are in either of those so they will cancel out. What would be a change in your variable costs? Let's say you have to give everyone a pay increase. Well then your variable costs will go up and your variable costs might look something like this. They will just shift up. And once again, they will trend downwards until you intersect with your marginal cost curve and then you will trend upwards. Now a change in your variable costs will also affect your marginal costs because as you produce more output, well then you are likely to incur more incremental costs."}, {"video_title": "Graphical impact of cost changes on marginal and average costs.mp3", "Sentence": "Well then your variable costs will go up and your variable costs might look something like this. They will just shift up. And once again, they will trend downwards until you intersect with your marginal cost curve and then you will trend upwards. Now a change in your variable costs will also affect your marginal costs because as you produce more output, well then you are likely to incur more incremental costs. So then your marginal cost curve, and I know this is getting very messy, might start looking something like, might look something like that. So big picture, changes in productivity would likely affect your average variable costs, likely affect your marginal costs. And of course, average variable costs feeds into average total costs so that would be impacted as well."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "Indifference. Indifference curve. And what it is, is it describes all of the points, all of the combinations of things to which I am indifferent. In the past, we've thought about maximizing total utility. Now we're going to talk about all of the combinations that essentially give us the same total utility. So let's draw a graph that tells us all of the different combinations of two goods to which we are indifferent. And like we've mentioned before, we're focusing on two goods because if we did three goods, we would have to do it in three dimensions, and four goods would get very abstract."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "In the past, we've thought about maximizing total utility. Now we're going to talk about all of the combinations that essentially give us the same total utility. So let's draw a graph that tells us all of the different combinations of two goods to which we are indifferent. And like we've mentioned before, we're focusing on two goods because if we did three goods, we would have to do it in three dimensions, and four goods would get very abstract. So let's say in this axis, the vertical axis, this is going to be the quantity, and we'll stay with the chocolate and the fruit trade-off. Those are the only two things that we consume. So this is going to be the quantity of chocolate in bars, and in the horizontal axis, this is going to be the quantity of fruit, and this is going to be in pounds of fruit."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "And like we've mentioned before, we're focusing on two goods because if we did three goods, we would have to do it in three dimensions, and four goods would get very abstract. So let's say in this axis, the vertical axis, this is going to be the quantity, and we'll stay with the chocolate and the fruit trade-off. Those are the only two things that we consume. So this is going to be the quantity of chocolate in bars, and in the horizontal axis, this is going to be the quantity of fruit, and this is going to be in pounds of fruit. And this will go, see this is 10, this is 20, this is 10, and this is 20, and this will be 15, 5, 5, and then 15. And let's say that right now, at some point, I am consuming 5 pounds of fruit per month and 15 bars of chocolate per month. So that would put me right there."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "So this is going to be the quantity of chocolate in bars, and in the horizontal axis, this is going to be the quantity of fruit, and this is going to be in pounds of fruit. And this will go, see this is 10, this is 20, this is 10, and this is 20, and this will be 15, 5, 5, and then 15. And let's say that right now, at some point, I am consuming 5 pounds of fruit per month and 15 bars of chocolate per month. So that would put me right there. And if someone were to ask, Sal, how would you feel if instead of that, I were to give you, let's say, 10 bars of chocolate and 7 pounds of fruit? And I would say, you know what? I'm indifferent."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "So that would put me right there. And if someone were to ask, Sal, how would you feel if instead of that, I were to give you, let's say, 10 bars of chocolate and 7 pounds of fruit? And I would say, you know what? I'm indifferent. I wouldn't care whether I have 15 bars of chocolate and 5 pounds of fruit, or whether I have 10 bars of chocolate and 7 pounds of fruit. I am indifferent between these two. I've introspected on what I like and what I derive benefit and satisfaction out of, and I get the same total utility out of either of these points."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "I'm indifferent. I wouldn't care whether I have 15 bars of chocolate and 5 pounds of fruit, or whether I have 10 bars of chocolate and 7 pounds of fruit. I am indifferent between these two. I've introspected on what I like and what I derive benefit and satisfaction out of, and I get the same total utility out of either of these points. So both of these are on the same indifference curve. And in general, I could plot all of the different combinations that give me the exact same total utility. And it might look something like this."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "I've introspected on what I like and what I derive benefit and satisfaction out of, and I get the same total utility out of either of these points. So both of these are on the same indifference curve. And in general, I could plot all of the different combinations that give me the exact same total utility. And it might look something like this. Let me try to draw it as neatly as possible. I'll do it in magenta. It might look something like this."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "And it might look something like this. Let me try to draw it as neatly as possible. I'll do it in magenta. It might look something like this. And then keep going all the way down like that. So any point on this curve right over here, I'm indifferent relative to my current predicament of 15 bars and 5 pounds of chocolate. So that is my indifference curve."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "It might look something like this. And then keep going all the way down like that. So any point on this curve right over here, I'm indifferent relative to my current predicament of 15 bars and 5 pounds of chocolate. So that is my indifference curve. Now let's think about it. So obviously if I go all over here, 20 pounds of fruit and 2 bars of chocolate, to me the same utility based on my preferences as where I started off with. So if someone just swapped everything out, I would just shrug my shoulders and say, yeah, no big deal."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "So that is my indifference curve. Now let's think about it. So obviously if I go all over here, 20 pounds of fruit and 2 bars of chocolate, to me the same utility based on my preferences as where I started off with. So if someone just swapped everything out, I would just shrug my shoulders and say, yeah, no big deal. I wouldn't be happy. I wouldn't be sad. I am indifferent."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "So if someone just swapped everything out, I would just shrug my shoulders and say, yeah, no big deal. I wouldn't be happy. I wouldn't be sad. I am indifferent. Now what about points down here? What about a point like this? Well, that is clearly not preferable."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "I am indifferent. Now what about points down here? What about a point like this? Well, that is clearly not preferable. Because, for example, that point I just showed, I can show a point on the indifference curve where I'm better off. For example, that point that I just did, that's 5 pounds of fruit and about 5 bars of chocolate. But assuming that the marginal benefit of more chocolate is positive, and the way I've drawn this, or the assumption is that it is, then I'm obviously getting more benefit if I get even more chocolate per month."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "Well, that is clearly not preferable. Because, for example, that point I just showed, I can show a point on the indifference curve where I'm better off. For example, that point that I just did, that's 5 pounds of fruit and about 5 bars of chocolate. But assuming that the marginal benefit of more chocolate is positive, and the way I've drawn this, or the assumption is that it is, then I'm obviously getting more benefit if I get even more chocolate per month. So anything down here below the indifference curve is not preferred. And using the same exact logic, anything out here, well, that would be good. Because we're neutral between all of these points on the curve, but this green point right over here, I have the same number of bars as a point on the curve, but I have a lot more pounds of fruit."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "But assuming that the marginal benefit of more chocolate is positive, and the way I've drawn this, or the assumption is that it is, then I'm obviously getting more benefit if I get even more chocolate per month. So anything down here below the indifference curve is not preferred. And using the same exact logic, anything out here, well, that would be good. Because we're neutral between all of these points on the curve, but this green point right over here, I have the same number of bars as a point on the curve, but I have a lot more pounds of fruit. I have 11 or 12 pounds of fruit. So assuming that I'm getting marginal benefit from those incremental pounds of fruit, and we will make that assumption, then this right over here, anything out here is going to be preferred. So this whole area is going to be preferred to everything on the curve."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "Because we're neutral between all of these points on the curve, but this green point right over here, I have the same number of bars as a point on the curve, but I have a lot more pounds of fruit. I have 11 or 12 pounds of fruit. So assuming that I'm getting marginal benefit from those incremental pounds of fruit, and we will make that assumption, then this right over here, anything out here is going to be preferred. So this whole area is going to be preferred to everything on the curve. And the whole area down here is obviously not preferred to anything on the curve. Just to show you this, not those points there. All of this, and let me do that in a different color actually, because our curve is purple."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "So this whole area is going to be preferred to everything on the curve. And the whole area down here is obviously not preferred to anything on the curve. Just to show you this, not those points there. All of this, and let me do that in a different color actually, because our curve is purple. Everything in blue is not preferred. Now the last thing I want to think about in this video is what the slope of this indifference curve tells us. When I talk about the slope, and this is really kind of an idea out of calculus, because we're used to thinking about slopes of lines."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "All of this, and let me do that in a different color actually, because our curve is purple. Everything in blue is not preferred. Now the last thing I want to think about in this video is what the slope of this indifference curve tells us. When I talk about the slope, and this is really kind of an idea out of calculus, because we're used to thinking about slopes of lines. So if you give me a line like that, the slope is how much does my vertical axis change for every change in my horizontal axis. So in a typical algebra class, that axis is your y-axis, that is your x-axis. And when we think about slope, we say, okay, I have a certain change in y when I change in x by 1."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "When I talk about the slope, and this is really kind of an idea out of calculus, because we're used to thinking about slopes of lines. So if you give me a line like that, the slope is how much does my vertical axis change for every change in my horizontal axis. So in a typical algebra class, that axis is your y-axis, that is your x-axis. And when we think about slope, we say, okay, I have a certain change in y when I change in x by 1. So we have something like this. So when I change, I get a certain change in y, the triangle means change in, delta, change in y when I get a certain change in x. And delta y, the change in y over change in x, is equal to the slope."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "And when we think about slope, we say, okay, I have a certain change in y when I change in x by 1. So we have something like this. So when I change, I get a certain change in y, the triangle means change in, delta, change in y when I get a certain change in x. And delta y, the change in y over change in x, is equal to the slope. But this is when it's a line, and the slope isn't changing. At any point on this line, if I do the same ratio between a change in y and a change in x, I'm going to get the same value. On a curve like this, the slope is constantly changing."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "And delta y, the change in y over change in x, is equal to the slope. But this is when it's a line, and the slope isn't changing. At any point on this line, if I do the same ratio between a change in y and a change in x, I'm going to get the same value. On a curve like this, the slope is constantly changing. So what we really do to figure out the slope exactly at a point, you can imagine it's really the slope of the tangent line at that point, a line that would just touch at that point. So for example, let's say that I draw a tangent line. I'll draw my best attempt at drawing a tangent line."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "On a curve like this, the slope is constantly changing. So what we really do to figure out the slope exactly at a point, you can imagine it's really the slope of the tangent line at that point, a line that would just touch at that point. So for example, let's say that I draw a tangent line. I'll draw my best attempt at drawing a tangent line. I'll do it in pink. Let's say I have a tangent line right from our starting predicament, just like that. And it looks something like that."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "I'll draw my best attempt at drawing a tangent line. I'll do it in pink. Let's say I have a tangent line right from our starting predicament, just like that. And it looks something like that. And so right where we are now, exactly at this point, if we veer away, it seems like our slope is changing. In fact, it definitely is changing. It's becoming less steep as we go forward to the right."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "And it looks something like that. And so right where we are now, exactly at this point, if we veer away, it seems like our slope is changing. In fact, it definitely is changing. It's becoming less steep as we go forward to the right. It's becoming more steep as we go to the left. But right there, the slope of the tangent line looks right like that, or you could view that as the instantaneous slope right there. And we can measure the slope of the tangent line."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "It's becoming less steep as we go forward to the right. It's becoming more steep as we go to the left. But right there, the slope of the tangent line looks right like that, or you could view that as the instantaneous slope right there. And we can measure the slope of the tangent line. We could say, look, if we want an extra 2 pounds of fruit, how many bars are we going to have to give up? Well, it looks like we're going to have to give up based on the slope right over there. It looks like we're going to have to give up 5 bars."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "And we can measure the slope of the tangent line. We could say, look, if we want an extra 2 pounds of fruit, how many bars are we going to have to give up? Well, it looks like we're going to have to give up based on the slope right over there. It looks like we're going to have to give up 5 bars. So this is 5 and this is 2. So what is the slope here? The slope here is going to be your change in bars."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "It looks like we're going to have to give up 5 bars. So this is 5 and this is 2. So what is the slope here? The slope here is going to be your change in bars. And I should actually say this is a negative right over there. It's going to be your change in bars, your change in chocolate bars, over your change in fruit. And in this situation, it is negative 5 bars for every 2 fruit that you get."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "The slope here is going to be your change in bars. And I should actually say this is a negative right over there. It's going to be your change in bars, your change in chocolate bars, over your change in fruit. And in this situation, it is negative 5 bars for every 2 fruit that you get. So bars per fruit. Or you can say this is equal to negative 2.5 bars per fruit. So it's essentially saying exactly at that point, how are you willing to trade off bars for fruit?"}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "And in this situation, it is negative 5 bars for every 2 fruit that you get. So bars per fruit. Or you can say this is equal to negative 2.5 bars per fruit. So it's essentially saying exactly at that point, how are you willing to trade off bars for fruit? Exactly at that point. It's going to change as things change along this curve. But it's saying exactly where you're sitting right now."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "So it's essentially saying exactly at that point, how are you willing to trade off bars for fruit? Exactly at that point. It's going to change as things change along this curve. But it's saying exactly where you're sitting right now. You would be indifferent, but it's only as you just slightly move. Or for an extra drop of fruit, an extra ounce of fruit, not even a whole pound, you'd be willing to trade off 2.5 bars per fruit. And what this says, so you're willing to give up, since it's negative, you're giving up 2.5 bars of chocolate for every pound of fruit."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "But it's saying exactly where you're sitting right now. You would be indifferent, but it's only as you just slightly move. Or for an extra drop of fruit, an extra ounce of fruit, not even a whole pound, you'd be willing to trade off 2.5 bars per fruit. And what this says, so you're willing to give up, since it's negative, you're giving up 2.5 bars of chocolate for every pound of fruit. Now it's going to be different. Once you have a lot more fruit, you're going to be much less willing to give up bars of chocolate. Over here you have a lot of bars and not a lot of fruit."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "And what this says, so you're willing to give up, since it's negative, you're giving up 2.5 bars of chocolate for every pound of fruit. Now it's going to be different. Once you have a lot more fruit, you're going to be much less willing to give up bars of chocolate. Over here you have a lot of bars and not a lot of fruit. So you're willing to give up a lot of bars for fruit. Over here, if we go over here, the slope looks a little bit different. Over here it is much flatter."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "Over here you have a lot of bars and not a lot of fruit. So you're willing to give up a lot of bars for fruit. Over here, if we go over here, the slope looks a little bit different. Over here it is much flatter. Let me draw it in a color we haven't used yet. So over here the tangent line looks something like this. And let's say when you calculate it, in order to get, I don't know, this looks like about 5 pounds of fruit, in order to get 5 pounds of fruit, you are going to have to give up 2 bars."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "Over here it is much flatter. Let me draw it in a color we haven't used yet. So over here the tangent line looks something like this. And let's say when you calculate it, in order to get, I don't know, this looks like about 5 pounds of fruit, in order to get 5 pounds of fruit, you are going to have to give up 2 bars. So once again, the slope is the change in the vertical axis over the change in the horizontal axis. So over here at this point, your change in bars over your change in fruit is going to be, well, you're going to give up 2 bars for every 5 fruit. Bars per fruit."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "And let's say when you calculate it, in order to get, I don't know, this looks like about 5 pounds of fruit, in order to get 5 pounds of fruit, you are going to have to give up 2 bars. So once again, the slope is the change in the vertical axis over the change in the horizontal axis. So over here at this point, your change in bars over your change in fruit is going to be, well, you're going to give up 2 bars for every 5 fruit. Bars per fruit. So this right over here is negative 0.4. I'll say b for f. So over here you're willing to give up much fewer bars for every incremental fruit. Up here you're willing to give many bars away for every fruit."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "Bars per fruit. So this right over here is negative 0.4. I'll say b for f. So over here you're willing to give up much fewer bars for every incremental fruit. Up here you're willing to give many bars away for every fruit. And that made sense. Over here you had a lot of chocolate bars, not a lot of fruit, so you're willing to give up more bars for your fruit. And over here you have many fewer bars, so you're much more resistant to giving up bars for fruit."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "Up here you're willing to give many bars away for every fruit. And that made sense. Over here you had a lot of chocolate bars, not a lot of fruit, so you're willing to give up more bars for your fruit. And over here you have many fewer bars, so you're much more resistant to giving up bars for fruit. But this number, how many bars you're willing to give up for an incremental fruit at any point here? Or you could view it as the slope of the indifference curve. The slope or the slope of a tangent line at that point of the indifference curve."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "And over here you have many fewer bars, so you're much more resistant to giving up bars for fruit. But this number, how many bars you're willing to give up for an incremental fruit at any point here? Or you could view it as the slope of the indifference curve. The slope or the slope of a tangent line at that point of the indifference curve. This right over here is called our marginal rate of substitution. It's a very fancy word, but all it's really saying is how much you're willing to give up of the vertical axis for an increment of the horizontal axis. Right at that point, and it changes."}, {"video_title": "Indifference curves and marginal rate of substitution Microeconomics Khan Academy.mp3", "Sentence": "The slope or the slope of a tangent line at that point of the indifference curve. This right over here is called our marginal rate of substitution. It's a very fancy word, but all it's really saying is how much you're willing to give up of the vertical axis for an increment of the horizontal axis. Right at that point, and it changes. As soon as you move, because this is a curve, it changes a little bit. But right at that point, for a super, super small amount, how many bars are you willing to give up for fruit? Obviously it changes as we go along this indifference curve."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "Now, a product market is a market where the output of that market, what the market is producing or what it's buying and selling, it is something that people will consume, and it doesn't just have to be a physical product. It could also be some type of a service. So examples of product markets, it could be the market for shirts. It could be cars, or it could even be a service. It could be tax preparation, tax preparation. These would all be product markets because it's something that people would consume, and I would call this consumer tax preparation, not business tax preparation. So this is consumer tax preparation."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "It could be cars, or it could even be a service. It could be tax preparation, tax preparation. These would all be product markets because it's something that people would consume, and I would call this consumer tax preparation, not business tax preparation. So this is consumer tax preparation. Now, based on my clarification, you might guess what a resource market is all about. These are markets for the inputs into other products or into the production of other even resources. So these would be your famous inputs of or factors of production."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "So this is consumer tax preparation. Now, based on my clarification, you might guess what a resource market is all about. These are markets for the inputs into other products or into the production of other even resources. So these would be your famous inputs of or factors of production. So it could be, for example, the market of labor. It could be something like farmland, where farmland is used to produce something else. It could be the market for capital goods, maybe robots for factories."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "So these would be your famous inputs of or factors of production. So it could be, for example, the market of labor. It could be something like farmland, where farmland is used to produce something else. It could be the market for capital goods, maybe robots for factories. But either way, whether we're talking about product markets or resource markets, we can think about them in broad terms based on how many players there are in the market and how differentiated the players are in the market and how much control they have over the price and how are the barriers to entry. So let's set up a spectrum here to explore that a little bit. So I will set up a spectrum."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "It could be the market for capital goods, maybe robots for factories. But either way, whether we're talking about product markets or resource markets, we can think about them in broad terms based on how many players there are in the market and how differentiated the players are in the market and how much control they have over the price and how are the barriers to entry. So let's set up a spectrum here to explore that a little bit. So I will set up a spectrum. Now, the extreme end of the spectrum right over here, when you only have one player, one player in the market, in the market, or actually, let me just say one firm, because player is not really clear what I'm talking about, whether I'm talking about a buyer or seller. One firm in market, and let's say many buyers, many buyers. You are probably familiar with what we call this market or what we would call this firm."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "So I will set up a spectrum. Now, the extreme end of the spectrum right over here, when you only have one player, one player in the market, in the market, or actually, let me just say one firm, because player is not really clear what I'm talking about, whether I'm talking about a buyer or seller. One firm in market, and let's say many buyers, many buyers. You are probably familiar with what we call this market or what we would call this firm. It has a monopoly. It has a monopoly named for a famous game, because that whole point of that game is to try to be that last firm standing, the firm that owns all of the real estate. Now, what are the situations that would describe a monopoly?"}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "You are probably familiar with what we call this market or what we would call this firm. It has a monopoly. It has a monopoly named for a famous game, because that whole point of that game is to try to be that last firm standing, the firm that owns all of the real estate. Now, what are the situations that would describe a monopoly? Well, a monopoly is a situation where you have very high, one could argue insurmountable barriers to entry, so very high, high barriers, barriers to entry. And monopolies can sometimes be controversial, but they're not necessarily illegal. In fact, in many countries, a monopoly can be granted to a firm through things like the intellectual property or through patents."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "Now, what are the situations that would describe a monopoly? Well, a monopoly is a situation where you have very high, one could argue insurmountable barriers to entry, so very high, high barriers, barriers to entry. And monopolies can sometimes be controversial, but they're not necessarily illegal. In fact, in many countries, a monopoly can be granted to a firm through things like the intellectual property or through patents. For example, a drug company, if it discovers a cure for a drug or something to maintain a drug, well, they might be granted a monopoly for that pill for some period of time, and the government does that so that they can recoup their investment in all of the R&D that they actually produced. What often is illegal in a lot of countries is if a firm misuses its monopoly power. But anyway, now let's go to the other extreme."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "In fact, in many countries, a monopoly can be granted to a firm through things like the intellectual property or through patents. For example, a drug company, if it discovers a cure for a drug or something to maintain a drug, well, they might be granted a monopoly for that pill for some period of time, and the government does that so that they can recoup their investment in all of the R&D that they actually produced. What often is illegal in a lot of countries is if a firm misuses its monopoly power. But anyway, now let's go to the other extreme. Let's imagine a situation where instead of high barriers to entry, there's no barriers, no barriers to entry. And let's say that there's no differentiation, and you have many players, so many, or let me write many firms. I keep wanting to say players, but that doesn't make it that clear."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "But anyway, now let's go to the other extreme. Let's imagine a situation where instead of high barriers to entry, there's no barriers, no barriers to entry. And let's say that there's no differentiation, and you have many players, so many, or let me write many firms. I keep wanting to say players, but that doesn't make it that clear. And actually, let me say many firms and many buyers, and many buyers. Now, this is a state that we'll often study in our economics class. We'll call it perfect competition, perfect competition."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "I keep wanting to say players, but that doesn't make it that clear. And actually, let me say many firms and many buyers, and many buyers. Now, this is a state that we'll often study in our economics class. We'll call it perfect competition, perfect competition. In a perfect competition world, the firms essentially have to be price takers. They take whatever the market price is, and we've used that assumption in a lot of situations. In a monopoly, on the other side, they could be the price setters."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "We'll call it perfect competition, perfect competition. In a perfect competition world, the firms essentially have to be price takers. They take whatever the market price is, and we've used that assumption in a lot of situations. In a monopoly, on the other side, they could be the price setters. They're the only player in that market. Now, in general, when anything is described as perfect, it's usually theoretical, and so is perfect competition. There's no markets that I can think of that are perfectly perfect, but I can think of ones that are close, for say, some agricultural commodities."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "In a monopoly, on the other side, they could be the price setters. They're the only player in that market. Now, in general, when anything is described as perfect, it's usually theoretical, and so is perfect competition. There's no markets that I can think of that are perfectly perfect, but I can think of ones that are close, for say, some agricultural commodities. So say the sugar market. So the market for sugar might be pretty close to perfect competition. There could be many firms."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "There's no markets that I can think of that are perfectly perfect, but I can think of ones that are close, for say, some agricultural commodities. So say the sugar market. So the market for sugar might be pretty close to perfect competition. There could be many firms. Those would be the farmers, the suppliers. There would be many buyers, obviously, who want sugar. There would be some barriers to entry."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "There could be many firms. Those would be the farmers, the suppliers. There would be many buyers, obviously, who want sugar. There would be some barriers to entry. You would need to know how to grow sugar. You would need suitable land for growing sugar, but there's a lot of farmers who might be able to swap out either sugar cane or beet, which is where most sugar comes from, with soybean or vice versa, so they can change which crops they plant, and generally speaking, there's not much differentiation whether you get sugar from one farmer or another. So sugar would be pretty close to perfect competition, and it is the case for a lot of agricultural commodities that they do have to be price takers."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "There would be some barriers to entry. You would need to know how to grow sugar. You would need suitable land for growing sugar, but there's a lot of farmers who might be able to swap out either sugar cane or beet, which is where most sugar comes from, with soybean or vice versa, so they can change which crops they plant, and generally speaking, there's not much differentiation whether you get sugar from one farmer or another. So sugar would be pretty close to perfect competition, and it is the case for a lot of agricultural commodities that they do have to be price takers. There is just a market price that the individual farmer is gonna say, well, actually, I wanna charge a little bit more for that sugar because they won't be able to. They're just gonna have to take whatever the price is in the market. Now, as you can imagine, there's a lot of other types of markets that are in between these extremes."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "So sugar would be pretty close to perfect competition, and it is the case for a lot of agricultural commodities that they do have to be price takers. There is just a market price that the individual farmer is gonna say, well, actually, I wanna charge a little bit more for that sugar because they won't be able to. They're just gonna have to take whatever the price is in the market. Now, as you can imagine, there's a lot of other types of markets that are in between these extremes. Closer to a monopoly, and similar to a monopoly in a lot of ways, is a situation where you have only a handful of firms, and that's referred to oligopoly, oligopoly. And this is a situation where you still have high barriers, so high barriers to entry. You might have a handful of firms, so a few firms, and you still have many buyers."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "Now, as you can imagine, there's a lot of other types of markets that are in between these extremes. Closer to a monopoly, and similar to a monopoly in a lot of ways, is a situation where you have only a handful of firms, and that's referred to oligopoly, oligopoly. And this is a situation where you still have high barriers, so high barriers to entry. You might have a handful of firms, so a few firms, and you still have many buyers. And examples of oligopolies, this could be things like the aircraft industry, aircraft, where there's huge barriers of entry. You need to deploy a lot of capital, billions of dollars. You might have to get government approval."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "You might have a handful of firms, so a few firms, and you still have many buyers. And examples of oligopolies, this could be things like the aircraft industry, aircraft, where there's huge barriers of entry. You need to deploy a lot of capital, billions of dollars. You might have to get government approval. And so that's why, especially for large aircraft, you only have a few firms that can produce, like Boeing or Airbus, those really large aircraft. Even, in certain cases, automobiles, sometimes computer manufacturers, things that have very, very high barriers to entry. Now, if we go a little bit further to the left, you get a situation that's known as monopolistic competition."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "You might have to get government approval. And so that's why, especially for large aircraft, you only have a few firms that can produce, like Boeing or Airbus, those really large aircraft. Even, in certain cases, automobiles, sometimes computer manufacturers, things that have very, very high barriers to entry. Now, if we go a little bit further to the left, you get a situation that's known as monopolistic competition. Monopolistic, it's fun to say, competition. And this you could view as right in between, depending on what you're thinking about. So this is a situation where there's low barriers to entry, low, low barriers to entry."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "Now, if we go a little bit further to the left, you get a situation that's known as monopolistic competition. Monopolistic, it's fun to say, competition. And this you could view as right in between, depending on what you're thinking about. So this is a situation where there's low barriers to entry, low, low barriers to entry. There's many firms, many firms. But you do have differentiation. You do have differentiation."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "So this is a situation where there's low barriers to entry, low, low barriers to entry. There's many firms, many firms. But you do have differentiation. You do have differentiation. So you can tell the product of one firm for another. And I can think of many, in fact, most industries I can think of fall roughly in the monopolistic area, although there's, we just mentioned, some oligopolies and monopolies. But examples of monopolistic competition, I can imagine to be things like cereal, breakfast cereals."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "You do have differentiation. So you can tell the product of one firm for another. And I can think of many, in fact, most industries I can think of fall roughly in the monopolistic area, although there's, we just mentioned, some oligopolies and monopolies. But examples of monopolistic competition, I can imagine to be things like cereal, breakfast cereals. In the breakfast cereal industry, there's many, many firms. There's generally low barriers. There's some barriers, but they're pretty low."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "But examples of monopolistic competition, I can imagine to be things like cereal, breakfast cereals. In the breakfast cereal industry, there's many, many firms. There's generally low barriers. There's some barriers, but they're pretty low. If you wanna start a cereal company, a lot of folks might be able to do it. But there is some differentiation. Some people, some say, hey, our cereal is more delicious and it's sweeter, while others say, our cereal is more nutritious and they build a brand and they do marketing, et cetera, et cetera."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "There's some barriers, but they're pretty low. If you wanna start a cereal company, a lot of folks might be able to do it. But there is some differentiation. Some people, some say, hey, our cereal is more delicious and it's sweeter, while others say, our cereal is more nutritious and they build a brand and they do marketing, et cetera, et cetera. And because there is some differentiation, there's a little bit more ability for the individual players unlike a imperfect competition, there's a little bit more ability for them to dictate their price. They might say, hey, we're a premium product. People think we're healthier, so we might be able to charge a little bit more."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "Some people, some say, hey, our cereal is more delicious and it's sweeter, while others say, our cereal is more nutritious and they build a brand and they do marketing, et cetera, et cetera. And because there is some differentiation, there's a little bit more ability for the individual players unlike a imperfect competition, there's a little bit more ability for them to dictate their price. They might say, hey, we're a premium product. People think we're healthier, so we might be able to charge a little bit more. You can almost imagine that they have their own unique demand curve because of that differentiation. You can imagine the market in something like, well, shirts. That's another example, where a lot of folks can produce shirts, but some people might be able to differentiate themselves."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "People think we're healthier, so we might be able to charge a little bit more. You can almost imagine that they have their own unique demand curve because of that differentiation. You can imagine the market in something like, well, shirts. That's another example, where a lot of folks can produce shirts, but some people might be able to differentiate themselves. They're more stylish, there's better quality, they advertise, they build a brand. And so once again, that would be monopolistic competition. So anyway, the big picture here is really just for you to get familiar with these words."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "That's another example, where a lot of folks can produce shirts, but some people might be able to differentiate themselves. They're more stylish, there's better quality, they advertise, they build a brand. And so once again, that would be monopolistic competition. So anyway, the big picture here is really just for you to get familiar with these words. What do they mean and in what context or what will they imply about the differentiation or the number of firms? And actually, before I leave, I'll throw out one other word that you'll hear a little bit less than what I just talked about. And it sounds like monopoly, but it is monopsony."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "So anyway, the big picture here is really just for you to get familiar with these words. What do they mean and in what context or what will they imply about the differentiation or the number of firms? And actually, before I leave, I'll throw out one other word that you'll hear a little bit less than what I just talked about. And it sounds like monopoly, but it is monopsony. And I'm gonna do this in a unique color here. Let me see, I haven't done anything in this salmon yet. Monopsony, which you won't hear it as much as monopoly."}, {"video_title": "Perfect and imperfect competition.mp3", "Sentence": "And it sounds like monopoly, but it is monopsony. And I'm gonna do this in a unique color here. Let me see, I haven't done anything in this salmon yet. Monopsony, which you won't hear it as much as monopoly. And it's really the opposite situation. Instead of one supplier and many buyers, a monopsony is one big buyer and many suppliers. So for example, if you have one big box store in a small town, and so they're the only employer in that town, they might have monopsony in the labor market where they're the only people who can hire and there's a lot of people who are looking for jobs."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And I talked about in the very first video that if you know the demand curve in a certain market, and this is the market for labor of a certain kind, maybe the type of labor that would work at a car wash, then if you knew it from one firm and all the other firms in the market for that type of labor, you could add their demand curves to get the entire market demand for that type of labor, for that good or service. And what I wanna do in this video is make sure you understand what it means to add demand curves. It's on one level straightforward, but on another level, a little non-intuitive, because of the ways that the axes are defined in economics, that the price axis is the vertical axis. So let's draw the demand curve for two firms, and I'll do simplified versions. I won't use this one right over here. I'll just do two simplified demand curves. And this doesn't apply just to labor markets."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So let's draw the demand curve for two firms, and I'll do simplified versions. I won't use this one right over here. I'll just do two simplified demand curves. And this doesn't apply just to labor markets. This applies to any demand curve. So if I wanna add two demand curves, so this is one entity's demand, so this is one firm's demand. So that's price, and this is quantity."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And this doesn't apply just to labor markets. This applies to any demand curve. So if I wanna add two demand curves, so this is one entity's demand, so this is one firm's demand. So that's price, and this is quantity. This is quantity. And let's say at a price of 10, they demand nothing, if that's the hourly wages. And if the price were zero, they would essentially get up to, they would demand 10 people."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So that's price, and this is quantity. This is quantity. And let's say at a price of 10, they demand nothing, if that's the hourly wages. And if the price were zero, they would essentially get up to, they would demand 10 people. And so you have a situation, you have a demand curve that would look something, a demand curve that would look something like that. Let me draw it. A demand curve that would look like that."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And if the price were zero, they would essentially get up to, they would demand 10 people. And so you have a situation, you have a demand curve that would look something, a demand curve that would look something like that. Let me draw it. A demand curve that would look like that. And I'll do one other point on the demand curve. At a price of five, a quantity, or $5 per hour, this firm would demand, if we're thinking of it in terms of labor, at a price of $5 per hour of labor, this firm would demand five people per hour. And obviously, what I'm gonna do is general to any demand curve, but we'll just keep it in the labor mindset."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "A demand curve that would look like that. And I'll do one other point on the demand curve. At a price of five, a quantity, or $5 per hour, this firm would demand, if we're thinking of it in terms of labor, at a price of $5 per hour of labor, this firm would demand five people per hour. And obviously, what I'm gonna do is general to any demand curve, but we'll just keep it in the labor mindset. So this is firm one. This is a firm's demand. Firm one."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And obviously, what I'm gonna do is general to any demand curve, but we'll just keep it in the labor mindset. So this is firm one. This is a firm's demand. Firm one. If we were talking about this demand for oranges, and this wouldn't be a firm, this would be a consumer, or maybe a wholesaler, or something like that. So this is firm one's demand for labor. And let's say firm two's demand looks something like this."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Firm one. If we were talking about this demand for oranges, and this wouldn't be a firm, this would be a consumer, or maybe a wholesaler, or something like that. So this is firm one's demand for labor. And let's say firm two's demand looks something like this. And I'll try to align them. So firm two's demand looks something like this. And the axes are gonna have the exact same labels."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And let's say firm two's demand looks something like this. And I'll try to align them. So firm two's demand looks something like this. And the axes are gonna have the exact same labels. This is quantity, this is price right over here. This is five, this is 10, and then this is 15. And let's say that this is five, and let's say this is six right over here."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And the axes are gonna have the exact same labels. This is quantity, this is price right over here. This is five, this is 10, and then this is 15. And let's say that this is five, and let's say this is six right over here. And their demand curve looks like this. It looks like that. Let me make it a little bit neater."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And let's say that this is five, and let's say this is six right over here. And their demand curve looks like this. It looks like that. Let me make it a little bit neater. It looks, that was less neat. It looks something like that. And I could put some extra points here."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Let me make it a little bit neater. It looks, that was less neat. It looks something like that. And I could put some extra points here. At a price of 10, this firm will demand two units. If we're thinking labor, $10 per hour, they'll get two people per hour. At a price of five, they will demand four."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And I could put some extra points here. At a price of 10, this firm will demand two units. If we're thinking labor, $10 per hour, they'll get two people per hour. At a price of five, they will demand four. They will demand four units. So these are all, we've looked at a couple of points on this demand curve. And now we are ready to add them together."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "At a price of five, they will demand four. They will demand four units. So these are all, we've looked at a couple of points on this demand curve. And now we are ready to add them together. So this is firm two. Firm two's demand for labor. So let's add these two curves."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And now we are ready to add them together. So this is firm two. Firm two's demand for labor. So let's add these two curves. And what I said is unintuitive is that we're actually gonna look at, for a given price, how much total quantity of labor is now demanded. So we're gonna essentially add it horizontally. And you're gonna see what I'm talking about in a second."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So let's add these two curves. And what I said is unintuitive is that we're actually gonna look at, for a given price, how much total quantity of labor is now demanded. So we're gonna essentially add it horizontally. And you're gonna see what I'm talking about in a second. So when I add them together, I add them together. I'm gonna have the same axes. So this is, let's say this is five, this is 10."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And you're gonna see what I'm talking about in a second. So when I add them together, I add them together. I'm gonna have the same axes. So this is, let's say this is five, this is 10. Actually, let me get a little bit further on this axis, on this second axis. So the second axis, let me get it straight as possible. So let's say that this is 5, 10, 15."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So this is, let's say this is five, this is 10. Actually, let me get a little bit further on this axis, on this second axis. So the second axis, let me get it straight as possible. So let's say that this is 5, 10, 15. 5, 10, 15, and this is 5, 10, 15. And I'm doing my best to align it horizontally, that this 15 is this 15, that this 10 is with this 10, is with that 10, and that five is with that five and with that five. So at a price of 15 in the market, what is the total quantity demanded?"}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So let's say that this is 5, 10, 15. 5, 10, 15, and this is 5, 10, 15. And I'm doing my best to align it horizontally, that this 15 is this 15, that this 10 is with this 10, is with that 10, and that five is with that five and with that five. So at a price of 15 in the market, what is the total quantity demanded? Well, it's still gonna be zero because even this firm is still demanding zero. But then if we go to a price of 10, this firm, the firm one is demanding zero, but firm two over here is demanding two. So we're gonna go 10 is gonna be right over there."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So at a price of 15 in the market, what is the total quantity demanded? Well, it's still gonna be zero because even this firm is still demanding zero. But then if we go to a price of 10, this firm, the firm one is demanding zero, but firm two over here is demanding two. So we're gonna go 10 is gonna be right over there. This is right about two. That distance is right about two. And then if we go to five, at a price of five, firm one is gonna demand five, firm two is going to demand four units of labor."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So we're gonna go 10 is gonna be right over there. This is right about two. That distance is right about two. And then if we go to five, at a price of five, firm one is gonna demand five, firm two is going to demand four units of labor. So at a price of five, you're gonna have five plus four. So at a price of five, you're gonna have five plus four, or nine units of labor. Nine units of labor."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And then if we go to five, at a price of five, firm one is gonna demand five, firm two is going to demand four units of labor. So at a price of five, you're gonna have five plus four. So at a price of five, you're gonna have five plus four, or nine units of labor. Nine units of labor. And then at a price of zero, if labor is free, this firm would demand 10 units, this firm would demand six units. You add them together, you get 16 units. So you'd get 16 units."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Nine units of labor. And then at a price of zero, if labor is free, this firm would demand 10 units, this firm would demand six units. You add them together, you get 16 units. So you'd get 16 units. So the combined, the combined demand for labor curve will look something like, I'll do it in, actually I'll do it in blue. The combined demand for labor curve will look like this. Between 15 and $10, only firm one is interested in getting any labor."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "So you'd get 16 units. So the combined, the combined demand for labor curve will look something like, I'll do it in, actually I'll do it in blue. The combined demand for labor curve will look like this. Between 15 and $10, only firm one is interested in getting any labor. So this part right over here will look just like that. But then after that point, you can essentially add firm one to the mix. And then firm one, maybe I'll do that part in a different color, it'll look something like, it'll look something like that."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "Between 15 and $10, only firm one is interested in getting any labor. So this part right over here will look just like that. But then after that point, you can essentially add firm one to the mix. And then firm one, maybe I'll do that part in a different color, it'll look something like, it'll look something like that. We've essentially added, we've horizontally added this line to this line. You could imagine taking this line, and at any given point, so at five right over here, taking its value and quantity and adding to this quantity here. And the reason why I said this is a little bit non-intuitive is, this would have been easier at least for me to add with kind of the background or the traditional algebraic conventions we're used to."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And then firm one, maybe I'll do that part in a different color, it'll look something like, it'll look something like that. We've essentially added, we've horizontally added this line to this line. You could imagine taking this line, and at any given point, so at five right over here, taking its value and quantity and adding to this quantity here. And the reason why I said this is a little bit non-intuitive is, this would have been easier at least for me to add with kind of the background or the traditional algebraic conventions we're used to. We're used to adding kind of vertically. So if we were to flip price and quantity, then we could kind of stack these on top of each other and add them vertically. And that's why it's a little non-intuitive."}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And the reason why I said this is a little bit non-intuitive is, this would have been easier at least for me to add with kind of the background or the traditional algebraic conventions we're used to. We're used to adding kind of vertically. So if we were to flip price and quantity, then we could kind of stack these on top of each other and add them vertically. And that's why it's a little non-intuitive. But hopefully this makes sense. We're just looking at each of their demand curves at any given price. We're saying, okay, what is the demand from firm two?"}, {"video_title": "Adding demand curves Production decisions and economic profit Microeconomics Khan Academy.mp3", "Sentence": "And that's why it's a little non-intuitive. But hopefully this makes sense. We're just looking at each of their demand curves at any given price. We're saying, okay, what is the demand from firm two? What is the demand from firm one? And we're adding them together. And then we get this combined market demand curve, firm one plus firm two."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so you might say, wait, how does this relate to the everyday idea of elasticity? Well, imagine two bands. So let's imagine an inelastic band, inelastic, right over here, and let's imagine an elastic band, right over here. So in an inelastic band, if we apply some amount of force, you're not going to be able to stretch it much. It might stretch a little bit. While in an elastic band, if you apply that same amount of force, you might be able to stretch it a lot more. And so the analogy here is, we're not using force, but we're saying how much does quantity stretch for a given amount of price change?"}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So in an inelastic band, if we apply some amount of force, you're not going to be able to stretch it much. It might stretch a little bit. While in an elastic band, if you apply that same amount of force, you might be able to stretch it a lot more. And so the analogy here is, we're not using force, but we're saying how much does quantity stretch for a given amount of price change? And so something where the quantity changes a lot for a given price change would be very elastic, so the magnitude of this will be larger, and if the percent change in quantity doesn't change a lot for a given percent change in price, well, then we're dealing with an inelastic price elasticity of demand. And we'll be able to internalize these more as we work through the numbers. And actually, let's do that for this demand schedule that we have right over here, and it's visualized as our demand curve."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so the analogy here is, we're not using force, but we're saying how much does quantity stretch for a given amount of price change? And so something where the quantity changes a lot for a given price change would be very elastic, so the magnitude of this will be larger, and if the percent change in quantity doesn't change a lot for a given percent change in price, well, then we're dealing with an inelastic price elasticity of demand. And we'll be able to internalize these more as we work through the numbers. And actually, let's do that for this demand schedule that we have right over here, and it's visualized as our demand curve. In the vertical axis, we have price of burgers, and then in our horizontal axis, we have quantity in terms of burgers per hour. And so let's just use this definition of price elasticity of demand to calculate it across different points on our demand curve. So let me make a new column here."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And actually, let's do that for this demand schedule that we have right over here, and it's visualized as our demand curve. In the vertical axis, we have price of burgers, and then in our horizontal axis, we have quantity in terms of burgers per hour. And so let's just use this definition of price elasticity of demand to calculate it across different points on our demand curve. So let me make a new column here. So price elasticity of demand. And the way I'm gonna do it is really the simplest method for calculating this. In other videos, we can go into more in-depth methods like the midpoint method, and I'll show you the weakness in what we're doing right here."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So let me make a new column here. So price elasticity of demand. And the way I'm gonna do it is really the simplest method for calculating this. In other videos, we can go into more in-depth methods like the midpoint method, and I'll show you the weakness in what we're doing right here. But for the sake of, say, an AP Economics, microeconomic course, this would be sufficient. So let's think about our price elasticity of demand as we go from point A to point B. Well, remember, that's just going to be our percent change in quantity over our percent change in price."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In other videos, we can go into more in-depth methods like the midpoint method, and I'll show you the weakness in what we're doing right here. But for the sake of, say, an AP Economics, microeconomic course, this would be sufficient. So let's think about our price elasticity of demand as we go from point A to point B. Well, remember, that's just going to be our percent change in quantity over our percent change in price. So what is our percent change in quantity? Well, we're starting at a quantity of two. So put that in our denominator."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, remember, that's just going to be our percent change in quantity over our percent change in price. So what is our percent change in quantity? Well, we're starting at a quantity of two. So put that in our denominator. And we're going from two to four. So we are adding two. So we have two over two."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So put that in our denominator. And we're going from two to four. So we are adding two. So we have two over two. We could multiply that times 100% if we like. So this would give us, we have 100% change in quantity over, now what was the corresponding change in price? Percent change in price."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So we have two over two. We could multiply that times 100% if we like. So this would give us, we have 100% change in quantity over, now what was the corresponding change in price? Percent change in price. So our corresponding percent change in price, our initial price is nine. And we go from nine to eight. So we're going down by one."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Percent change in price. So our corresponding percent change in price, our initial price is nine. And we go from nine to eight. So we're going down by one. And then we multiply that times 100%. So this is going to be about a negative 11% change in price. And this math is reasonably straightforward because the 100%s cancel out."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So we're going down by one. And then we multiply that times 100%. So this is going to be about a negative 11% change in price. And this math is reasonably straightforward because the 100%s cancel out. This is just a one. One over negative 1 9th is just going to be equal to negative nine. So you have a negative nine price elasticity of demand."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And this math is reasonably straightforward because the 100%s cancel out. This is just a one. One over negative 1 9th is just going to be equal to negative nine. So you have a negative nine price elasticity of demand. So before I interpret that more, let's look at the price elasticity of demand at other points, or starting from other points to other points on this curve. So let's think about it going from, actually, let's think about it going from E to F. So as we go from E to F, we're going to do the same exact exercise. What is our percent change in quantity?"}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So you have a negative nine price elasticity of demand. So before I interpret that more, let's look at the price elasticity of demand at other points, or starting from other points to other points on this curve. So let's think about it going from, actually, let's think about it going from E to F. So as we go from E to F, we're going to do the same exact exercise. What is our percent change in quantity? Well, our initial quantity is 16. And we're going from 16 to 18. So we have a change of two."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "What is our percent change in quantity? Well, our initial quantity is 16. And we're going from 16 to 18. So we have a change of two. So two over 16 times 100%. That is our percent change in quantity. And what is our percent change in price?"}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So we have a change of two. So two over 16 times 100%. That is our percent change in quantity. And what is our percent change in price? Well, our initial price is two. And we're going from two to one. So we have a price change of negative one times 100%."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And what is our percent change in price? Well, our initial price is two. And we're going from two to one. So we have a price change of negative one times 100%. And so what you see here is this is 1 8th times 100%. This would be 12.5% up here. So this is 12.5% up there."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So we have a price change of negative one times 100%. And so what you see here is this is 1 8th times 100%. This would be 12.5% up here. So this is 12.5% up there. And then this over here is going to be negative 50%. So when price went down by 50%, you had a 12 1 1 2% increase in quantity. 12.5% is 1 4th of 50%."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this is 12.5% up there. And then this over here is going to be negative 50%. So when price went down by 50%, you had a 12 1 1 2% increase in quantity. 12.5% is 1 4th of 50%. So this is going to give us a price elasticity of demand of negative 0.25. So there's a couple of interesting things that you might already be realizing. One is even though our demand curve right over here is a line, it actually has a constant slope, you see that the price elasticity of demand changes depending on different parts of the curve."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "12.5% is 1 4th of 50%. So this is going to give us a price elasticity of demand of negative 0.25. So there's a couple of interesting things that you might already be realizing. One is even though our demand curve right over here is a line, it actually has a constant slope, you see that the price elasticity of demand changes depending on different parts of the curve. Now the reason why this is is really just boils down to math. When we're going from A to B, our initial prices were relatively high. So even though you had a price decrease of one, it was from an initial price of nine."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "One is even though our demand curve right over here is a line, it actually has a constant slope, you see that the price elasticity of demand changes depending on different parts of the curve. Now the reason why this is is really just boils down to math. When we're going from A to B, our initial prices were relatively high. So even though you had a price decrease of one, it was from an initial price of nine. So your percentage change in price looked fairly low, while your percentage change in quantity was high because you're going from a low quantity of two and you're adding two to it. So you had 100% change in quantity. When you go to the other end of our curve, and you go from E to F, it's the other way around."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So even though you had a price decrease of one, it was from an initial price of nine. So your percentage change in price looked fairly low, while your percentage change in quantity was high because you're going from a low quantity of two and you're adding two to it. So you had 100% change in quantity. When you go to the other end of our curve, and you go from E to F, it's the other way around. Your price starting point is low. So your percent change in price when you decrease price by one, it looks like a fairly large magnitude, while your percent change in quantity when you go from E to F, because you are already at a quantity of 16, adding two to that is not that large of a percentage. Now another thing you might be appreciating is if we tried to calculate the price elasticity of demand up here on the curve, and instead of going from A to B, if we went from B to A, we would have gotten a different value because our initial prices and quantities would have been different."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "When you go to the other end of our curve, and you go from E to F, it's the other way around. Your price starting point is low. So your percent change in price when you decrease price by one, it looks like a fairly large magnitude, while your percent change in quantity when you go from E to F, because you are already at a quantity of 16, adding two to that is not that large of a percentage. Now another thing you might be appreciating is if we tried to calculate the price elasticity of demand up here on the curve, and instead of going from A to B, if we went from B to A, we would have gotten a different value because our initial prices and quantities would have been different. Our initial price, we would have put an eight right over here, and our initial quantity, we would have put a four over here, and we would have gotten a different value. And that's one of the negatives of the technique, which is arguably the simplest technique that I just used. There's other techniques like the midpoint technique that can give you a more consistent result whether you're going from A to B or B to A, but I won't cover it just yet."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now another thing you might be appreciating is if we tried to calculate the price elasticity of demand up here on the curve, and instead of going from A to B, if we went from B to A, we would have gotten a different value because our initial prices and quantities would have been different. Our initial price, we would have put an eight right over here, and our initial quantity, we would have put a four over here, and we would have gotten a different value. And that's one of the negatives of the technique, which is arguably the simplest technique that I just used. There's other techniques like the midpoint technique that can give you a more consistent result whether you're going from A to B or B to A, but I won't cover it just yet. But let's think now about how to interpret this. And the best way to interpret it is to think about the absolute value of the price elasticity of demand. So over here, the absolute value of our price elasticity of demand is equal to nine, and then over here, the absolute value of our price elasticity of demand is equal to 0.25."}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "There's other techniques like the midpoint technique that can give you a more consistent result whether you're going from A to B or B to A, but I won't cover it just yet. But let's think now about how to interpret this. And the best way to interpret it is to think about the absolute value of the price elasticity of demand. So over here, the absolute value of our price elasticity of demand is equal to nine, and then over here, the absolute value of our price elasticity of demand is equal to 0.25. And a general rule of thumb is if your absolute value of your price elasticity of demand is less than one, you are dealing with an inelastic, inelastic, elastic situation. And if your price elasticity of demand, the absolute value of it, is greater than one, you're dealing with an elastic situation. Why does that make sense?"}, {"video_title": "Introduction to price elasticity of demand AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So over here, the absolute value of our price elasticity of demand is equal to nine, and then over here, the absolute value of our price elasticity of demand is equal to 0.25. And a general rule of thumb is if your absolute value of your price elasticity of demand is less than one, you are dealing with an inelastic, inelastic, elastic situation. And if your price elasticity of demand, the absolute value of it, is greater than one, you're dealing with an elastic situation. Why does that make sense? Well, in this first scenario, it's saying for a given percentage change in price, you have a smaller percent change in quantity, while here, for a given percent in price, you're gonna have a larger than that percentage change in your quantity. So once again, it goes back to these rubber band analogies. So when we're going from A to B, the absolute value of our price elasticity of demand is definitely larger than one."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "And the way we did it was very rational. We thought about how much bang would we get for each buck. And we saw, look, starting off our first dollar, we got a lot of bang for our buck. And this is really just another way of saying bang for the buck. Marginal utility per price. So we got a lot of utility per price starting off for that first chocolate bar, a little less for that next chocolate bar, but still more than we would get for a pound of fruit. Then more for the next chocolate bar."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "And this is really just another way of saying bang for the buck. Marginal utility per price. So we got a lot of utility per price starting off for that first chocolate bar, a little less for that next chocolate bar, but still more than we would get for a pound of fruit. Then more for the next chocolate bar. And only then did we start buying some fruit, buying some pounds of fruit. What I want to do in this video is generalize it. I want to think about maybe a more continuous case where we can buy very, very, very small increments of each of the products."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "Then more for the next chocolate bar. And only then did we start buying some fruit, buying some pounds of fruit. What I want to do in this video is generalize it. I want to think about maybe a more continuous case where we can buy very, very, very small increments of each of the products. It doesn't have to be in chunks like chocolate bars. And what I'm going to do is I'm just going to plot the marginal utility per price, which is really bang for your buck, on the vertical axis. So this right over here on this axis, let's say this is the marginal utility per price."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "I want to think about maybe a more continuous case where we can buy very, very, very small increments of each of the products. It doesn't have to be in chunks like chocolate bars. And what I'm going to do is I'm just going to plot the marginal utility per price, which is really bang for your buck, on the vertical axis. So this right over here on this axis, let's say this is the marginal utility per price. And let's say it also goes from 0 to 100. So that would be 50. And the numbers actually don't matter so much here."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "So this right over here on this axis, let's say this is the marginal utility per price. And let's say it also goes from 0 to 100. So that would be 50. And the numbers actually don't matter so much here. And then this will be dollars spent. So your buck. So this is bang for your buck, and then this is your buck."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "And the numbers actually don't matter so much here. And then this will be dollars spent. So your buck. So this is bang for your buck, and then this is your buck. So this is 1, 2, 3, 4, 5, and 6. Now we're going to do two arbitrary products. So let's say one product looks something like this."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "So this is bang for your buck, and then this is your buck. So this is 1, 2, 3, 4, 5, and 6. Now we're going to do two arbitrary products. So let's say one product looks something like this. And then once again you have diminishing utility as you get more and more of that product. In the case of fruit, the more pounds of fruit you get, the more tired you get of fruit, the less fruit you need for that, or the less you want fruit for that next incremental pound. But it could be anything."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "So let's say one product looks something like this. And then once again you have diminishing utility as you get more and more of that product. In the case of fruit, the more pounds of fruit you get, the more tired you get of fruit, the less fruit you need for that, or the less you want fruit for that next incremental pound. But it could be anything. This is true of most things. So this is product A. It could be a service as well."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "But it could be anything. This is true of most things. So this is product A. It could be a service as well. So product A, let me write it this way. So this is the marginal utility for A per price of A. And let me get another product right over here."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "It could be a service as well. So product A, let me write it this way. So this is the marginal utility for A per price of A. And let me get another product right over here. So let's say my other product looks something like this. So this is my marginal utility for product B per price of B. So it's really saying bang for the buck."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "And let me get another product right over here. So let's say my other product looks something like this. So this is my marginal utility for product B per price of B. So it's really saying bang for the buck. So just to start off, and I won't even constrain how much money we have. I just want to think about how we would spend that money. So if I were to spend, if I had a penny, where would I spend that penny?"}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "So it's really saying bang for the buck. So just to start off, and I won't even constrain how much money we have. I just want to think about how we would spend that money. So if I were to spend, if I had a penny, where would I spend that penny? And I'm assuming I can buy these in super small chunks, as small as maybe the penny, or even maybe fractions of penny. So if I just had a penny, and I think about where am I getting the best bang for my buck for that penny, I'm clearly getting it with product A. So I would spend that penny on product A, and I would get this much bang for my buck, which would be this entire part right over here."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "So if I were to spend, if I had a penny, where would I spend that penny? And I'm assuming I can buy these in super small chunks, as small as maybe the penny, or even maybe fractions of penny. So if I just had a penny, and I think about where am I getting the best bang for my buck for that penny, I'm clearly getting it with product A. So I would spend that penny on product A, and I would get this much bang for my buck, which would be this entire part right over here. Let me color it in. So my first, I'll spend it right on A. Let me do it in a color that's more likely to be seen, so I'll do it in this blue color."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "So I would spend that penny on product A, and I would get this much bang for my buck, which would be this entire part right over here. Let me color it in. So my first, I'll spend it right on A. Let me do it in a color that's more likely to be seen, so I'll do it in this blue color. So I'll spend it on A. My first, in fact, where would I spend my first dollar? Well, the whole first dollar I'm getting a better bang for my buck on A."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "Let me do it in a color that's more likely to be seen, so I'll do it in this blue color. So I'll spend it on A. My first, in fact, where would I spend my first dollar? Well, the whole first dollar I'm getting a better bang for my buck on A. So my first dollar I will spend on A. And the total utility I will get is actually going to be the area under this curve. It's going to be this whole area."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "Well, the whole first dollar I'm getting a better bang for my buck on A. So my first dollar I will spend on A. And the total utility I will get is actually going to be the area under this curve. It's going to be this whole area. It's going to be dollars times marginal utility price. That would give you, obviously, the area of this rectangle right over here. The reason why it wouldn't be the area of this larger rectangle, it would just be the area under the curve, is you're not getting this 100 marginal utility per price for the entire dollar."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "It's going to be this whole area. It's going to be dollars times marginal utility price. That would give you, obviously, the area of this rectangle right over here. The reason why it wouldn't be the area of this larger rectangle, it would just be the area under the curve, is you're not getting this 100 marginal utility per price for the entire dollar. It's going down the entire time. So your actual total marginal utility is actually just the area under this. When you take calculus, you'll get better appreciation for that."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "The reason why it wouldn't be the area of this larger rectangle, it would just be the area under the curve, is you're not getting this 100 marginal utility per price for the entire dollar. It's going down the entire time. So your actual total marginal utility is actually just the area under this. When you take calculus, you'll get better appreciation for that. But let's just think about, once again, where our dollar is going to be spent. Actually, even if we spent already a dollar, our next penny we'd still want to spend on product A because we're still getting more bang for the buck. We're still getting more bang for the buck all the way until right around there."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "When you take calculus, you'll get better appreciation for that. But let's just think about, once again, where our dollar is going to be spent. Actually, even if we spent already a dollar, our next penny we'd still want to spend on product A because we're still getting more bang for the buck. We're still getting more bang for the buck all the way until right around there. Now something interesting is happening. We've spent our first $2 all on product A because we're getting more bang for the buck, even though that bang was diminishing every penny or even every fraction of a penny that we spent. But now where will we spend our next penny?"}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "We're still getting more bang for the buck all the way until right around there. Now something interesting is happening. We've spent our first $2 all on product A because we're getting more bang for the buck, even though that bang was diminishing every penny or even every fraction of a penny that we spent. But now where will we spend our next penny? We could spend it on product A again, but we can get about the same marginal utility spending it on product B. We could jump right over there and spend it on product B. Now where could we spend our next dollar?"}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "But now where will we spend our next penny? We could spend it on product A again, but we can get about the same marginal utility spending it on product B. We could jump right over there and spend it on product B. Now where could we spend our next dollar? We could get about the same marginal utility whether we spend it on a little bit more product B or a little bit more product A. We could do either. If we spent a little bit too much on product A, then we could have gotten more marginal utility spending on product B."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "Now where could we spend our next dollar? We could get about the same marginal utility whether we spend it on a little bit more product B or a little bit more product A. We could do either. If we spent a little bit too much on product A, then we could have gotten more marginal utility spending on product B. What we would do is, once we've gotten to this threshold right about here, we actually are going to spend every incremental fraction of a penny we're actually going to want to split between product A and product B. If we spend too much on one and we go down this curve, we could have gotten higher utility spending on this one. If we spent too much on this one, we could get higher utility spending on this one right over here."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "If we spent a little bit too much on product A, then we could have gotten more marginal utility spending on product B. What we would do is, once we've gotten to this threshold right about here, we actually are going to spend every incremental fraction of a penny we're actually going to want to split between product A and product B. If we spend too much on one and we go down this curve, we could have gotten higher utility spending on this one. If we spent too much on this one, we could get higher utility spending on this one right over here. There's a very interesting phenomenon here. Assuming that we eventually spend enough that we buy some of both, obviously we started just buying product A because it had higher utility at least for those first few dollars, but assuming that we end up buying some mix of the two, which we do end up spending if we spend more than $2, there's an interesting thing. The marginal utility for B, or the marginal utility for price for B, that I spent on that last little increment, is going to be the same as the marginal utility per price for that last increment of A."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "If we spent too much on this one, we could get higher utility spending on this one right over here. There's a very interesting phenomenon here. Assuming that we eventually spend enough that we buy some of both, obviously we started just buying product A because it had higher utility at least for those first few dollars, but assuming that we end up buying some mix of the two, which we do end up spending if we spend more than $2, there's an interesting thing. The marginal utility for B, or the marginal utility for price for B, that I spent on that last little increment, is going to be the same as the marginal utility per price for that last increment of A. If B was fruit and A was chocolate, but we can buy them in very small increments, we're saying for that last fraction of a pound of fruit, you're getting the same marginal utility per price as you're getting for that last fraction of a bar or fraction of a pound of chocolate. There's a general principle over here. It really just comes from this very straightforward thing that as soon as you can get better marginal utility on the other one, you start spending there, but then they start to look equal and you would keep dividing your money between the two."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "The marginal utility for B, or the marginal utility for price for B, that I spent on that last little increment, is going to be the same as the marginal utility per price for that last increment of A. If B was fruit and A was chocolate, but we can buy them in very small increments, we're saying for that last fraction of a pound of fruit, you're getting the same marginal utility per price as you're getting for that last fraction of a bar or fraction of a pound of chocolate. There's a general principle over here. It really just comes from this very straightforward thing that as soon as you can get better marginal utility on the other one, you start spending there, but then they start to look equal and you would keep dividing your money between the two. The general principle, if you're allocating money between two goods for that last increment, not across the board, for that last increment, that's why the word marginal is so important, for that last ounce of chocolate versus that very last ounce of fruit, the marginal utility per price for that last increment of one good will be the same as the marginal utility per price of the second good. I really want to emphasize what this is saying. This is not saying that the marginal utilities for price of the two goods are the same and not even that one is better than the other."}, {"video_title": "Equalizing Marginal Utility per Dollar Spent (2).mp3", "Sentence": "It really just comes from this very straightforward thing that as soon as you can get better marginal utility on the other one, you start spending there, but then they start to look equal and you would keep dividing your money between the two. The general principle, if you're allocating money between two goods for that last increment, not across the board, for that last increment, that's why the word marginal is so important, for that last ounce of chocolate versus that very last ounce of fruit, the marginal utility per price for that last increment of one good will be the same as the marginal utility per price of the second good. I really want to emphasize what this is saying. This is not saying that the marginal utilities for price of the two goods are the same and not even that one is better than the other. This is just saying as you spend money, let's say you spend enough money to buy both, at some point you're going to get to a threshold where you're neutral between the two, where the marginal utility per price is the same for an incremental of B versus an incremental of A. At that point, you're just going to keep switching between the two products because obviously if you focus too much on this right over here, let's say at that point you switch and you just start buying a bunch of product B right over here. That didn't make sense because you were buying product B when you could have actually gotten higher marginal utility buying some of product A."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "We here at the Khan Academy are working on some type of a software project, and we need to think about what's the optimal number of programmers we should hire. At least think about how much productivity we're getting per programmer when we are working on this software project. And so what I've done over here, this is a spreadsheet, so I'm not going to be able to write. I'll only be able to type. This is Microsoft Excel right over here. In this column I have the different numbers of programmers, and let's say based on other studies or industry studies or past experience, this tells us how many lines of programming code we can get per month. And obviously lines of code isn't maybe the best way to measure things because someone can write good lines or bad lines of code, but let's just say this is one way of measuring productivity for software engineers."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "I'll only be able to type. This is Microsoft Excel right over here. In this column I have the different numbers of programmers, and let's say based on other studies or industry studies or past experience, this tells us how many lines of programming code we can get per month. And obviously lines of code isn't maybe the best way to measure things because someone can write good lines or bad lines of code, but let's just say this is one way of measuring productivity for software engineers. So the first thing I'm going to think about is what are my fixed costs? So what am I going to spend no matter how many software engineers I hire for this project? And for the sake of this video, my fixed costs will be the office space and the electricity, and let's assume I just have an office that can accommodate any number of these programmers."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "And obviously lines of code isn't maybe the best way to measure things because someone can write good lines or bad lines of code, but let's just say this is one way of measuring productivity for software engineers. So the first thing I'm going to think about is what are my fixed costs? So what am I going to spend no matter how many software engineers I hire for this project? And for the sake of this video, my fixed costs will be the office space and the electricity, and let's assume I just have an office that can accommodate any number of these programmers. So that's a fixed cost. That's not going to change depending on the number of programmers that I have. And then the other fixed cost, let's say I have a product manager for this project, and I'm going to pay her salary to essentially help spec out what this software should actually do."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "And for the sake of this video, my fixed costs will be the office space and the electricity, and let's assume I just have an office that can accommodate any number of these programmers. So that's a fixed cost. That's not going to change depending on the number of programmers that I have. And then the other fixed cost, let's say I have a product manager for this project, and I'm going to pay her salary to essentially help spec out what this software should actually do. So her salary is, let's say, $10,000 a month and then another $5,000 a month in office space for everybody. So it's going to come out to $15,000 a month. And that's not going to change regardless of however many programmers I have."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "And then the other fixed cost, let's say I have a product manager for this project, and I'm going to pay her salary to essentially help spec out what this software should actually do. So her salary is, let's say, $10,000 a month and then another $5,000 a month in office space for everybody. So it's going to come out to $15,000 a month. And that's not going to change regardless of however many programmers I have. So I'm going to go into Excel. I'm going to go to this little bottom right right over here, and I'm going to drag that down. And so it's going to be $15,000 in fixed costs no matter how many programmers I end up hiring."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "And that's not going to change regardless of however many programmers I have. So I'm going to go into Excel. I'm going to go to this little bottom right right over here, and I'm going to drag that down. And so it's going to be $15,000 in fixed costs no matter how many programmers I end up hiring. Now the variable costs. Let's assume that the full compensation for a programmer is $10,000 a month. So if you include the cost of their salary, if you include the cost of their health insurance, you include the extra goodies that they will eat from the company kitchen, whatever it might be."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "And so it's going to be $15,000 in fixed costs no matter how many programmers I end up hiring. Now the variable costs. Let's assume that the full compensation for a programmer is $10,000 a month. So if you include the cost of their salary, if you include the cost of their health insurance, you include the extra goodies that they will eat from the company kitchen, whatever it might be. So it's going to be $10,000 a month. So my total variable costs are going to be $10,000 times the number of programmers. So here I'm going to write equals, and I'm going to write it's going to be $10,000 per programmer, times that little snowflake."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So if you include the cost of their salary, if you include the cost of their health insurance, you include the extra goodies that they will eat from the company kitchen, whatever it might be. So it's going to be $10,000 a month. So my total variable costs are going to be $10,000 times the number of programmers. So here I'm going to write equals, and I'm going to write it's going to be $10,000 per programmer, times that little snowflake. I pressed Shift-8 to get that snowflake. Times, and I could say times whatever is in that cell. So you see it's cell D7."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So here I'm going to write equals, and I'm going to write it's going to be $10,000 per programmer, times that little snowflake. I pressed Shift-8 to get that snowflake. Times, and I could say times whatever is in that cell. So you see it's cell D7. And actually let me scroll this over so that you can see. So you can actually see the cells. So that is cell D7."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So you see it's cell D7. And actually let me scroll this over so that you can see. So you can actually see the cells. So that is cell D7. And let me press Enter. So that's cell, so it's $10,000 times D7, which is this one right over here. And I just selected that."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So that is cell D7. And let me press Enter. So that's cell, so it's $10,000 times D7, which is this one right over here. And I just selected that. And I can press Enter. And right now, that's nothing. Let me scroll over so we can see everything a little bit better."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "And I just selected that. And I can press Enter. And right now, that's nothing. Let me scroll over so we can see everything a little bit better. Let me scroll over a little bit to the, there you go, I'm having trouble. Okay, there you go. Now, what are going to be my total costs?"}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "Let me scroll over so we can see everything a little bit better. Let me scroll over a little bit to the, there you go, I'm having trouble. Okay, there you go. Now, what are going to be my total costs? My total costs are my fixed costs plus my variable costs. So that's going to be equal to, and I'm just using my arrow keys right now, it's going to be equal to F7, right, that's cell F7, F7 plus this one, plus my variable costs. My total costs are my fixed costs plus my variable costs."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "Now, what are going to be my total costs? My total costs are my fixed costs plus my variable costs. So that's going to be equal to, and I'm just using my arrow keys right now, it's going to be equal to F7, right, that's cell F7, F7 plus this one, plus my variable costs. My total costs are my fixed costs plus my variable costs. And so it's $15,000. And actually I can make this true for every row over here. And this is one of the really useful things about a spreadsheet, is I defined this cell as being $10,000 times whatever this cell, or times whatever this cell is right over here."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "My total costs are my fixed costs plus my variable costs. And so it's $15,000. And actually I can make this true for every row over here. And this is one of the really useful things about a spreadsheet, is I defined this cell as being $10,000 times whatever this cell, or times whatever this cell is right over here. And so what I can just do is I can just scroll, take that, drag that all the way down. And for every one of these, it's going to take $10,000 times the cell that's essentially 3 to its left. So now this is going to be 10,000 times D8."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "And this is one of the really useful things about a spreadsheet, is I defined this cell as being $10,000 times whatever this cell, or times whatever this cell is right over here. And so what I can just do is I can just scroll, take that, drag that all the way down. And for every one of these, it's going to take $10,000 times the cell that's essentially 3 to its left. So now this is going to be 10,000 times D8. This will be 10,000 times D9. And let's look at that. So we can see right there, 10,000 times D9."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So now this is going to be 10,000 times D8. This will be 10,000 times D9. And let's look at that. So we can see right there, 10,000 times D9. And you could, if you click on there, you can actually see what the formula is, 10,000 times D9. So by dragging that, I was able to get the right formula all the way down. Now the total cost for every row here is going to be 2 to the left plus 1 to the left."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So we can see right there, 10,000 times D9. And you could, if you click on there, you can actually see what the formula is, 10,000 times D9. So by dragging that, I was able to get the right formula all the way down. Now the total cost for every row here is going to be 2 to the left plus 1 to the left. And so if I drag that down, it will do that for every row over here. So now this is 25 is the 15 plus the 10. 105 is 15 plus 90,000, our total cost, our fixed cost plus variable cost."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "Now the total cost for every row here is going to be 2 to the left plus 1 to the left. And so if I drag that down, it will do that for every row over here. So now this is 25 is the 15 plus the 10. 105 is 15 plus 90,000, our total cost, our fixed cost plus variable cost. Now let's think about the average fixed cost. And the average fixed cost, we're going to think about it in fixed cost per line of code produced. And over here, line of code produced is 0, so we're going to divide by 0, which is undefined."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "105 is 15 plus 90,000, our total cost, our fixed cost plus variable cost. Now let's think about the average fixed cost. And the average fixed cost, we're going to think about it in fixed cost per line of code produced. And over here, line of code produced is 0, so we're going to divide by 0, which is undefined. So we could leave that blank, but we could fill this one in. So our total fixed cost, this is going to be our total fixed cost, which is cell F8. I just use the arrow keys to select F8."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "And over here, line of code produced is 0, so we're going to divide by 0, which is undefined. So we could leave that blank, but we could fill this one in. So our total fixed cost, this is going to be our total fixed cost, which is cell F8. I just use the arrow keys to select F8. Divided by our total lines of code per month. And so that gets me $3.75 fixed cost per line of code. And then I can do the same thing that I've been doing before."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "I just use the arrow keys to select F8. Divided by our total lines of code per month. And so that gets me $3.75 fixed cost per line of code. And then I can do the same thing that I've been doing before. I can drag this down, and then we see what the fixed cost is. At any given point, if I take the fixed cost, $15,000 divided by the lines of code, I get $1.38. And this actually makes sense, because the more programmers I add on to this project, the more lines of code I get, I'm using the same fixed cost."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "And then I can do the same thing that I've been doing before. I can drag this down, and then we see what the fixed cost is. At any given point, if I take the fixed cost, $15,000 divided by the lines of code, I get $1.38. And this actually makes sense, because the more programmers I add on to this project, the more lines of code I get, I'm using the same fixed cost. I'm using the same project manager. I'm using the same office space. So the cost of that project manager, that office space, gets spread out along more and more code."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "And this actually makes sense, because the more programmers I add on to this project, the more lines of code I get, I'm using the same fixed cost. I'm using the same project manager. I'm using the same office space. So the cost of that project manager, that office space, gets spread out along more and more code. So the fixed cost per line of code goes down as we add more and more programmers. Now, what is the average variable cost? So once again, the variable cost is going to be whatever the variable cost is per lines of code per month."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So the cost of that project manager, that office space, gets spread out along more and more code. So the fixed cost per line of code goes down as we add more and more programmers. Now, what is the average variable cost? So once again, the variable cost is going to be whatever the variable cost is per lines of code per month. When we're talking about average, we're talking about average cost per line of code. So this is per line of code per month. Actually, I wanted that to spread out more, but the way I've set it up, so let me scroll down."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So once again, the variable cost is going to be whatever the variable cost is per lines of code per month. When we're talking about average, we're talking about average cost per line of code. So this is per line of code per month. Actually, I wanted that to spread out more, but the way I've set it up, so let me scroll down. I'm having issues here. These are all average lines of code per month. So let's think about what happens with our variable costs."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "Actually, I wanted that to spread out more, but the way I've set it up, so let me scroll down. I'm having issues here. These are all average lines of code per month. So let's think about what happens with our variable costs. So I'm also going to start here because I don't want to divide by zero. So in this month, our total variable costs were $10,000, and our total lines of code are going to be $4,000. G8 divided by E8."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So let's think about what happens with our variable costs. So I'm also going to start here because I don't want to divide by zero. So in this month, our total variable costs were $10,000, and our total lines of code are going to be $4,000. G8 divided by E8. And so average variable cost per line of code is $2.50. And then what happens, so let's do that for every row over here. So when we do it for every row, something interesting happens."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "G8 divided by E8. And so average variable cost per line of code is $2.50. And then what happens, so let's do that for every row over here. So when we do it for every row, something interesting happens. Our average fixed cost went down because we're taking the same cost and we're spreading it out amongst more code. But our average variable costs went up. As we added more programmers, per line of code, it actually cost us a little bit more, on average, per line of code."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So when we do it for every row, something interesting happens. Our average fixed cost went down because we're taking the same cost and we're spreading it out amongst more code. But our average variable costs went up. As we added more programmers, per line of code, it actually cost us a little bit more, on average, per line of code. And that's actually, if you look here, as we add, the incremental lines of code we get per programmer is actually going down. That first programmer by themselves, she can write 4,000 lines of code. But then that second programmer is only, you're not getting to 8,000, you're getting to 3,000, probably because they have to coordinate with each other, they have to plan a little bit more, it's not all in one person's head."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "As we added more programmers, per line of code, it actually cost us a little bit more, on average, per line of code. And that's actually, if you look here, as we add, the incremental lines of code we get per programmer is actually going down. That first programmer by themselves, she can write 4,000 lines of code. But then that second programmer is only, you're not getting to 8,000, you're getting to 3,000, probably because they have to coordinate with each other, they have to plan a little bit more, it's not all in one person's head. Then when you add the third one, you're not even adding 3,000 lines of code, you're only adding 2,000 lines of code. And this is actually a real phenomenon that actually happens in companies. The more people you add on to a project, obviously they can maybe do more work, but there's also more coordination, there's going to be more meetings, there's going to be more interruptions, and so each person's individual productivity is going to go down."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "But then that second programmer is only, you're not getting to 8,000, you're getting to 3,000, probably because they have to coordinate with each other, they have to plan a little bit more, it's not all in one person's head. Then when you add the third one, you're not even adding 3,000 lines of code, you're only adding 2,000 lines of code. And this is actually a real phenomenon that actually happens in companies. The more people you add on to a project, obviously they can maybe do more work, but there's also more coordination, there's going to be more meetings, there's going to be more interruptions, and so each person's individual productivity is going to go down. And this isn't to say that this third coder is somehow worse than the first coder. On average, all of them are now only going to produce 3,000 lines of code a month, when maybe individually they could have each produced 4,000 lines of code, but they have to spend some of their energies now coordinating it. And so that's why our average variable cost per line of code is going up."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "The more people you add on to a project, obviously they can maybe do more work, but there's also more coordination, there's going to be more meetings, there's going to be more interruptions, and so each person's individual productivity is going to go down. And this isn't to say that this third coder is somehow worse than the first coder. On average, all of them are now only going to produce 3,000 lines of code a month, when maybe individually they could have each produced 4,000 lines of code, but they have to spend some of their energies now coordinating it. And so that's why our average variable cost per line of code is going up. As we add more and more people, it's becoming more and more expensive, on average, to write that line of code. And if we look at average total cost, that's going to be, and this is once again, this is per line of code, it's going to be our total cost, H8, divided by the total lines of code per month. So if we just hire one engineer, we're going to have $6.25 spent per line of code."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "And so that's why our average variable cost per line of code is going up. As we add more and more people, it's becoming more and more expensive, on average, to write that line of code. And if we look at average total cost, that's going to be, and this is once again, this is per line of code, it's going to be our total cost, H8, divided by the total lines of code per month. So if we just hire one engineer, we're going to have $6.25 spent per line of code. And that's because a lot is spent on it. And this is actually just the sum of these two right over here. And then let me make that true, set that formula for every row."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So if we just hire one engineer, we're going to have $6.25 spent per line of code. And that's because a lot is spent on it. And this is actually just the sum of these two right over here. And then let me make that true, set that formula for every row. And so we see something interesting. When we start to hire a few engineers, we're able to spread out our fixed costs, even though our average variable cost per line of code are going up, our fixed costs are going down. So it's actually, we're getting a little bit of a benefit because we're spreading our fixed costs per line of code."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "And then let me make that true, set that formula for every row. And so we see something interesting. When we start to hire a few engineers, we're able to spread out our fixed costs, even though our average variable cost per line of code are going up, our fixed costs are going down. So it's actually, we're getting a little bit of a benefit because we're spreading our fixed costs per line of code. But then it starts to get expensive again, because as we said, the more people you have working on the project, they're going to have to spend more time coordinating with each other, and maybe even undoing each other's work or redoing each other's work, as opposed to just writing the actual software. And now let's think about the marginal cost. The marginal cost, the best way to think about it is, what is the incremental cost of that next set of line of code?"}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So it's actually, we're getting a little bit of a benefit because we're spreading our fixed costs per line of code. But then it starts to get expensive again, because as we said, the more people you have working on the project, they're going to have to spend more time coordinating with each other, and maybe even undoing each other's work or redoing each other's work, as opposed to just writing the actual software. And now let's think about the marginal cost. The marginal cost, the best way to think about it is, what is the incremental cost of that next set of line of code? So one way to think about it, so this is going to be how much more you're spending divided by how much more code you're getting. So how much more, so for example, how much more, and this is going to be once again per line of code. So once again, so we're getting, we're spending, when we go from 0 programmers to 1 programmer, we're going from $15,000 of total costs to $25,000 of total costs."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "The marginal cost, the best way to think about it is, what is the incremental cost of that next set of line of code? So one way to think about it, so this is going to be how much more you're spending divided by how much more code you're getting. So how much more, so for example, how much more, and this is going to be once again per line of code. So once again, so we're getting, we're spending, when we go from 0 programmers to 1 programmer, we're going from $15,000 of total costs to $25,000 of total costs. So we're going from, we do in parentheses, 25, if we're going from 15 to 25, that means we're increasing our expenditure by 25 minus 15, and so that's why I'm doing H8 minus H7. So that's how much more we're spending in expenditures, and then how much more code are we getting? Well, we're getting 4,000 minus 0 lines of code, and the reason why I'm doing the formula this way is so that when we drag it down on all the rows, the formula will be right, because it's relatively taking the right cells into account, and the reason why I'm saying it's average is because this is saying, what's the incremental cost per line of code for this first 4,000 lines of code, and then we can go from there and we can drag it down, and now this tells us the incremental cost per code for the next 3,000 lines of code, and once again, it got a little bit more expensive because we're getting a little bit less efficient as we add more and more people."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "So once again, so we're getting, we're spending, when we go from 0 programmers to 1 programmer, we're going from $15,000 of total costs to $25,000 of total costs. So we're going from, we do in parentheses, 25, if we're going from 15 to 25, that means we're increasing our expenditure by 25 minus 15, and so that's why I'm doing H8 minus H7. So that's how much more we're spending in expenditures, and then how much more code are we getting? Well, we're getting 4,000 minus 0 lines of code, and the reason why I'm doing the formula this way is so that when we drag it down on all the rows, the formula will be right, because it's relatively taking the right cells into account, and the reason why I'm saying it's average is because this is saying, what's the incremental cost per line of code for this first 4,000 lines of code, and then we can go from there and we can drag it down, and now this tells us the incremental cost per code for the next 3,000 lines of code, and once again, it got a little bit more expensive because we're getting a little bit less efficient as we add more and more people. And there's something very interesting that happens here, and you might have even noticed it in these numbers over here. We actually get a negative marginal cost, and this isn't meaning that when we add more lines of code, somehow we're getting money. It's actually saying that as we spend more money, we're actually killing lines of code, because at some point, if you have too many people on this one project team, they actually start killing each other's productivity, and you can even see it right here in the numbers."}, {"video_title": "Fixed, Variable, and Marginal Cost..mp3", "Sentence": "Well, we're getting 4,000 minus 0 lines of code, and the reason why I'm doing the formula this way is so that when we drag it down on all the rows, the formula will be right, because it's relatively taking the right cells into account, and the reason why I'm saying it's average is because this is saying, what's the incremental cost per line of code for this first 4,000 lines of code, and then we can go from there and we can drag it down, and now this tells us the incremental cost per code for the next 3,000 lines of code, and once again, it got a little bit more expensive because we're getting a little bit less efficient as we add more and more people. And there's something very interesting that happens here, and you might have even noticed it in these numbers over here. We actually get a negative marginal cost, and this isn't meaning that when we add more lines of code, somehow we're getting money. It's actually saying that as we spend more money, we're actually killing lines of code, because at some point, if you have too many people on this one project team, they actually start killing each other's productivity, and you can even see it right here in the numbers. When we had 7 people, we were able to write 11,400 lines of code, but then the 8th person, because of coordination, it's not that this 8th person is incompetent, it's just when you have 8 people in a team, everyone's productivity goes down, so that you're only able to produce 11,200 lines of code, and that's why you had this negative marginal cost. Now when you get to 8 people, all of a sudden, by spending more dollars, you're actually destroying some of what you are actually trying to produce. So what I wanted to do here is just to really get you behind the numbers, and really maybe give you a little sense of how you can actually do this with a spreadsheet, and get you thinking a little bit about how a firm's cost structure might actually work."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "And if we price it at $50,000 a car, we're going to sell two cars. So the way that I've been talking about it is, given a price, how many are we actually going to sell? What I wanna do in this video is think about it the other way around. We're gonna look at the exact same demand curve, the exact same relationship between price and quantity, but we're going to conceptualize it in our heads in a slightly different way. We're gonna think about it in terms of quantity, quantity driving price. And to think of it that way, imagine that we are the producers of this given model of a new car, and we go the other way. We don't say how many will we sell at a price of $60,000 or how many are we gonna sell at a price of $50,000."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "We're gonna look at the exact same demand curve, the exact same relationship between price and quantity, but we're going to conceptualize it in our heads in a slightly different way. We're gonna think about it in terms of quantity, quantity driving price. And to think of it that way, imagine that we are the producers of this given model of a new car, and we go the other way. We don't say how many will we sell at a price of $60,000 or how many are we gonna sell at a price of $50,000. We'll go from the point of view is what if we only produce one car a week? If we only produced one car a week, how much could we get for that car? And let's say somehow you're able to figure that out, you're able to read people's minds or you have some type of a market study."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "We don't say how many will we sell at a price of $60,000 or how many are we gonna sell at a price of $50,000. We'll go from the point of view is what if we only produce one car a week? If we only produced one car a week, how much could we get for that car? And let's say somehow you're able to figure that out, you're able to read people's minds or you have some type of a market study. And when you ask that question, you're like, look, if you only allowed one car to be sold each week, you determine that in that week, there's gonna be somebody, somebody's gonna think that it's worth $60,000 to buy that car. And so that person, their willingness to pay, that person is going to be willing to trade $60,000. They're going to be willing to forgo what else they could have bought for that $60,000."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "And let's say somehow you're able to figure that out, you're able to read people's minds or you have some type of a market study. And when you ask that question, you're like, look, if you only allowed one car to be sold each week, you determine that in that week, there's gonna be somebody, somebody's gonna think that it's worth $60,000 to buy that car. And so that person, their willingness to pay, that person is going to be willing to trade $60,000. They're going to be willing to forgo what else they could have bought for that $60,000. And instead, they want that car. And so then you would plot that point right over there. If you only had one unit, you could sell it for $60,000."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "They're going to be willing to forgo what else they could have bought for that $60,000. And instead, they want that car. And so then you would plot that point right over there. If you only had one unit, you could sell it for $60,000. Now let's go, let's keep asking ourselves for more units. Now let's say, what if we wanted to sell two units? Well, if you wanted to sell two units, you could definitely sell one unit for $60,000, assuming that you could get that first person."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "If you only had one unit, you could sell it for $60,000. Now let's go, let's keep asking ourselves for more units. Now let's say, what if we wanted to sell two units? Well, if you wanted to sell two units, you could definitely sell one unit for $60,000, assuming that you could get that first person. But that second person, this might have been the person just wants your car so badly, it just resonated with them in some way. But for that second unit, the second person who's gonna need to buy your car might not be as excited about it. And so that second person, that second person will only be willing to forgo $50,000."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "Well, if you wanted to sell two units, you could definitely sell one unit for $60,000, assuming that you could get that first person. But that second person, this might have been the person just wants your car so badly, it just resonated with them in some way. But for that second unit, the second person who's gonna need to buy your car might not be as excited about it. And so that second person, that second person will only be willing to forgo $50,000. That second person would be willing to forgo 50. So if you wanted to sell two units, if you insist on selling two units, and if you're assuming you're gonna give the same price for everyone, we'll talk about in the future how you might give different prices to different people. But assuming you wanna give the same price to everyone, you're going to have to sell your car for $50,000."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "And so that second person, that second person will only be willing to forgo $50,000. That second person would be willing to forgo 50. So if you wanted to sell two units, if you insist on selling two units, and if you're assuming you're gonna give the same price for everyone, we'll talk about in the future how you might give different prices to different people. But assuming you wanna give the same price to everyone, you're going to have to sell your car for $50,000. Now clearly, that first person is definitely gonna jump at it. They're gonna be able to get the car for more than they were willing to pay, more than what it was worth to them, more than their, more than the benefit for them. But if you want two people, now you're going to have to sell for $50,000."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "But assuming you wanna give the same price to everyone, you're going to have to sell your car for $50,000. Now clearly, that first person is definitely gonna jump at it. They're gonna be able to get the car for more than they were willing to pay, more than what it was worth to them, more than their, more than the benefit for them. But if you want two people, now you're going to have to sell for $50,000. Now the same logic. Now what if we wanna sell three cars? What if we wanna sell three cars a week?"}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "But if you want two people, now you're going to have to sell for $50,000. Now the same logic. Now what if we wanna sell three cars? What if we wanna sell three cars a week? Well, if we price it at $50,000, we'll definitely get those first two, but the third person isn't gonna, the third person might not jump. The third person isn't gonna be as excited about it or need it as much as these first two. And so you do a market study or you're able to read people's minds."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "What if we wanna sell three cars a week? Well, if we price it at $50,000, we'll definitely get those first two, but the third person isn't gonna, the third person might not jump. The third person isn't gonna be as excited about it or need it as much as these first two. And so you do a market study or you're able to read people's minds. You're like, look, the third person for the market, the marginal benefit, let me write this word down, the marginal benefit, the marginal benefit for this next, for the next unit, the next unit is going to be $40,000. To get that next buyer, and it could be multiple buyers buying each unit or it could be one buyer buying all of the units. Maybe it's some type of a car rental company saying, oh, we don't need to get, for three of these cars, I'm not as excited about it anymore."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "And so you do a market study or you're able to read people's minds. You're like, look, the third person for the market, the marginal benefit, let me write this word down, the marginal benefit, the marginal benefit for this next, for the next unit, the next unit is going to be $40,000. To get that next buyer, and it could be multiple buyers buying each unit or it could be one buyer buying all of the units. Maybe it's some type of a car rental company saying, oh, we don't need to get, for three of these cars, I'm not as excited about it anymore. My marginal benefit is lower. And this is really the same marginal benefit that we talked about when we talked about the PPF, the production possibilities frontier. In that, we talked about it very explicitly in terms of trade-offs, in terms of opportunity cost."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "Maybe it's some type of a car rental company saying, oh, we don't need to get, for three of these cars, I'm not as excited about it anymore. My marginal benefit is lower. And this is really the same marginal benefit that we talked about when we talked about the PPF, the production possibilities frontier. In that, we talked about it very explicitly in terms of trade-offs, in terms of opportunity cost. Here, we're measuring the marginal benefit in terms of price, but price really can be viewed as a foregone opportunity. If you spend $40,000 on this car, you're making the decision not to spend $40,000 on something else, a down payment on a house or a nice boat or whatever else it might be. So really what we're doing is at any point in this curve, this really is the marginal benefit for that next buyer, that marginal benefit to the market of that next unit of whatever you are producing."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "In that, we talked about it very explicitly in terms of trade-offs, in terms of opportunity cost. Here, we're measuring the marginal benefit in terms of price, but price really can be viewed as a foregone opportunity. If you spend $40,000 on this car, you're making the decision not to spend $40,000 on something else, a down payment on a house or a nice boat or whatever else it might be. So really what we're doing is at any point in this curve, this really is the marginal benefit for that next buyer, that marginal benefit to the market of that next unit of whatever you are producing. And so I really just wanna make it, this is a very different way of viewing the exact same demand curve. Before we said, okay, if we wanna price it at 50,000, how many are we going to sell? Now we're saying, if we wanna sell only two units, where can we price it?"}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "So really what we're doing is at any point in this curve, this really is the marginal benefit for that next buyer, that marginal benefit to the market of that next unit of whatever you are producing. And so I really just wanna make it, this is a very different way of viewing the exact same demand curve. Before we said, okay, if we wanna price it at 50,000, how many are we going to sell? Now we're saying, if we wanna sell only two units, where can we price it? We can price it at $50,000. And if we wanna go from two to three units, we're going to have to price it at the marginal benefit of that third unit to the market. And it could be the marginal benefit to that next consumer, convincing that next consumer to say, hey, it is worth it to buy this car."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "Now we're saying, if we wanna sell only two units, where can we price it? We can price it at $50,000. And if we wanna go from two to three units, we're going to have to price it at the marginal benefit of that third unit to the market. And it could be the marginal benefit to that next consumer, convincing that next consumer to say, hey, it is worth it to buy this car. Let's price it at $40,000. Now, I'm gonna leave you there in this video, but what I'm gonna think about is depending on where you price it, let's say that we decide that we wanna sell four units every week. And so we say, well, look, there's to get that fourth person to buy this car, we have to price the car at $30,000."}, {"video_title": "Demand Curve as Marginal Benefit Curve.mp3", "Sentence": "And it could be the marginal benefit to that next consumer, convincing that next consumer to say, hey, it is worth it to buy this car. Let's price it at $40,000. Now, I'm gonna leave you there in this video, but what I'm gonna think about is depending on where you price it, let's say that we decide that we wanna sell four units every week. And so we say, well, look, there's to get that fourth person to buy this car, we have to price the car at $30,000. And we're gonna talk about in the next videos, if you did that, if this is where you decide to price it so that you can sell four units, these other people got really good deals. The first unit could have gone for much more. The second unit could have still also gone for a good bit, not as much as the first unit."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "A few videos ago, we saw that we could maximize total utility given our $5 spending by calculating the marginal utility per dollar for each incremental dollar we could spend on each of these goods, and then just for each dollar maximizing it. So our first dollar, we got 100 utility points per dollar for that first chocolate bar, and that was more than the first fruit, so that's where we spent it. And then we got more for the second chocolate bar than we would have even for that first pound of fruit, so we spent it there. Then for the third pound, or for the third bar of chocolate, and then it became equal to spend for the first pound of fruit, so then we spent the next $2 on that first pound of fruit because the price of fruit were $2. What I want to do in this video is explore what happens when I change the price of the chocolate bars, what happens to our marginal utility per dollar over here, and in particular, what happens to the quantity demanded. And if you think about what we're doing is, we figured out with one price what was the quantity demanded. We demanded 3 bars."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "Then for the third pound, or for the third bar of chocolate, and then it became equal to spend for the first pound of fruit, so then we spent the next $2 on that first pound of fruit because the price of fruit were $2. What I want to do in this video is explore what happens when I change the price of the chocolate bars, what happens to our marginal utility per dollar over here, and in particular, what happens to the quantity demanded. And if you think about what we're doing is, we figured out with one price what was the quantity demanded. We demanded 3 bars. If we change the price and we get another quantity demanded, we're essentially starting to plot out our demand curve, and we can actually derive our demand curve from this information right over here. So let's see how we could do that. So let's now assume that our chocolate bars are $2."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "We demanded 3 bars. If we change the price and we get another quantity demanded, we're essentially starting to plot out our demand curve, and we can actually derive our demand curve from this information right over here. So let's see how we could do that. So let's now assume that our chocolate bars are $2. So now we're going to calculate the marginal utility per dollar. This applies to both of these columns. This is for when it was $1 per bar."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "So let's now assume that our chocolate bars are $2. So now we're going to calculate the marginal utility per dollar. This applies to both of these columns. This is for when it was $1 per bar. This is now when it's $2 per bar. Well, for that first bar, I'm still getting 100 points of marginal utility, but now it's $2, so 100 divided by 2 is going to give me 50 marginal utility points per dollar. Then for that next bar, I get 80 marginal utility points."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "This is for when it was $1 per bar. This is now when it's $2 per bar. Well, for that first bar, I'm still getting 100 points of marginal utility, but now it's $2, so 100 divided by 2 is going to give me 50 marginal utility points per dollar. Then for that next bar, I get 80 marginal utility points. I'm still enjoying it, but enjoying it a little bit less. But I'm paying $2 for it, so I'm getting 80 divided by 2 is 40 points, and I'm just giving these arbitrary units, 40 points per dollar. Then the third bar is 30 points per dollar."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "Then for that next bar, I get 80 marginal utility points. I'm still enjoying it, but enjoying it a little bit less. But I'm paying $2 for it, so I'm getting 80 divided by 2 is 40 points, and I'm just giving these arbitrary units, 40 points per dollar. Then the third bar is 30 points per dollar. Then the fourth bar is 20 points per dollar. Now how would I spend my $5? Let me do this a little bit."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "Then the third bar is 30 points per dollar. Then the fourth bar is 20 points per dollar. Now how would I spend my $5? Let me do this a little bit. Let me do it over here. How would I spend my $5 now? My first dollar, where would I get the most marginal utility per dollar?"}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "Let me do this a little bit. Let me do it over here. How would I spend my $5 now? My first dollar, where would I get the most marginal utility per dollar? Where would I get the most bang for my buck? My very first dollar, I can either buy half a bar here, I could buy half a bar here, and I'm assuming that, for the sake of simplicity, let's assume that I get the same marginal utility per dollar for the first half a bar and for the first bar. That is kind of constant until I get to one entire bar."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "My first dollar, where would I get the most marginal utility per dollar? Where would I get the most bang for my buck? My very first dollar, I can either buy half a bar here, I could buy half a bar here, and I'm assuming that, for the sake of simplicity, let's assume that I get the same marginal utility per dollar for the first half a bar and for the first bar. That is kind of constant until I get to one entire bar. That's also true even if I buy a fraction of the pound here. My first dollar, I can't use these numbers. This is when the bars were $1 per bar."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "That is kind of constant until I get to one entire bar. That's also true even if I buy a fraction of the pound here. My first dollar, I can't use these numbers. This is when the bars were $1 per bar. Now they're $2 per bar. This is the reality. Now actually it makes sense for me to, at least for that first dollar, I can buy a half pound of my fruit at a marginal utility per dollar of 60."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "This is when the bars were $1 per bar. Now they're $2 per bar. This is the reality. Now actually it makes sense for me to, at least for that first dollar, I can buy a half pound of my fruit at a marginal utility per dollar of 60. So I will buy, my first dollar will go towards 0.5 pounds of fruit. And I'm getting a marginal utility per dollar of 60. Now where is my second dollar going to go?"}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "Now actually it makes sense for me to, at least for that first dollar, I can buy a half pound of my fruit at a marginal utility per dollar of 60. So I will buy, my first dollar will go towards 0.5 pounds of fruit. And I'm getting a marginal utility per dollar of 60. Now where is my second dollar going to go? Well, I can still get another half pound at a marginal utility of 60. Remember, we have to ignore this right here for the sake of this argument or for the sake of this scenario right now. So I can still get another half pound for a marginal utility per dollar of 60."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "Now where is my second dollar going to go? Well, I can still get another half pound at a marginal utility of 60. Remember, we have to ignore this right here for the sake of this argument or for the sake of this scenario right now. So I can still get another half pound for a marginal utility per dollar of 60. So now I buy another half pound of fruit. And my marginal utility per dollar is 60. Now where is my third dollar going to be spent?"}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "So I can still get another half pound for a marginal utility per dollar of 60. So now I buy another half pound of fruit. And my marginal utility per dollar is 60. Now where is my third dollar going to be spent? Well, I could spend it now at a rate of $1 per half bar, or $2 per bar for chocolate, or $1 per half bar, $2 per bar for fruit over here. So I'm actually neutral. So I could spend it, let me just for the sake of fun, say let's spend it on half a bar of chocolate."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "Now where is my third dollar going to be spent? Well, I could spend it now at a rate of $1 per half bar, or $2 per bar for chocolate, or $1 per half bar, $2 per bar for fruit over here. So I'm actually neutral. So I could spend it, let me just for the sake of fun, say let's spend it on half a bar of chocolate. And my marginal utility per dollar is 50. Then my fourth dollar, once again, I could do a couple of different things here. I could buy another half bar because I can buy up to a whole bar at this marginal utility per dollar, up to a whole bar."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "So I could spend it, let me just for the sake of fun, say let's spend it on half a bar of chocolate. And my marginal utility per dollar is 50. Then my fourth dollar, once again, I could do a couple of different things here. I could buy another half bar because I can buy up to a whole bar at this marginal utility per dollar, up to a whole bar. So why don't I do that? So I'll buy another half chocolate bar. So now I have a whole chocolate bar."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "I could buy another half bar because I can buy up to a whole bar at this marginal utility per dollar, up to a whole bar. So why don't I do that? So I'll buy another half chocolate bar. So now I have a whole chocolate bar. And once again, I'm able to continue buying that at 50 utility units per dollar. And then my fifth dollar over here, what would I do with that? Well, I don't want to buy any more chocolate bars because my marginal utility per dollar of the chocolate bar, because I've exhausted kind of what I can buy at this utility, this utility per dollar, so my marginal utility per dollar has gone down now."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "So now I have a whole chocolate bar. And once again, I'm able to continue buying that at 50 utility units per dollar. And then my fifth dollar over here, what would I do with that? Well, I don't want to buy any more chocolate bars because my marginal utility per dollar of the chocolate bar, because I've exhausted kind of what I can buy at this utility, this utility per dollar, so my marginal utility per dollar has gone down now. But now I can still buy fruit at that same 50. So now with that dollar, since the fruit is $2 per pound, I can buy another half pound of fruit at a marginal utility per dollar rate of 50. So now I buy another half pound of fruit at a marginal utility per dollar of 50."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "Well, I don't want to buy any more chocolate bars because my marginal utility per dollar of the chocolate bar, because I've exhausted kind of what I can buy at this utility, this utility per dollar, so my marginal utility per dollar has gone down now. But now I can still buy fruit at that same 50. So now with that dollar, since the fruit is $2 per pound, I can buy another half pound of fruit at a marginal utility per dollar rate of 50. So now I buy another half pound of fruit at a marginal utility per dollar of 50. And you can calculate the total marginal utility I got. This is a marginal utility per dollar, and this is a dollar spent at that marginal utility per dollar. So my total utility, I should say, the marginal utility is the increment, but my total utility now is 60 plus 60 is 120, plus 50 plus 50 plus 50."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "So now I buy another half pound of fruit at a marginal utility per dollar of 50. And you can calculate the total marginal utility I got. This is a marginal utility per dollar, and this is a dollar spent at that marginal utility per dollar. So my total utility, I should say, the marginal utility is the increment, but my total utility now is 60 plus 60 is 120, plus 50 plus 50 plus 50. So it's 120 plus 150 is equal to 270 total utility. But even more interesting here, let's think about the quantity of chocolate bars that I have now bought once the price has gone up. I have now bought exactly one chocolate bar."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "So my total utility, I should say, the marginal utility is the increment, but my total utility now is 60 plus 60 is 120, plus 50 plus 50 plus 50. So it's 120 plus 150 is equal to 270 total utility. But even more interesting here, let's think about the quantity of chocolate bars that I have now bought once the price has gone up. I have now bought exactly one chocolate bar. So you could say my third and fourth dollars were spent on one bar right over here. I bought one bar. So let's think about it."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "I have now bought exactly one chocolate bar. So you could say my third and fourth dollars were spent on one bar right over here. I bought one bar. So let's think about it. All else equal, remember, Ceteris Paribus, so we haven't changed the price of fruit, we haven't changed consumer preferences, which would have changed your marginal utility numbers right over here. All else equals what happened just when we changed the price of chocolate bars. Let me write it down."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "So let's think about it. All else equal, remember, Ceteris Paribus, so we haven't changed the price of fruit, we haven't changed consumer preferences, which would have changed your marginal utility numbers right over here. All else equals what happened just when we changed the price of chocolate bars. Let me write it down. So if we just think about chocolate, so if we just think about chocolate bars, so let me write price and quantity. When the price was $1, the quantity demanded was 50, sorry, the quantity demanded was 3 bars. That was the first video we saw on marginal utility."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "Let me write it down. So if we just think about chocolate, so if we just think about chocolate bars, so let me write price and quantity. When the price was $1, the quantity demanded was 50, sorry, the quantity demanded was 3 bars. That was the first video we saw on marginal utility. We demanded 3 bars. Now when the price has gone up to $2, the quantity demanded is exactly 1 bar. We could do everything in between."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "That was the first video we saw on marginal utility. We demanded 3 bars. Now when the price has gone up to $2, the quantity demanded is exactly 1 bar. We could do everything in between. We could see what happens if the price was $1.50 or if the price was 50 cents, if we actually lowered the price. We would see how the, and there might actually be a situation where you would have to have higher quantities here, especially when you lower the price. But by doing that, you can, just using the, assuming you have enough rows here, and we might not have it if you lower the price, but assuming you have the marginal utility at different quantities for the two goods, you can figure out exactly how much chocolate someone would buy given different changes in price."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "We could do everything in between. We could see what happens if the price was $1.50 or if the price was 50 cents, if we actually lowered the price. We would see how the, and there might actually be a situation where you would have to have higher quantities here, especially when you lower the price. But by doing that, you can, just using the, assuming you have enough rows here, and we might not have it if you lower the price, but assuming you have the marginal utility at different quantities for the two goods, you can figure out exactly how much chocolate someone would buy given different changes in price. So we at least have two points for the demand curve now. So if we assume that this is price and this is quantity right over here, when the price was $1, the quantity demanded was 3, and when the price is $2, the quantity demanded is 1. So there we have two points for our demand curve."}, {"video_title": "Deriving demand curve from tweaking marginal utility per dollar Khan Academy.mp3", "Sentence": "But by doing that, you can, just using the, assuming you have enough rows here, and we might not have it if you lower the price, but assuming you have the marginal utility at different quantities for the two goods, you can figure out exactly how much chocolate someone would buy given different changes in price. So we at least have two points for the demand curve now. So if we assume that this is price and this is quantity right over here, when the price was $1, the quantity demanded was 3, and when the price is $2, the quantity demanded is 1. So there we have two points for our demand curve. So our demand curve might look something like that. But this is all the, if it was linear, it would go something straight like that. But we at least have two points on the curve, and we could keep trying different prices out using this information to figure out the exact shape of that curve."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "Each of them is showing where we are right now, let's say in a given region, in the ice cream market. It's important to title your graphs, especially if you were taking some type of a standardized exam like an AP exam. And in the vertical axis, we have P representing price, and then the horizontal axis, Q representing quantity. We have our upward-sloping supply curve. I'm calling this S1, just as kind of our starting point. And then we have our downward-sloping demand curve, D1. And where they intersect, that gives us our equilibrium price, P1, and our equilibrium quantity, Q1."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "We have our upward-sloping supply curve. I'm calling this S1, just as kind of our starting point. And then we have our downward-sloping demand curve, D1. And where they intersect, that gives us our equilibrium price, P1, and our equilibrium quantity, Q1. And once again, if you were taking some type of a standardized test, it's important that you label all of these things, including P1 and Q1, and show this dotted line where it intersects the horizontal axis is Q1, and where it intersects the vertical axis is P1. Now with that out of the way, let's think about what happens to the equilibrium price and the equilibrium quantity, given different shifts in the supply or the demand curve, or both of them. So in this first scenario, let's imagine that all of a sudden, a major ice cream producer enters into the market."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "And where they intersect, that gives us our equilibrium price, P1, and our equilibrium quantity, Q1. And once again, if you were taking some type of a standardized test, it's important that you label all of these things, including P1 and Q1, and show this dotted line where it intersects the horizontal axis is Q1, and where it intersects the vertical axis is P1. Now with that out of the way, let's think about what happens to the equilibrium price and the equilibrium quantity, given different shifts in the supply or the demand curve, or both of them. So in this first scenario, let's imagine that all of a sudden, a major ice cream producer enters into the market. So here we're going to, this first one, we're gonna think about a situation where the supply goes up. So one way to think about it is, at any given price, people are willing to supply more quantity. So here we would have our supply curve shift to the right."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "So in this first scenario, let's imagine that all of a sudden, a major ice cream producer enters into the market. So here we're going to, this first one, we're gonna think about a situation where the supply goes up. So one way to think about it is, at any given price, people are willing to supply more quantity. So here we would have our supply curve shift to the right. I'll call this S2, right over here. It's shifting to the right and down. And so given this, what happens to our equilibrium price and our equilibrium quantity?"}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "So here we would have our supply curve shift to the right. I'll call this S2, right over here. It's shifting to the right and down. And so given this, what happens to our equilibrium price and our equilibrium quantity? Well, you see it right over here. If I draw a dotted line, we see our equilibrium price, P2, is lower, and our equilibrium quantity, Q2, Q2 is higher. Once again, assuming that we have a downward-sloping demand curve like this, which is what you would typically see."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "And so given this, what happens to our equilibrium price and our equilibrium quantity? Well, you see it right over here. If I draw a dotted line, we see our equilibrium price, P2, is lower, and our equilibrium quantity, Q2, Q2 is higher. Once again, assuming that we have a downward-sloping demand curve like this, which is what you would typically see. And so in this case, let me just write it here, we have our quantity, or actually let me write it this way. We have our price goes down, and our quantity goes up. All right, now let's do this example, and let's imagine the other way."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "Once again, assuming that we have a downward-sloping demand curve like this, which is what you would typically see. And so in this case, let me just write it here, we have our quantity, or actually let me write it this way. We have our price goes down, and our quantity goes up. All right, now let's do this example, and let's imagine the other way. Let's imagine in this scenario, our supply goes down. What is going to happen to this graph? And in particular, what's going to happen to our equilibrium price and our equilibrium quantity?"}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "All right, now let's do this example, and let's imagine the other way. Let's imagine in this scenario, our supply goes down. What is going to happen to this graph? And in particular, what's going to happen to our equilibrium price and our equilibrium quantity? Well, in this situation, for a given price, people are willing to supply less. That's how I like to think about it. So we would have a shift to the left and up."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "And in particular, what's going to happen to our equilibrium price and our equilibrium quantity? Well, in this situation, for a given price, people are willing to supply less. That's how I like to think about it. So we would have a shift to the left and up. And so we could call this supply curve two right over here. And then what is our equilibrium point? It's right over there."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "So we would have a shift to the left and up. And so we could call this supply curve two right over here. And then what is our equilibrium point? It's right over there. It is right over there. And so this would be our new price. It has gone up."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "It's right over there. It is right over there. And so this would be our new price. It has gone up. And this would be our new quantity. It has gone down. So price has gone up, and quantity has gone down."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "It has gone up. And this would be our new quantity. It has gone down. So price has gone up, and quantity has gone down. And once again, in either of these scenarios, hopefully this feels a little bit like common sense. If you have a supplier enter into the market, there's gonna be quantity might go up, and there's more competition, and so, amongst the suppliers, and so the price would go down. Here, where the supply goes down, maybe some of the ice cream stores close down."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "So price has gone up, and quantity has gone down. And once again, in either of these scenarios, hopefully this feels a little bit like common sense. If you have a supplier enter into the market, there's gonna be quantity might go up, and there's more competition, and so, amongst the suppliers, and so the price would go down. Here, where the supply goes down, maybe some of the ice cream stores close down. Well, now, the quantity will go down. There's just less people supplying. But the price goes up."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "Here, where the supply goes down, maybe some of the ice cream stores close down. Well, now, the quantity will go down. There's just less people supplying. But the price goes up. For the ice cream that's there, the equilibrium price is going to be higher. Now, let's do the same thing with the demand curve. Let's think about a situation where, first, let's think about a scenario where demand goes up."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "But the price goes up. For the ice cream that's there, the equilibrium price is going to be higher. Now, let's do the same thing with the demand curve. Let's think about a situation where, first, let's think about a scenario where demand goes up. Demand goes up. What is going to happen in, what is going to happen in this world? Well, demand might go up because maybe there's some type of report that ice cream is much healthier for you than expected."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "Let's think about a situation where, first, let's think about a scenario where demand goes up. Demand goes up. What is going to happen in, what is going to happen in this world? Well, demand might go up because maybe there's some type of report that ice cream is much healthier for you than expected. And so, at a given price, people are willing to, people are willing to demand a higher quantity. So, for example, at that price, people would demand a higher quantity, and so we would have a shift to the right and up. Let's call this D two right over here."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "Well, demand might go up because maybe there's some type of report that ice cream is much healthier for you than expected. And so, at a given price, people are willing to, people are willing to demand a higher quantity. So, for example, at that price, people would demand a higher quantity, and so we would have a shift to the right and up. Let's call this D two right over here. And this is our new equilibrium point. And then, notice. Notice what has just happened here."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "Let's call this D two right over here. And this is our new equilibrium point. And then, notice. Notice what has just happened here. At our new equilibrium point, this is Q two, and then this right over here is, this right over here is P two, our new price, our new equilibrium price and our new equilibrium quantity. In this situation where demand goes up, both price and, both price and quantity are going to go up, assuming we have this upward-sloping supply curve again. And once again, that makes sense."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "Notice what has just happened here. At our new equilibrium point, this is Q two, and then this right over here is, this right over here is P two, our new price, our new equilibrium price and our new equilibrium quantity. In this situation where demand goes up, both price and, both price and quantity are going to go up, assuming we have this upward-sloping supply curve again. And once again, that makes sense. More people just wanna buy ice cream. The total, the supply curve dynamics have not changed, so we're gonna move along that supply curve to the right and up. So, both price and quantity go up."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "And once again, that makes sense. More people just wanna buy ice cream. The total, the supply curve dynamics have not changed, so we're gonna move along that supply curve to the right and up. So, both price and quantity go up. Well, if demand goes down, you can imagine the opposite is going to happen. So, here, if we have demand goes down, let's say a big study comes out that ice cream is even unhealthier than we originally thought, well, then, at a given price, people are going to want, they're going to demand less ice cream, and so our demand curve would shift to the left and down. So, we'll call this D two right over here."}, {"video_title": "Changes in equilibrium price and quantity when supply and demand change Khan Academy.mp3", "Sentence": "So, both price and quantity go up. Well, if demand goes down, you can imagine the opposite is going to happen. So, here, if we have demand goes down, let's say a big study comes out that ice cream is even unhealthier than we originally thought, well, then, at a given price, people are going to want, they're going to demand less ice cream, and so our demand curve would shift to the left and down. So, we'll call this D two right over here. And then we can see our equilibrium price and quantity. So, let's show that new equilibrium price is P two right over here, and that our new equilibrium quantity is Q two. And notice, both price and quantity go down."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "We've now talked a lot about the demand curve and consumer surplus. Now let's look at the other side. Let's think about the supply curve, and you can imagine that there might be something called the producer surplus. So let's say this is the price axis, this is the quantity axis, and let's say that we are running some type of a berry farm, and this is our supply curve, and this is our demand curve. So that is demand. And just like we did with the supply curve, for the demand curve now, instead of thinking of a price and thinking about how much quantity would be supplied, let's think about a given quantity and think about what the price would have to be in order for the producers to produce that quantity. And so let's say that this quantity right over here, this is in thousands of pounds of berries."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So let's say this is the price axis, this is the quantity axis, and let's say that we are running some type of a berry farm, and this is our supply curve, and this is our demand curve. So that is demand. And just like we did with the supply curve, for the demand curve now, instead of thinking of a price and thinking about how much quantity would be supplied, let's think about a given quantity and think about what the price would have to be in order for the producers to produce that quantity. And so let's say that this quantity right over here, this is in thousands of pounds of berries. Thousands of pounds. So this is 1,000 pounds, 2,000 pounds, 3,000 pounds, 4,000 pounds, and 5,000 pounds. And let's say that this price right over here is $1 per pound, $2, $3, $4."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And so let's say that this quantity right over here, this is in thousands of pounds of berries. Thousands of pounds. So this is 1,000 pounds, 2,000 pounds, 3,000 pounds, 4,000 pounds, and 5,000 pounds. And let's say that this price right over here is $1 per pound, $2, $3, $4. I could do that a little bit more even. This is $3, this is $4, this is $5 per pound. Let me write this."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And let's say that this price right over here is $1 per pound, $2, $3, $4. I could do that a little bit more even. This is $3, this is $4, this is $5 per pound. Let me write this. This is all in per pound. So let's say that we want the suppliers to produce 1,000 pounds of berries. What does the price have to be for them to produce 1,000 pounds of berries?"}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Let me write this. This is all in per pound. So let's say that we want the suppliers to produce 1,000 pounds of berries. What does the price have to be for them to produce 1,000 pounds of berries? Well, think of it from the suppliers or from the berry farmers' point of view. If they're going to produce 1,000 pounds of berries, in order for them to produce it, in order to convince them to produce it, they have to get at minimum as much as they would get using those same resources to produce something else. So if they could get $1 per pound or the equivalent in dollars of $1 per pound for those first 1,000 pounds, so about $1,000, if they could get that by using their land for an apple orchard or for using it to graze or maybe renting out the land to someone else, that's the minimum you would have to pay them."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "What does the price have to be for them to produce 1,000 pounds of berries? Well, think of it from the suppliers or from the berry farmers' point of view. If they're going to produce 1,000 pounds of berries, in order for them to produce it, in order to convince them to produce it, they have to get at minimum as much as they would get using those same resources to produce something else. So if they could get $1 per pound or the equivalent in dollars of $1 per pound for those first 1,000 pounds, so about $1,000, if they could get that by using their land for an apple orchard or for using it to graze or maybe renting out the land to someone else, that's the minimum you would have to pay them. Because if you paid them less than that, then they would do the other thing. They would go and rent their land out or they would allow their land for grazing. So you would have to pay them the opportunity cost for them producing those 1,000 pounds."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So if they could get $1 per pound or the equivalent in dollars of $1 per pound for those first 1,000 pounds, so about $1,000, if they could get that by using their land for an apple orchard or for using it to graze or maybe renting out the land to someone else, that's the minimum you would have to pay them. Because if you paid them less than that, then they would do the other thing. They would go and rent their land out or they would allow their land for grazing. So you would have to pay them the opportunity cost for them producing those 1,000 pounds. So the opportunity cost for them producing those 1,000 pounds would be right over there. This is on average the first 1,000 pounds. You could also think in that very first pound, the opportunity cost would be right over there."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So you would have to pay them the opportunity cost for them producing those 1,000 pounds. So the opportunity cost for them producing those 1,000 pounds would be right over there. This is on average the first 1,000 pounds. You could also think in that very first pound, the opportunity cost would be right over there. Then the next pound would be right after that. The 500th pound would be there. The 1,000th pound would be there."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "You could also think in that very first pound, the opportunity cost would be right over there. Then the next pound would be right after that. The 500th pound would be there. The 1,000th pound would be there. Or you could say the first 1,000 pounds on average would be right over there. Now, let's say that we wanted them to produce another 1,000 pounds. So we want the whole market or this entire farm to produce, or maybe it's multiple farms, to produce a total of 2,000 pounds."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "The 1,000th pound would be there. Or you could say the first 1,000 pounds on average would be right over there. Now, let's say that we wanted them to produce another 1,000 pounds. So we want the whole market or this entire farm to produce, or maybe it's multiple farms, to produce a total of 2,000 pounds. What would we have to do? Well, same exact thing. We're kind of assuming that maybe the market is already producing that first 1,000 pounds."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So we want the whole market or this entire farm to produce, or maybe it's multiple farms, to produce a total of 2,000 pounds. What would we have to do? Well, same exact thing. We're kind of assuming that maybe the market is already producing that first 1,000 pounds. So now we would have to think about, well, what are they giving up to produce that next 1,000 pounds? Now we would assume that for that first 1,000 pounds, they would have used the land and the inputs that are most suitable. So this is the most suitable resources."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "We're kind of assuming that maybe the market is already producing that first 1,000 pounds. So now we would have to think about, well, what are they giving up to produce that next 1,000 pounds? Now we would assume that for that first 1,000 pounds, they would have used the land and the inputs that are most suitable. So this is the most suitable resources. So we're talking about the labor that really knows how to grow berries, the land where berries are best grown, and maybe they're really close to transportation networks, so it's much cheaper to produce and ship from there. But now if we want another 2,000 pounds of berries in this time period, and maybe this is per year over here, if we want another 1,000 pounds, they're now going to have slightly less suitable resources. Maybe the land that's slightly further away from transportation resources."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So this is the most suitable resources. So we're talking about the labor that really knows how to grow berries, the land where berries are best grown, and maybe they're really close to transportation networks, so it's much cheaper to produce and ship from there. But now if we want another 2,000 pounds of berries in this time period, and maybe this is per year over here, if we want another 1,000 pounds, they're now going to have slightly less suitable resources. Maybe the land that's slightly further away from transportation resources. They're now going to have labor that is slightly less efficient. They're going to have to take land away from that might have been slightly more suitable for other things. So now the opportunity cost for these growers for the next 1,000 pounds is going to be slightly higher."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Maybe the land that's slightly further away from transportation resources. They're now going to have labor that is slightly less efficient. They're going to have to take land away from that might have been slightly more suitable for other things. So now the opportunity cost for these growers for the next 1,000 pounds is going to be slightly higher. So their opportunity cost is going to be like that on average for the next 1,000 pounds. You could say the opportunity cost for the 1,001st pound will be right over there, and for the 2,000th pound would be right over there. But on average for the 2,000 pounds, this is their opportunity cost."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So now the opportunity cost for these growers for the next 1,000 pounds is going to be slightly higher. So their opportunity cost is going to be like that on average for the next 1,000 pounds. You could say the opportunity cost for the 1,001st pound will be right over there, and for the 2,000th pound would be right over there. But on average for the 2,000 pounds, this is their opportunity cost. Now, same thing. The next 1,000 pounds after that. If we want to get the market, if we want the whole supply to be 3,000 pounds, they would have to produce, they would have to get that, their opportunity cost of that incremental 1,000 pounds."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "But on average for the 2,000 pounds, this is their opportunity cost. Now, same thing. The next 1,000 pounds after that. If we want to get the market, if we want the whole supply to be 3,000 pounds, they would have to produce, they would have to get that, their opportunity cost of that incremental 1,000 pounds. That opportunity cost of that incremental 1,000 pounds. And so viewed as it this way, the supply curve no longer, and it is the same exact curve. Before we used to say, oh, if we want to, if we want to, how much would people produce if the price were $3?"}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "If we want to get the market, if we want the whole supply to be 3,000 pounds, they would have to produce, they would have to get that, their opportunity cost of that incremental 1,000 pounds. That opportunity cost of that incremental 1,000 pounds. And so viewed as it this way, the supply curve no longer, and it is the same exact curve. Before we used to say, oh, if we want to, if we want to, how much would people produce if the price were $3? And you'd say, oh, they'd produce 3,000 pounds. Now we're looking at it the other way. We're saying, if we want the suppliers to produce 3,000 pounds, what would the price actually have to be?"}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "Before we used to say, oh, if we want to, if we want to, how much would people produce if the price were $3? And you'd say, oh, they'd produce 3,000 pounds. Now we're looking at it the other way. We're saying, if we want the suppliers to produce 3,000 pounds, what would the price actually have to be? Now with that out of the way, now we can think about the supply curve as really our opportunity cost curve for the suppliers. And let's say that this is the supply and the demand, and then this would be the actual price at which supply equals demand, right over there. And so let's just say that that is the market price."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "We're saying, if we want the suppliers to produce 3,000 pounds, what would the price actually have to be? Now with that out of the way, now we can think about the supply curve as really our opportunity cost curve for the suppliers. And let's say that this is the supply and the demand, and then this would be the actual price at which supply equals demand, right over there. And so let's just say that that is the market price. So what's going on over here? All of the suppliers, so the price here, let's just for making the math simple, let's just say that the price here is $4, and the quantity demanded and the quantity supplied here is 4,000 pounds. What's going on here?"}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And so let's just say that that is the market price. So what's going on over here? All of the suppliers, so the price here, let's just for making the math simple, let's just say that the price here is $4, and the quantity demanded and the quantity supplied here is 4,000 pounds. What's going on here? The very 4,000th pound produced by the suppliers, the opportunity cost for them to produce it would be $4, and they're going to get $4 exactly for it. So they're right on the fence. But for the first 3,999 pounds, the opportunity cost of producing it was lower than the price they're getting."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "What's going on here? The very 4,000th pound produced by the suppliers, the opportunity cost for them to produce it would be $4, and they're going to get $4 exactly for it. So they're right on the fence. But for the first 3,999 pounds, the opportunity cost of producing it was lower than the price they're getting. So in this situation, the producers are getting more for the first 3,999 pounds, they're getting more for their berries than their opportunity cost. And just like we talked about consumer surplus, this is the producer surplus. So, for example, for these first 1,000 pounds right here, the producers, their opportunity cost was a little over $1 a pound, but they're getting $4 a pound for it."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "But for the first 3,999 pounds, the opportunity cost of producing it was lower than the price they're getting. So in this situation, the producers are getting more for the first 3,999 pounds, they're getting more for their berries than their opportunity cost. And just like we talked about consumer surplus, this is the producer surplus. So, for example, for these first 1,000 pounds right here, the producers, their opportunity cost was a little over $1 a pound, but they're getting $4 a pound for it. For the next 2,000 pounds, the opportunity cost is approaching $2 a pound, it's like $1.75, just eyeballing it. But once again, they're getting $4 a pound for it. So they're getting this surplus."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So, for example, for these first 1,000 pounds right here, the producers, their opportunity cost was a little over $1 a pound, but they're getting $4 a pound for it. For the next 2,000 pounds, the opportunity cost is approaching $2 a pound, it's like $1.75, just eyeballing it. But once again, they're getting $4 a pound for it. So they're getting this surplus. And so if you think about the entire market, the producers as a whole, they're getting this entire area, this entire area represents the excess value that they're getting above and beyond their opportunity cost. And we call this right over here the producer surplus. And since we're assuming, or we will assume, a linear supply curve right over here, this is just a triangle, finding an area of a triangle."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So they're getting this surplus. And so if you think about the entire market, the producers as a whole, they're getting this entire area, this entire area represents the excess value that they're getting above and beyond their opportunity cost. And we call this right over here the producer surplus. And since we're assuming, or we will assume, a linear supply curve right over here, this is just a triangle, finding an area of a triangle. This length right on this side is just 4 minus 1, 3, $3 per pound. And then this length right over here is 4,000 pounds. So to find the producer surplus, we're just finding the area of this region."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "And since we're assuming, or we will assume, a linear supply curve right over here, this is just a triangle, finding an area of a triangle. This length right on this side is just 4 minus 1, 3, $3 per pound. And then this length right over here is 4,000 pounds. So to find the producer surplus, we're just finding the area of this region. So let me write this. The producer surplus here is just going to be, I'll use the same colors, 3 times, I wanted to use that pink, 3 times the 4,000. That would give us the area of this entire rectangle, so we have to divide it by 2."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "So to find the producer surplus, we're just finding the area of this region. So let me write this. The producer surplus here is just going to be, I'll use the same colors, 3 times, I wanted to use that pink, 3 times the 4,000. That would give us the area of this entire rectangle, so we have to divide it by 2. This is just defining the area of a triangle. So times 1 half, same thing as dividing by 2. And so this gives us 1 half times 4,000 is 2,000, times 3 is 6,000."}, {"video_title": "Producer surplus Consumer and producer surplus Microeconomics Khan Academy.mp3", "Sentence": "That would give us the area of this entire rectangle, so we have to divide it by 2. This is just defining the area of a triangle. So times 1 half, same thing as dividing by 2. And so this gives us 1 half times 4,000 is 2,000, times 3 is 6,000. And you can look at the units. It's 6,000, or it's $3 per pound, times thousands of pounds per week. So we end up with $6,000 of producer surplus per week."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this is the supply curve for the suppliers of sugar in that country, and then this is the demand curve for the people who would want to use sugar in that country, and you can see the equilibrium price and quantity in that country. Now in this world, we've reviewed this in many videos, what's the total economic surplus? Well, the total economic surplus would be defined by this triangle right over here. It's the area above the supply curve and below the demand curve, and we know that the part above this horizontal line at the price of three, this would be the consumer surplus, and then down here, this would be the producer surplus. Now let's say that this market opens up to the world, to the world price, and let's say when it does so, it does not affect the world price itself. The world market is so large, and let's say this country's market is relatively small, and so the world market, let's say that sugar is trading at $1.50 per pound. So this right over here is the world price, $1.50 per pound."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "It's the area above the supply curve and below the demand curve, and we know that the part above this horizontal line at the price of three, this would be the consumer surplus, and then down here, this would be the producer surplus. Now let's say that this market opens up to the world, to the world price, and let's say when it does so, it does not affect the world price itself. The world market is so large, and let's say this country's market is relatively small, and so the world market, let's say that sugar is trading at $1.50 per pound. So this right over here is the world price, $1.50 per pound. Let me write it right over there. So this is our world, our world price. Now if we assume that it's opened up to this world price, what will happen?"}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is the world price, $1.50 per pound. Let me write it right over there. So this is our world, our world price. Now if we assume that it's opened up to this world price, what will happen? Well, at the world price, the consumers in this market, the people who are using the sugar, well, they're going to use a lot more. At $1.50, the place where that intersects the demand curve is out here. So now what is the consumer surplus in this country, in this market?"}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now if we assume that it's opened up to this world price, what will happen? Well, at the world price, the consumers in this market, the people who are using the sugar, well, they're going to use a lot more. At $1.50, the place where that intersects the demand curve is out here. So now what is the consumer surplus in this country, in this market? Well, the consumer surplus in this country is now much larger. It contains the triangle that it contained before, and then all of this area that I am now shading in. And that has come at the cost of the producer surplus."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So now what is the consumer surplus in this country, in this market? Well, the consumer surplus in this country is now much larger. It contains the triangle that it contained before, and then all of this area that I am now shading in. And that has come at the cost of the producer surplus. The producers in this country, there or in this market, they are now only getting that producer surplus right over there. But if you look at the total economic surplus, it has definitely grown. The total economic surplus, instead of just being that original triangle, it has now extended to include this entire area that goes all the way out there."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And that has come at the cost of the producer surplus. The producers in this country, there or in this market, they are now only getting that producer surplus right over there. But if you look at the total economic surplus, it has definitely grown. The total economic surplus, instead of just being that original triangle, it has now extended to include this entire area that goes all the way out there. And you can see that that completely contains the previous total economic surplus, which we had right over here. So theoretically, when a market opens up to the world price like this, it's going to increase your total economic surplus. And if that world price is below the equilibrium price in your isolated economy, then it's probably going to be to the benefit of the consumers, but the producers are going to lose out on some of their surplus."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "The total economic surplus, instead of just being that original triangle, it has now extended to include this entire area that goes all the way out there. And you can see that that completely contains the previous total economic surplus, which we had right over here. So theoretically, when a market opens up to the world price like this, it's going to increase your total economic surplus. And if that world price is below the equilibrium price in your isolated economy, then it's probably going to be to the benefit of the consumers, but the producers are going to lose out on some of their surplus. Now let's say that a government comes into power in this market and says, hey, I've been elected by the sugar producers of this country. I don't like this thing going on. Our sugar producers in our country are getting hurt a lot, and they're a big voting bloc."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And if that world price is below the equilibrium price in your isolated economy, then it's probably going to be to the benefit of the consumers, but the producers are going to lose out on some of their surplus. Now let's say that a government comes into power in this market and says, hey, I've been elected by the sugar producers of this country. I don't like this thing going on. Our sugar producers in our country are getting hurt a lot, and they're a big voting bloc. So I am going to enact a tariff. And once again, a tariff is a per unit charge, or it's oftentimes a per unit charge. And let's say the tariff is 50 cents, 50 cents per pound, per pound, on imported sugar."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Our sugar producers in our country are getting hurt a lot, and they're a big voting bloc. So I am going to enact a tariff. And once again, a tariff is a per unit charge, or it's oftentimes a per unit charge. And let's say the tariff is 50 cents, 50 cents per pound, per pound, on imported sugar. Well then, what is the world price going to look like to the market that we're talking about? Well then, for the consumers in this market, instead of being able to get the world price at $1.50, they would have to pay 50 cents per pound higher than that. So the tariff would make the price go over here."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And let's say the tariff is 50 cents, 50 cents per pound, per pound, on imported sugar. Well then, what is the world price going to look like to the market that we're talking about? Well then, for the consumers in this market, instead of being able to get the world price at $1.50, they would have to pay 50 cents per pound higher than that. So the tariff would make the price go over here. So in that situation, what has just happened? Well now, where we intersect the demand curve is a lower quantity than when we used the world price. At the world price, we were consuming a lot of sugar in this market."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So the tariff would make the price go over here. So in that situation, what has just happened? Well now, where we intersect the demand curve is a lower quantity than when we used the world price. At the world price, we were consuming a lot of sugar in this market. Now we're going to consume a little bit less sugar. But since even with the tariff, our price is still lower than our previous equilibrium price when we were operating in isolation, we're still consuming more sugar, using more sugar, demanding more sugar in this market than we were when we did not have it opened up to trade. Now what did this tariff do to the surpluses?"}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "At the world price, we were consuming a lot of sugar in this market. Now we're going to consume a little bit less sugar. But since even with the tariff, our price is still lower than our previous equilibrium price when we were operating in isolation, we're still consuming more sugar, using more sugar, demanding more sugar in this market than we were when we did not have it opened up to trade. Now what did this tariff do to the surpluses? Well, the consumer surplus has now gone down relative to the free trade scenario. We've lost this area down here. So now the consumer surplus, I will shade it in this blue color."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now what did this tariff do to the surpluses? Well, the consumer surplus has now gone down relative to the free trade scenario. We've lost this area down here. So now the consumer surplus, I will shade it in this blue color. And we have increased the domestic producer surplus. It has increased to this right over here. But what about this region that we seem, that seems to no longer be there, either in the consumer or the producer surplus?"}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So now the consumer surplus, I will shade it in this blue color. And we have increased the domestic producer surplus. It has increased to this right over here. But what about this region that we seem, that seems to no longer be there, either in the consumer or the producer surplus? Well, some of it is the government revenue. What's the government revenue going to be? Well, it's going to be the amount of the tariff times the quantity."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "But what about this region that we seem, that seems to no longer be there, either in the consumer or the producer surplus? Well, some of it is the government revenue. What's the government revenue going to be? Well, it's going to be the amount of the tariff times the quantity. So the amount of the tariff is going to be that 50 cents. So that's that height right over there. And then what's the quantity that they're getting that tariff on?"}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, it's going to be the amount of the tariff times the quantity. So the amount of the tariff is going to be that 50 cents. So that's that height right over there. And then what's the quantity that they're getting that tariff on? Well, this whole section right over here is the imported quantity. This section right over here is the domestic production, and this is the imported quantity. So the imported quantity times the tariff, so this area right over here, that is going to be government revenue."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then what's the quantity that they're getting that tariff on? Well, this whole section right over here is the imported quantity. This section right over here is the domestic production, and this is the imported quantity. So the imported quantity times the tariff, so this area right over here, that is going to be government revenue. But you do have some of that total economic surplus that is just becomes deadweight loss now. You have this region right over here that is now deadweight loss, and this region right over here that is deadweight loss. So I'll leave you there."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So the imported quantity times the tariff, so this area right over here, that is going to be government revenue. But you do have some of that total economic surplus that is just becomes deadweight loss now. You have this region right over here that is now deadweight loss, and this region right over here that is deadweight loss. So I'll leave you there. As you can see here that when you open up to trade, theoretically, it increases the total economic surplus. But that could have consequences on the producers, and actually there's cases where it can have consequences on the users of whatever, or the people who are the buyers in this market. And many times, a government will enact a tariff."}, {"video_title": "Trade and tariffs AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So I'll leave you there. As you can see here that when you open up to trade, theoretically, it increases the total economic surplus. But that could have consequences on the producers, and actually there's cases where it can have consequences on the users of whatever, or the people who are the buyers in this market. And many times, a government will enact a tariff. Now you can see that that tariff will reduce the total economic surplus. Some of that will go towards revenue, while other parts of it will just be deadweight loss. Another idea that a government might sometimes do is an idea of a quota, where they're saying, hey, we just don't like the total amount of imports that are happening, so they might just put a cap on it."}, {"video_title": "Introduction to price elasticity of supply AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now we're going to focus on the price elasticity of supply. And it's a very similar idea, it's just being applied to supply now. It's a measure of how sensitive our quantity supplied is to percent changes in price. And we will calculate it as our percent change in quantity supplied for a given, for a given percent change in price. Percent change in price. Now to make this a little bit more tangible, let's look at a simple market. Let's say this is the market for apples right over here, where our vertical axis is price, and this could be thousands of dollars per ton, and then our horizontal axis is quantities, and maybe this is in tons per day."}, {"video_title": "Introduction to price elasticity of supply AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And we will calculate it as our percent change in quantity supplied for a given, for a given percent change in price. Percent change in price. Now to make this a little bit more tangible, let's look at a simple market. Let's say this is the market for apples right over here, where our vertical axis is price, and this could be thousands of dollars per ton, and then our horizontal axis is quantities, and maybe this is in tons per day. And this supply schedule and this supply curve are essentially describing the same data. So let's think about our price elasticity of supply as we go from point A, point A to point B. Well on the supply schedule, point A is this point right over here, our price is four, our quantity is one."}, {"video_title": "Introduction to price elasticity of supply AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Let's say this is the market for apples right over here, where our vertical axis is price, and this could be thousands of dollars per ton, and then our horizontal axis is quantities, and maybe this is in tons per day. And this supply schedule and this supply curve are essentially describing the same data. So let's think about our price elasticity of supply as we go from point A, point A to point B. Well on the supply schedule, point A is this point right over here, our price is four, our quantity is one. And point B is right over here. So let us calculate from point A to point B, our price elasticity of supply. So first of all, what is going to be our percent change in price?"}, {"video_title": "Introduction to price elasticity of supply AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well on the supply schedule, point A is this point right over here, our price is four, our quantity is one. And point B is right over here. So let us calculate from point A to point B, our price elasticity of supply. So first of all, what is going to be our percent change in price? Well we're going from four to six, so it's an increase of two. So our percent change in price is going to be equal to two is how much we increase from a base of four, times 100%, and that of course is going to be equal to a 50% increase in price. And then what is going to be our percent change in quantity?"}, {"video_title": "Introduction to price elasticity of supply AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So first of all, what is going to be our percent change in price? Well we're going from four to six, so it's an increase of two. So our percent change in price is going to be equal to two is how much we increase from a base of four, times 100%, and that of course is going to be equal to a 50% increase in price. And then what is going to be our percent change in quantity? Well we're going from one to two, so we're starting at a base of one, we are increasing by one, and then multiply that times 100%, that gives us 100%. So when we have a 50% increase in price, that resulted going from point A to point B in a 100% increase in quantity supplied. So 100% divided by 50%, that is going to give us, this is going to be equal to two."}, {"video_title": "Introduction to price elasticity of supply AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then what is going to be our percent change in quantity? Well we're going from one to two, so we're starting at a base of one, we are increasing by one, and then multiply that times 100%, that gives us 100%. So when we have a 50% increase in price, that resulted going from point A to point B in a 100% increase in quantity supplied. So 100% divided by 50%, that is going to give us, this is going to be equal to two. Now what if we go from point B to point C? So this is point C right over here. I encourage you, pause this video, and see if you can calculate the price elasticity of supply when going from point B to point C. Well we're going to do a similar calculation."}, {"video_title": "Introduction to price elasticity of supply AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So 100% divided by 50%, that is going to give us, this is going to be equal to two. Now what if we go from point B to point C? So this is point C right over here. I encourage you, pause this video, and see if you can calculate the price elasticity of supply when going from point B to point C. Well we're going to do a similar calculation. Our percent change in price, we start at a base of six, and we are increasing by two, so we're gonna multiply that times 100%. So that is approximately, this is 1 3rd times 100%, it's approximately 33.3%. And then what is our percent change in quantity supplied?"}, {"video_title": "Introduction to price elasticity of supply AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "I encourage you, pause this video, and see if you can calculate the price elasticity of supply when going from point B to point C. Well we're going to do a similar calculation. Our percent change in price, we start at a base of six, and we are increasing by two, so we're gonna multiply that times 100%. So that is approximately, this is 1 3rd times 100%, it's approximately 33.3%. And then what is our percent change in quantity supplied? Well we are going to go from two to three. So we start at a base of two, we increase by one, so plus one, and multiply times 100%. And so that's going to be given, it's going to be equal to 50%."}, {"video_title": "Introduction to price elasticity of supply AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then what is our percent change in quantity supplied? Well we are going to go from two to three. So we start at a base of two, we increase by one, so plus one, and multiply times 100%. And so that's going to be given, it's going to be equal to 50%. And so when we have a 1 3rd increase, or a 33.3% increase in our price, we have a 50% increase of our quantity supplied when we go from point B to point C right over here. And then one way to think about it is, 50% divided by 1 3rd is the same thing as 50% times three, and so this is going to be equal to, this is going to be equal to 1.5. So just as we saw when we calculated price elasticity of demand, even when you have a linear curve here, your price elasticity of supply can change."}, {"video_title": "Introduction to price elasticity of supply AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so that's going to be given, it's going to be equal to 50%. And so when we have a 1 3rd increase, or a 33.3% increase in our price, we have a 50% increase of our quantity supplied when we go from point B to point C right over here. And then one way to think about it is, 50% divided by 1 3rd is the same thing as 50% times three, and so this is going to be equal to, this is going to be equal to 1.5. So just as we saw when we calculated price elasticity of demand, even when you have a linear curve here, your price elasticity of supply can change. It is not the same thing as slope. Now another thing to keep in mind is, the way that I calculated price elasticity of supply in this video, which is arguably the simplest way, you would not get the same value when you're calculating the magnitude going from A to B, than if you went from B to A. There are slightly more advanced techniques, the midpoint technique for example, that will give you the same answer regardless of which direction you go in, but that's beyond the scope of this first video."}, {"video_title": "Introduction to price elasticity of supply AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So just as we saw when we calculated price elasticity of demand, even when you have a linear curve here, your price elasticity of supply can change. It is not the same thing as slope. Now another thing to keep in mind is, the way that I calculated price elasticity of supply in this video, which is arguably the simplest way, you would not get the same value when you're calculating the magnitude going from A to B, than if you went from B to A. There are slightly more advanced techniques, the midpoint technique for example, that will give you the same answer regardless of which direction you go in, but that's beyond the scope of this first video. Now just as we discussed in the demand case, there are cases that you would consider to be more inelastic supply, and cases where you would consider to be more elastic supply. So one way to think about it is, if the magnitude of your price elasticity of supply is less than one, and of course this is magnitude, so it's going to be greater than or equal to zero, well then you're talking about inelastic price elasticity of supply, inelastic. That's a situation in which our quantity supplied is not going to change so much depending on, is not going to be so sensitive to our change in price."}, {"video_title": "Economies and diseconomies of scale AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "In the last video, we were able to construct here in red this long run average total cost curve based on connecting the minimum points or the bottoms of the u's of our various short run average total cost curves. Each of those short run average total cost curves were based on a certain amount of fixed costs in the short run, but in the long run, you can change your fixed costs. And here, our fixed costs were the number of trucks, and so we can vary it to optimize for a certain amount of quantity. Now, when we did that, you could see a little trend here, especially as we go up to, the way I drew it, it wouldn't necessarily be up to 200 of whatever you're producing, but the way I drew it, you see that this part right over here, it looks like our long run average total cost curve is declining down. So one way to think about it is we are getting more and more efficient at producing our tacos in the long run as we produce more of them until we get to 200 tacos. And so at this part of our curve, we are experiencing economies, economies of scale. And we've talked about where economies of scale can come from."}, {"video_title": "Economies and diseconomies of scale AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, when we did that, you could see a little trend here, especially as we go up to, the way I drew it, it wouldn't necessarily be up to 200 of whatever you're producing, but the way I drew it, you see that this part right over here, it looks like our long run average total cost curve is declining down. So one way to think about it is we are getting more and more efficient at producing our tacos in the long run as we produce more of them until we get to 200 tacos. And so at this part of our curve, we are experiencing economies, economies of scale. And we've talked about where economies of scale can come from. It can come from specialization of labor, or even machines specialization. So as you get more and more scale, you can have different parts of your process specializing in baking the taco shells, or grating the cheese, or cooking the meat, whatever it is, so there's a specialization. You could get better at sourcing."}, {"video_title": "Economies and diseconomies of scale AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And we've talked about where economies of scale can come from. It can come from specialization of labor, or even machines specialization. So as you get more and more scale, you can have different parts of your process specializing in baking the taco shells, or grating the cheese, or cooking the meat, whatever it is, so there's a specialization. You could get better at sourcing. So as you get more scale, you might be able to order more of your supplies at a time, so you get better deals. You might be able to even, who knows, at some point start a farm yourself, and then cut out the middlemen, and so forth and so on. Now as we get past that point, we see that our long run average total cost curve, at least in this example, started to trend up."}, {"video_title": "Economies and diseconomies of scale AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "You could get better at sourcing. So as you get more scale, you might be able to order more of your supplies at a time, so you get better deals. You might be able to even, who knows, at some point start a farm yourself, and then cut out the middlemen, and so forth and so on. Now as we get past that point, we see that our long run average total cost curve, at least in this example, started to trend up. And so at this part of the curve, you could say that we are experiencing diseconomies of scale, diseconomies of scale. So what would cause diseconomies of scale? Well, these would most typically happen because of what are known as coordination issues."}, {"video_title": "Economies and diseconomies of scale AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now as we get past that point, we see that our long run average total cost curve, at least in this example, started to trend up. And so at this part of the curve, you could say that we are experiencing diseconomies of scale, diseconomies of scale. So what would cause diseconomies of scale? Well, these would most typically happen because of what are known as coordination issues. As an organization grows, you have more people, more resources that you have to coordinate. And so that complexity can sometimes make an organization more inefficient. There's other diseconomies of scale."}, {"video_title": "Economies and diseconomies of scale AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well, these would most typically happen because of what are known as coordination issues. As an organization grows, you have more people, more resources that you have to coordinate. And so that complexity can sometimes make an organization more inefficient. There's other diseconomies of scale. At some very large scale, you might be depleting all of the low-hanging fruit of your inputs, and so you have to pay more for some of your inputs. Maybe you've already depleted the people who are willing to work for less, so you have to raise wages, or you've depleted a lot of the resources you need, so you have to find new, more expensive resources. Now in this curve, it's not as obvious, but you can also have a notion of constant returns to scale."}, {"video_title": "Economies and diseconomies of scale AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "There's other diseconomies of scale. At some very large scale, you might be depleting all of the low-hanging fruit of your inputs, and so you have to pay more for some of your inputs. Maybe you've already depleted the people who are willing to work for less, so you have to raise wages, or you've depleted a lot of the resources you need, so you have to find new, more expensive resources. Now in this curve, it's not as obvious, but you can also have a notion of constant returns to scale. So if we had a long-run average total cost curve that looked something like this, let me draw it over here, then in this section right over here, as the average total cost, the long-run average total cost is going down, that would be economies of scale. This section over here, as the long-run average total cost is going up, that would be our diseconomies of scale. But this section over here, where it is constant, you might guess what that is called."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "So this right over here is a vial of insulin. Many diabetics, not all diabetics, but many diabetics need to take insulin daily. They need to inject it in order to maintain their blood sugar level. If they don't do it, bad things will happen to their body, and they might even prematurely die if they don't take their insulin on time. So let's think about what the elasticity of demand might look like for something like insulin. So in one column, I'll put price, and in the other column, I will put quantity. So let's say that insulin right now is going for $5 a vial."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "If they don't do it, bad things will happen to their body, and they might even prematurely die if they don't take their insulin on time. So let's think about what the elasticity of demand might look like for something like insulin. So in one column, I'll put price, and in the other column, I will put quantity. So let's say that insulin right now is going for $5 a vial. We have a group of diabetics who need insulin, and they're all going to buy the insulin they need. And let's say in this group, that turns out to be 100 vials per week. So this is in vials per week."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "So let's say that insulin right now is going for $5 a vial. We have a group of diabetics who need insulin, and they're all going to buy the insulin they need. And let's say in this group, that turns out to be 100 vials per week. So this is in vials per week. Fair enough. That's exactly what they need to do to maintain their insulin. Now what happens if the price changes?"}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "So this is in vials per week. Fair enough. That's exactly what they need to do to maintain their insulin. Now what happens if the price changes? What happens if the price were to go down? Let's say the price were to go down to $1. Well, what would the quantity be?"}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "Now what happens if the price changes? What happens if the price were to go down? Let's say the price were to go down to $1. Well, what would the quantity be? Well, they're not going to buy any more insulin. They're going to buy just what they need in order to maintain their diabetes. And remember, we're holding all else equal."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "Well, what would the quantity be? Well, they're not going to buy any more insulin. They're going to buy just what they need in order to maintain their diabetes. And remember, we're holding all else equal. We're not assuming any change in expectations of price. They expect price to go up or down or anything like that. So in this case, they'll still just buy 100 vials."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "And remember, we're holding all else equal. We're not assuming any change in expectations of price. They expect price to go up or down or anything like that. So in this case, they'll still just buy 100 vials. Now what happens if the price went up a ton? What happens if the price went to $100 a vial? Well, it would be hard for them, but they need it to survive."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "So in this case, they'll still just buy 100 vials. Now what happens if the price went up a ton? What happens if the price went to $100 a vial? Well, it would be hard for them, but they need it to survive. So it's going to squeeze out any other expenses that they need to spend money on, and so they still will buy 100 vials a week. And so you could keep raising price within reason, and they would still buy the same quantity. Obviously, if you raise it to $1 billion, then they just wouldn't be able to afford it."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "Well, it would be hard for them, but they need it to survive. So it's going to squeeze out any other expenses that they need to spend money on, and so they still will buy 100 vials a week. And so you could keep raising price within reason, and they would still buy the same quantity. Obviously, if you raise it to $1 billion, then they just wouldn't be able to afford it. But within reason, they're going to buy 100 vials per week, no matter what the price is. So this is an example of perfect inelasticity. Another way, so if you think of the physical analogy that we talked about with elasticity, it's like a brick."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "Obviously, if you raise it to $1 billion, then they just wouldn't be able to afford it. But within reason, they're going to buy 100 vials per week, no matter what the price is. So this is an example of perfect inelasticity. Another way, so if you think of the physical analogy that we talked about with elasticity, it's like a brick. It doesn't matter how much within reason, once again, any amount of force, pulling or pushing, that a human could put on a brick, it's not going to deform the brick in any way. And likewise, any change in price within reason here isn't going to change the demand in any way. It's perfectly inelastic."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "Another way, so if you think of the physical analogy that we talked about with elasticity, it's like a brick. It doesn't matter how much within reason, once again, any amount of force, pulling or pushing, that a human could put on a brick, it's not going to deform the brick in any way. And likewise, any change in price within reason here isn't going to change the demand in any way. It's perfectly inelastic. And if you want to do the computation, you could figure out the demand elasticity for, let's say, when you're going from a price of $5 to $1. So the price went down by 4, and the quantity changed by 0. So your percent change in quantity, so delta percent change in quantity is equal to 0."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "It's perfectly inelastic. And if you want to do the computation, you could figure out the demand elasticity for, let's say, when you're going from a price of $5 to $1. So the price went down by 4, and the quantity changed by 0. So your percent change in quantity, so delta percent change in quantity is equal to 0. And then your percent is going to be over your percent change in price. Your percent change in price, if you use the averaging method, it would be going down by 4 over an average of 250. It'll be a fairly large number, but it's 0 over anything is still going to be 0."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "So your percent change in quantity, so delta percent change in quantity is equal to 0. And then your percent is going to be over your percent change in price. Your percent change in price, if you use the averaging method, it would be going down by 4 over an average of 250. It'll be a fairly large number, but it's 0 over anything is still going to be 0. So it doesn't matter what that thing is over here. Your elasticity of demand in this situation is 0. And if you wanted to see what this demand curve would look like, let's plot it."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "It'll be a fairly large number, but it's 0 over anything is still going to be 0. So it doesn't matter what that thing is over here. Your elasticity of demand in this situation is 0. And if you wanted to see what this demand curve would look like, let's plot it. So this right over here is my price axis, and that is my quantity axis. And so no matter what, let's say this is a quantity of 100 vials per week. That's true when the price is $5."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "And if you wanted to see what this demand curve would look like, let's plot it. So this right over here is my price axis, and that is my quantity axis. And so no matter what, let's say this is a quantity of 100 vials per week. That's true when the price is $5. So that's true when the price is $5. They're going to demand 100 vials a week. That's true when the price is $1."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "That's true when the price is $5. So that's true when the price is $5. They're going to demand 100 vials a week. That's true when the price is $1. They're going to demand 100 vials a week. And that's true if the price is $20 or $100 or whatever. They're going to demand 100 vials a week."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "That's true when the price is $1. They're going to demand 100 vials a week. And that's true if the price is $20 or $100 or whatever. They're going to demand 100 vials a week. And so a perfectly inelastic demand curve would look like this. It is a vertical line. It doesn't matter what price you pick."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "They're going to demand 100 vials a week. And so a perfectly inelastic demand curve would look like this. It is a vertical line. It doesn't matter what price you pick. The quantity demanded is always going to be the exact same thing. Now let's go to another extreme. So this is perfectly inelastic."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "It doesn't matter what price you pick. The quantity demanded is always going to be the exact same thing. Now let's go to another extreme. So this is perfectly inelastic. You can imagine, well, what is perfectly elastic? Something that changes a lot if you have a small percentage change in price. And to think about that, let's look at these two vending machines."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "So this is perfectly inelastic. You can imagine, well, what is perfectly elastic? Something that changes a lot if you have a small percentage change in price. And to think about that, let's look at these two vending machines. And you see that they both do sell cans of Coke. That's a can of Coke there. That is a can of Coke there."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "And to think about that, let's look at these two vending machines. And you see that they both do sell cans of Coke. That's a can of Coke there. That is a can of Coke there. And let's say starting off, the can of Coke, let's say that they cost $1 in each vending machine. They cost $1 in each vending machine. And we're going to assume that this one, remember, all else equals."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "That is a can of Coke there. And let's say starting off, the can of Coke, let's say that they cost $1 in each vending machine. They cost $1 in each vending machine. And we're going to assume that this one, remember, all else equals. So we're going to assume that this vending machine right over here doesn't change. Does not change. So it's just going to be consistently charging $1 for a can of Coke."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "And we're going to assume that this one, remember, all else equals. So we're going to assume that this vending machine right over here doesn't change. Does not change. So it's just going to be consistently charging $1 for a can of Coke. And they're sitting next to each other. And it looks like they have a little coffee machine in between right over here. So let's think about the demand curve for Coca-Cola in this vending machine right over here."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "So it's just going to be consistently charging $1 for a can of Coke. And they're sitting next to each other. And it looks like they have a little coffee machine in between right over here. So let's think about the demand curve for Coca-Cola in this vending machine right over here. So let's think about the price and the quantity. Let me do price column and quantity demanded. So let's say if the price is $1, then just odds are it's going to get about half of the sales per week."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "So let's think about the demand curve for Coca-Cola in this vending machine right over here. So let's think about the price and the quantity. Let me do price column and quantity demanded. So let's say if the price is $1, then just odds are it's going to get about half of the sales per week. And let's say that ends up being 100 cans per week. Now, what happens? And let me put some decimals here."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "So let's say if the price is $1, then just odds are it's going to get about half of the sales per week. And let's say that ends up being 100 cans per week. Now, what happens? And let me put some decimals here. So this is $1. The price is $1. It sells 100 cans per week."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "And let me put some decimals here. So this is $1. The price is $1. It sells 100 cans per week. And probably this one would also sell about 100 cans per week. Now, what happens if we have a very, very small change in price? So if we go from $1 instead of $1, we are at $0.99."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "It sells 100 cans per week. And probably this one would also sell about 100 cans per week. Now, what happens if we have a very, very small change in price? So if we go from $1 instead of $1, we are at $0.99. What's going to happen? So remember, this machine right over here is not changing. Our demand curve is for the quantity of Cokes sold from this machine."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "So if we go from $1 instead of $1, we are at $0.99. What's going to happen? So remember, this machine right over here is not changing. Our demand curve is for the quantity of Cokes sold from this machine. And the price we're talking about is for this machine. So if this machine is even a penny cheaper, and assuming that there aren't lines forming and things like that, people are just always going to go to this machine. If it's easy enough, if there's no difference between the two, they're always going to go to this machine."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "Our demand curve is for the quantity of Cokes sold from this machine. And the price we're talking about is for this machine. So if this machine is even a penny cheaper, and assuming that there aren't lines forming and things like that, people are just always going to go to this machine. If it's easy enough, if there's no difference between the two, they're always going to go to this machine. So this machine will sell all of the Cokes. So it's going to sell 200 Cokes. Now, what happens if instead of lowering the price by a penny, you raise the price by a penny?"}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "If it's easy enough, if there's no difference between the two, they're always going to go to this machine. So this machine will sell all of the Cokes. So it's going to sell 200 Cokes. Now, what happens if instead of lowering the price by a penny, you raise the price by a penny? So instead of $1, you're at $1. Well, now everyone's going to go to the other vending machine. They're going to say, oh, we don't need even a penny."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "Now, what happens if instead of lowering the price by a penny, you raise the price by a penny? So instead of $1, you're at $1. Well, now everyone's going to go to the other vending machine. They're going to say, oh, we don't need even a penny. I might as well walk to this one, assuming everything else is equal. So then they're going to sell 0. And so what would the demand curve look like here?"}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "They're going to say, oh, we don't need even a penny. I might as well walk to this one, assuming everything else is equal. So then they're going to sell 0. And so what would the demand curve look like here? Well, let's plot it out. So this is the price. This axis right over here is quantity."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "And so what would the demand curve look like here? Well, let's plot it out. So this is the price. This axis right over here is quantity. And this is in cans per week. And so this is 0. This is 100."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "This axis right over here is quantity. And this is in cans per week. And so this is 0. This is 100. And then this is 200. And then this is a price of $1. That's $1."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "This is 100. And then this is 200. And then this is a price of $1. That's $1. So at $1, the quantity demanded is 100 cans. Fair enough. Now, at $0.99, the quantity demanded is 200 cans."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "That's $1. So at $1, the quantity demanded is 100 cans. Fair enough. Now, at $0.99, the quantity demanded is 200 cans. So at $0.99, the quantity demanded is 200. So $0.99 is right below that. It's 200."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "Now, at $0.99, the quantity demanded is 200 cans. So at $0.99, the quantity demanded is 200. So $0.99 is right below that. It's 200. So it's right over there. So it's like right there. It's a little bit lower."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "It's 200. So it's right over there. So it's like right there. It's a little bit lower. And at $1, a little bit over here, the quantity demanded is 0. So the demand curve here is going to look something like that. So it's going to be almost horizontal."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "It's a little bit lower. And at $1, a little bit over here, the quantity demanded is 0. So the demand curve here is going to look something like that. So it's going to be almost horizontal. So it's going to be approaching perfect elasticity. Very small changes in price end up with these huge changes in percent quantity demanded. And I encourage you to work out the math to see here that you will get a very large number for elasticity."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "So it's going to be almost horizontal. So it's going to be approaching perfect elasticity. Very small changes in price end up with these huge changes in percent quantity demanded. And I encourage you to work out the math to see here that you will get a very large number for elasticity. And so this is approaching perfect elasticity. A truly perfect elasticity would be something that is a horizontal line. So in this case, so over here, our elasticity of demand, and I'll talk about the absolute value of it, is 0."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "And I encourage you to work out the math to see here that you will get a very large number for elasticity. And so this is approaching perfect elasticity. A truly perfect elasticity would be something that is a horizontal line. So in this case, so over here, our elasticity of demand, and I'll talk about the absolute value of it, is 0. And over here, the absolute value of our elasticity of demand is infinity. Because remember, it's percent change in quantity over percent change in price. When you go from either from one scenario to another over here, your percent change in price is very small."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "So in this case, so over here, our elasticity of demand, and I'll talk about the absolute value of it, is 0. And over here, the absolute value of our elasticity of demand is infinity. Because remember, it's percent change in quantity over percent change in price. When you go from either from one scenario to another over here, your percent change in price is very small. It's roughly about 1% in this scenario right over here. Changing the price up or down about 1%. But then you see your quantity is changing, depending on which one you're looking."}, {"video_title": "Perfect inelasticity and perfect elasticity of demand Microeconomics Khan Academy.mp3", "Sentence": "When you go from either from one scenario to another over here, your percent change in price is very small. It's roughly about 1% in this scenario right over here. Changing the price up or down about 1%. But then you see your quantity is changing, depending on which one you're looking. Your quantity is changing on the order of 50% to 100% from that 1% change in price. So you have a huge elasticity of demand here. It would actually be a number."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "So let's make, let's assume that there's three cars in the market, and what I want to do this is I sense that some people thought that I was suggesting that a car in general is an inferior good, and that's not what I was saying. I was saying if we lived in a reality where everyone owned a car, a car was a necessity for life, and that is true in much of the developed world, I was saying that the cheapest car in the market might be considered an inferior good. And to think about that, let's just think about the entire population. So let's say this line, this line represents the entire population in our place, in our developed country where everyone owns a car. And let's say, let's represent this car with blue. So let's say maybe a third of the people, a third of the people right now have that car. Now let's say a good chunk of the people have this mid-sized sedan."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "So let's say this line, this line represents the entire population in our place, in our developed country where everyone owns a car. And let's say, let's represent this car with blue. So let's say maybe a third of the people, a third of the people right now have that car. Now let's say a good chunk of the people have this mid-sized sedan. This is probably the car that most people, most people would like to have. It's a little bit safer, it's a little bit larger, it's a more powerful engine. And so this is where most people are sitting."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "Now let's say a good chunk of the people have this mid-sized sedan. This is probably the car that most people, most people would like to have. It's a little bit safer, it's a little bit larger, it's a more powerful engine. And so this is where most people are sitting. This is where most people are sitting. And then you have this ultra, this kind of luxury, you have this luxury car, a Rolls Royce maybe. And so that, a very small segment."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "And so this is where most people are sitting. This is where most people are sitting. And then you have this ultra, this kind of luxury, you have this luxury car, a Rolls Royce maybe. And so that, a very small segment. So this end of the line is the poor. So this is the poor in our population, and this is the rich. This is the rich right over here."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "And so that, a very small segment. So this end of the line is the poor. So this is the poor in our population, and this is the rich. This is the rich right over here. So this is at some given income level. And maybe we could say this is true at a particular price point, but we'll see, what we're gonna talk about is the general impact on demand. So on the entire curve, at any given price point, always assuming that this is the most expensive, this is in between, and this is the least expensive."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "This is the rich right over here. So this is at some given income level. And maybe we could say this is true at a particular price point, but we'll see, what we're gonna talk about is the general impact on demand. So on the entire curve, at any given price point, always assuming that this is the most expensive, this is in between, and this is the least expensive. Now what happens if income goes up from here? Income goes up. Well, the very poorest, they're not going to be able to necessarily just trade up to this mid-sized sedan yet, although they'll maybe have more income for other things, or maybe they can get a nicer version of this."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "So on the entire curve, at any given price point, always assuming that this is the most expensive, this is in between, and this is the least expensive. Now what happens if income goes up from here? Income goes up. Well, the very poorest, they're not going to be able to necessarily just trade up to this mid-sized sedan yet, although they'll maybe have more income for other things, or maybe they can get a nicer version of this. But for the most part, they're still going to be driving this car. But at kind of the boundary right over here, if incomes do go up, there will be people who now can afford the mid-sized car, and that's what they want. And so these people might start buying the mid-sized car."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "Well, the very poorest, they're not going to be able to necessarily just trade up to this mid-sized sedan yet, although they'll maybe have more income for other things, or maybe they can get a nicer version of this. But for the most part, they're still going to be driving this car. But at kind of the boundary right over here, if incomes do go up, there will be people who now can afford the mid-sized car, and that's what they want. And so these people might start buying the mid-sized car. And then what will happen over here? Well, maybe there's a few people at the boundary over here. They now have the money to afford this very expensive car, and it suits their taste."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "And so these people might start buying the mid-sized car. And then what will happen over here? Well, maybe there's a few people at the boundary over here. They now have the money to afford this very expensive car, and it suits their taste. And so they also, a very small proportion also grows there. So what happened here? When income went up, the quantity demanded at a particular price point for this smallest car went down, but the demand for this mid-sized car went up."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "They now have the money to afford this very expensive car, and it suits their taste. And so they also, a very small proportion also grows there. So what happened here? When income went up, the quantity demanded at a particular price point for this smallest car went down, but the demand for this mid-sized car went up. It took a much bigger chunk out of this blue than a chunk was taken out of it by the orange, and also the demand for this very expensive car, and this very expensive car went up. And that was at a particular price point, but assuming that this is the most expensive, this is the middle, and this is the cheapest expensive, this would be true of probably any price point. And so we have this phenomenon that when income went up, the quantity demanded at multiple price points for this car."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "When income went up, the quantity demanded at a particular price point for this smallest car went down, but the demand for this mid-sized car went up. It took a much bigger chunk out of this blue than a chunk was taken out of it by the orange, and also the demand for this very expensive car, and this very expensive car went up. And that was at a particular price point, but assuming that this is the most expensive, this is the middle, and this is the cheapest expensive, this would be true of probably any price point. And so we have this phenomenon that when income went up, the quantity demanded at multiple price points for this car. So let me draw its actual demand curve. So this car right over here, this is price. This over here is demand."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "And so we have this phenomenon that when income went up, the quantity demanded at multiple price points for this car. So let me draw its actual demand curve. So this car right over here, this is price. This over here is demand. If its old demand curve looks something like this, if its old demand curve looks something like this, we're saying, and maybe when we thought about this at first, we were thinking of the price point right over here. We noticed when income went up, at that particular price point, the quantity demanded went down, and that would be true pretty much any price point, assuming that this is always the cheapest car. So at any price point, you would have a decrease in demand."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "This over here is demand. If its old demand curve looks something like this, if its old demand curve looks something like this, we're saying, and maybe when we thought about this at first, we were thinking of the price point right over here. We noticed when income went up, at that particular price point, the quantity demanded went down, and that would be true pretty much any price point, assuming that this is always the cheapest car. So at any price point, you would have a decrease in demand. Remember, when we talk about a decrease in demand, we're talking about a shift of the entire curve. We're not talking about just one particular quantity. Now, there was another interesting question that was asked, and I think it's a very nice and subtle thing to think about."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "So at any price point, you would have a decrease in demand. Remember, when we talk about a decrease in demand, we're talking about a shift of the entire curve. We're not talking about just one particular quantity. Now, there was another interesting question that was asked, and I think it's a very nice and subtle thing to think about. I keep drawing these shifting demand curves, and if at least I understand the question properly, the question is, well, does a curve, when it shifts, does it necessarily shift perfectly, or does sometimes it change? Does it shift more at one price point or another? And the simple answer is, it can."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "Now, there was another interesting question that was asked, and I think it's a very nice and subtle thing to think about. I keep drawing these shifting demand curves, and if at least I understand the question properly, the question is, well, does a curve, when it shifts, does it necessarily shift perfectly, or does sometimes it change? Does it shift more at one price point or another? And the simple answer is, it can. In fact, in very few circumstances would it probably be a perfect shift. Depending on the price point you're at, it would probably shift a little bit different. So the actual shape of the curve might change while it's shifting."}, {"video_title": "Inferior goods clarificationx.mp3", "Sentence": "And the simple answer is, it can. In fact, in very few circumstances would it probably be a perfect shift. Depending on the price point you're at, it would probably shift a little bit different. So the actual shape of the curve might change while it's shifting. But anyway, going back to this, so we see that this cheap car right here had the unusual property that when incomes went up, the demand curve shifted to the left, and that's why we call this an inferior good. These other two cars, so that's price, and this is demand. These other two cars, when income went up, so if this was the demand curve at first, if this is the demand curve at first, when income went up, demand went up."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "Here's a type of question that you might see on an AP Economics exam, and it's talking about perfectly competitive markets. So it says, a typical profit-maximizing firm in a perfectly competitive constant-cost industry is earning a positive economic profit. So the first question they ask us is, is the market price greater than, less than, or equal to the firm's price? Explain. So pause this video and see if you can answer this on your own before we do it together. All right, now let's do it together. So remember, we are talking about a perfectly competitive market."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "Explain. So pause this video and see if you can answer this on your own before we do it together. All right, now let's do it together. So remember, we are talking about a perfectly competitive market. So in a perfectly competitive market, all of the players in that market have to be price-takers. They have no pricing power. So the market price has to be equal to the firm's price."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "So remember, we are talking about a perfectly competitive market. So in a perfectly competitive market, all of the players in that market have to be price-takers. They have no pricing power. So the market price has to be equal to the firm's price. So market, market price, equal, equal to firm price, firm price, because in perfectly, perfectly competitive market, market, firms are price-takers. Firms are price-takers. They have no pricing power."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "So the market price has to be equal to the firm's price. So market, market price, equal, equal to firm price, firm price, because in perfectly, perfectly competitive market, market, firms are price-takers. Firms are price-takers. They have no pricing power. All right, part B. Draw correctly labeled side-by-side graphs for both the market and a typical firm, and show each of the following. And then it'll ask us to do a bunch of stuff here."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "They have no pricing power. All right, part B. Draw correctly labeled side-by-side graphs for both the market and a typical firm, and show each of the following. And then it'll ask us to do a bunch of stuff here. So once again, pause this video, and actually get out paper. This will be very valuable for you to have a go at this. All right, so let's see."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And then it'll ask us to do a bunch of stuff here. So once again, pause this video, and actually get out paper. This will be very valuable for you to have a go at this. All right, so let's see. We wanna do these side-by-side graphs, and we wanna think about the market and the firm. And we've done this in multiple videos before. So let's think about what they're talking about is, so this is the market right over here."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "All right, so let's see. We wanna do these side-by-side graphs, and we wanna think about the market and the firm. And we've done this in multiple videos before. So let's think about what they're talking about is, so this is the market right over here. That's the market. And this is, on this axis is going to be price. On this axis is going to be quantity."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "So let's think about what they're talking about is, so this is the market right over here. That's the market. And this is, on this axis is going to be price. On this axis is going to be quantity. And then let me do a similar thing for a firm here. So that would be the firm's price axis. Price."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "On this axis is going to be quantity. And then let me do a similar thing for a firm here. So that would be the firm's price axis. Price. And then this would be quantity for the firm. Quantity. Let me make it clear."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "Price. And then this would be quantity for the firm. Quantity. Let me make it clear. This is the market. And then this right over here is the firm. And let's see, they say market price and quantity."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "Let me make it clear. This is the market. And then this right over here is the firm. And let's see, they say market price and quantity. So the equilibrium price and quantity in the market. So we could draw the supply curve for the market. It might look something like this."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And let's see, they say market price and quantity. So the equilibrium price and quantity in the market. So we could draw the supply curve for the market. It might look something like this. Upward sloping, we've seen that multiple times. We could do the demand curve for the market. It would look something like that."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "It might look something like this. Upward sloping, we've seen that multiple times. We could do the demand curve for the market. It would look something like that. And then we have the equilibrium price in the market, which they want us to use P sub M. So P sub M. And then we have the equilibrium quantity in the market, which they want us to use Q sub M. So we've done this first part. All right, now let's see what else they want. The firm's quantity labeled Q sub F. The firm's average revenue curve labeled AR."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "It would look something like that. And then we have the equilibrium price in the market, which they want us to use P sub M. So P sub M. And then we have the equilibrium quantity in the market, which they want us to use Q sub M. So we've done this first part. All right, now let's see what else they want. The firm's quantity labeled Q sub F. The firm's average revenue curve labeled AR. The firm's average total cost curve labeled ATC. The area representing total cost shaded completely. So in order to do this first part, the quantity that would be rational for this profit-seeking firm, or the profit-maximizing firm to produce, to think about that, we'd actually also have to think about the firm's average revenue."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "The firm's quantity labeled Q sub F. The firm's average revenue curve labeled AR. The firm's average total cost curve labeled ATC. The area representing total cost shaded completely. So in order to do this first part, the quantity that would be rational for this profit-seeking firm, or the profit-maximizing firm to produce, to think about that, we'd actually also have to think about the firm's average revenue. And the average revenue, which is going to be the same thing as the demand curve for that firm, is going to be based on this market price. Remember, the firm in this perfectly competitive market has to be a price taker. So this horizontal line right over there, that is the firm's average revenue, AR, which is equal to its marginal revenue, which is equal to its demand curve, which is equal to this market price."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "So in order to do this first part, the quantity that would be rational for this profit-seeking firm, or the profit-maximizing firm to produce, to think about that, we'd actually also have to think about the firm's average revenue. And the average revenue, which is going to be the same thing as the demand curve for that firm, is going to be based on this market price. Remember, the firm in this perfectly competitive market has to be a price taker. So this horizontal line right over there, that is the firm's average revenue, AR, which is equal to its marginal revenue, which is equal to its demand curve, which is equal to this market price. And the quantity that it's rational for this firm to produce is where this marginal revenue curve, which is also the average revenue curve in this case, intersects our marginal cost curve. So the marginal cost curve might look something like this. So marginal cost."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "So this horizontal line right over there, that is the firm's average revenue, AR, which is equal to its marginal revenue, which is equal to its demand curve, which is equal to this market price. And the quantity that it's rational for this firm to produce is where this marginal revenue curve, which is also the average revenue curve in this case, intersects our marginal cost curve. So the marginal cost curve might look something like this. So marginal cost. And so this right over here is our Q sub F. So we've done this part and this part. The firm's average total cost curve, well, the average total cost at this quantity needs to be below the marginal revenue and the average revenue of that quantity, because we know that the firm is earning a positive economic profit. So we are dealing with a situation that likely looks like this so the average total cost might look something like this."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "So marginal cost. And so this right over here is our Q sub F. So we've done this part and this part. The firm's average total cost curve, well, the average total cost at this quantity needs to be below the marginal revenue and the average revenue of that quantity, because we know that the firm is earning a positive economic profit. So we are dealing with a situation that likely looks like this so the average total cost might look something like this. And I drew it that way to ensure that at this quantity, Q sub F, our marginal revenue and our average revenue is above our average total cost. That tells us that we're earning economic profit in this situation. So I've done part four."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "So we are dealing with a situation that likely looks like this so the average total cost might look something like this. And I drew it that way to ensure that at this quantity, Q sub F, our marginal revenue and our average revenue is above our average total cost. That tells us that we're earning economic profit in this situation. So I've done part four. The area representing total cost shaded completely. Well, the area representing total cost would be the cost per unit, the average cost per unit, which is that much, times the total number of units. And the total number of units is going to be this length, which is equal to Q sub F. And so your total cost is going to be this shaded area."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "So I've done part four. The area representing total cost shaded completely. Well, the area representing total cost would be the cost per unit, the average cost per unit, which is that much, times the total number of units. And the total number of units is going to be this length, which is equal to Q sub F. And so your total cost is going to be this shaded area. If they were asking us our total economic profit, then we would be talking about this area up here, but they're not. They're talking about our total cost, which is this area right over there. So we have done those parts."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "And the total number of units is going to be this length, which is equal to Q sub F. And so your total cost is going to be this shaded area. If they were asking us our total economic profit, then we would be talking about this area up here, but they're not. They're talking about our total cost, which is this area right over there. So we have done those parts. Now let's go to part C. If one firm in the market were to raise its price, what would happen to its total revenue? Explain. Pause this video, see if you can answer that."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "So we have done those parts. Now let's go to part C. If one firm in the market were to raise its price, what would happen to its total revenue? Explain. Pause this video, see if you can answer that. Well, remember, we're dealing with a perfectly competitive market, a perfectly competitive industry. There's no differentiation between anyone's product. So if all of a sudden, someone were to stick their head out and try to raise price, no one would buy their product anymore because people can get identical products from other people for a lower price."}, {"video_title": "AP Microeconomics FRQ on perfect competition AP(R) Microeconomics Khan Academy.mp3", "Sentence": "Pause this video, see if you can answer that. Well, remember, we're dealing with a perfectly competitive market, a perfectly competitive industry. There's no differentiation between anyone's product. So if all of a sudden, someone were to stick their head out and try to raise price, no one would buy their product anymore because people can get identical products from other people for a lower price. And so its total revenue, its total revenue would go to zero since product is undifferentiated, differentiated, and consumers could buy from others at lower price, at lower price. And this is another way to think about it. They have to be price takers in a perfectly competitive market."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "So first we have country A, and let's say it's the market for widgets. And we're going to assume that country A is not trading with anyone else. So it is an autarky, a very fancy word, which just means that this country is operating independently, it's operating in isolation. And so you can see the demand curve in this market in orange, and we can see the supply curve. And you can see when this country is operating in isolation, this market for widgets has an equilibrium price. It looks like it's a little bit under $4. I'll just assume that the price is in dollars per widget."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so you can see the demand curve in this market in orange, and we can see the supply curve. And you can see when this country is operating in isolation, this market for widgets has an equilibrium price. It looks like it's a little bit under $4. I'll just assume that the price is in dollars per widget. And the equilibrium quantity looks like it's about a little under four units per whatever time period we're looking at. Fair enough. Now let's look at country B, and let's assume that they are also operating independently."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "I'll just assume that the price is in dollars per widget. And the equilibrium quantity looks like it's about a little under four units per whatever time period we're looking at. Fair enough. Now let's look at country B, and let's assume that they are also operating independently. It's an autarky in this market. And so here we can see a different demand curve than what we saw in country A, and a different supply curve. And notice, they have a different equilibrium price and quantity."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now let's look at country B, and let's assume that they are also operating independently. It's an autarky in this market. And so here we can see a different demand curve than what we saw in country A, and a different supply curve. And notice, they have a different equilibrium price and quantity. So here the equilibrium price seems to be a little bit over a dollar, and the equilibrium quantity seems to actually be not that different than what we saw in the first country, although in many situations it could be very different. Now let's imagine what would happen if they opened up their economies to each other. Well then, you would essentially horizontally add these two demand curves, and you would horizontally add these two supply curves to come up with a new supply curve and a new demand curve."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And notice, they have a different equilibrium price and quantity. So here the equilibrium price seems to be a little bit over a dollar, and the equilibrium quantity seems to actually be not that different than what we saw in the first country, although in many situations it could be very different. Now let's imagine what would happen if they opened up their economies to each other. Well then, you would essentially horizontally add these two demand curves, and you would horizontally add these two supply curves to come up with a new supply curve and a new demand curve. This is a little bit of a review of what we've seen in other videos, but notice, at a price of five, in total, no one's demanding anything, no quantity of these widgets. And then at a price of zero, country A, the market there, is demanding 15, and country B is demanding five, so in aggregate, they are demanding 20. And similarly, you can see that with supply, that at a price of five, country A will supply five, and at a price of five, country B will supply 15, and so together, they will supply 20 units per time period."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Well then, you would essentially horizontally add these two demand curves, and you would horizontally add these two supply curves to come up with a new supply curve and a new demand curve. This is a little bit of a review of what we've seen in other videos, but notice, at a price of five, in total, no one's demanding anything, no quantity of these widgets. And then at a price of zero, country A, the market there, is demanding 15, and country B is demanding five, so in aggregate, they are demanding 20. And similarly, you can see that with supply, that at a price of five, country A will supply five, and at a price of five, country B will supply 15, and so together, they will supply 20 units per time period. And so we can view this right over here as our supply and demand curves for the combined markets, because now they're trading. We are not in an autarky anymore. And notice what has happened."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And similarly, you can see that with supply, that at a price of five, country A will supply five, and at a price of five, country B will supply 15, and so together, they will supply 20 units per time period. And so we can view this right over here as our supply and demand curves for the combined markets, because now they're trading. We are not in an autarky anymore. And notice what has happened. Our equilibrium price is now someplace in between these two equilibrium prices. So it looks like it's a little bit under $3, and our equilibrium quantity, our equilibrium quantity is a little bit under 10 units. And so you might notice some interesting things that are happening."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And notice what has happened. Our equilibrium price is now someplace in between these two equilibrium prices. So it looks like it's a little bit under $3, and our equilibrium quantity, our equilibrium quantity is a little bit under 10 units. And so you might notice some interesting things that are happening. What would happen from someone in country A's point of view, the people who are the buyers, the people who are demanding this widget? Well now, instead of having to pay almost four, they're paying someplace in between two and three. This is the new equilibrium price if they were to open up their economy."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so you might notice some interesting things that are happening. What would happen from someone in country A's point of view, the people who are the buyers, the people who are demanding this widget? Well now, instead of having to pay almost four, they're paying someplace in between two and three. This is the new equilibrium price if they were to open up their economy. And so what you have is, is that this amount would be produced by, in theory, by the domestic manufacturers. So the first, let's call that two and a half units. And then the remainder, where are they going to get those units from?"}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "This is the new equilibrium price if they were to open up their economy. And so what you have is, is that this amount would be produced by, in theory, by the domestic manufacturers. So the first, let's call that two and a half units. And then the remainder, where are they going to get those units from? Well, those are going to be imports. And let's look at the equilibrium price on country B. And country B was really the lower-cost producer, and so country B, now we have a, let's put it a little bit over 2.5, so let's put it right over there."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And then the remainder, where are they going to get those units from? Well, those are going to be imports. And let's look at the equilibrium price on country B. And country B was really the lower-cost producer, and so country B, now we have a, let's put it a little bit over 2.5, so let's put it right over there. And so now you have a situation where the suppliers in country B are going to be producing a lot, a lot more than they were before, and only this amount is coming from their domestic demand, and then all of this amount right over here, that is being exported. And if we're assuming that the world economy is only made up of country A and country B, or that they're only trading with each other, these exports become country A's imports right over there. And so proponents of free trade will say, hey, look, the overall consumer surplus is larger than the combined consumer surpluses that we had before."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And country B was really the lower-cost producer, and so country B, now we have a, let's put it a little bit over 2.5, so let's put it right over there. And so now you have a situation where the suppliers in country B are going to be producing a lot, a lot more than they were before, and only this amount is coming from their domestic demand, and then all of this amount right over here, that is being exported. And if we're assuming that the world economy is only made up of country A and country B, or that they're only trading with each other, these exports become country A's imports right over there. And so proponents of free trade will say, hey, look, the overall consumer surplus is larger than the combined consumer surpluses that we had before. Before you had this consumer surplus in country A, and country B, it was all of this, but still, this entire area is larger than these two combined, and you could do it mathematically if you like, calculate the area of these triangles, and if you look at the producer surplus, you'll see a similar story. The total producer surplus of the combined economies now, this is going to be larger than this producer surplus plus this producer surplus. Now, there will not always be winners in this."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "And so proponents of free trade will say, hey, look, the overall consumer surplus is larger than the combined consumer surpluses that we had before. Before you had this consumer surplus in country A, and country B, it was all of this, but still, this entire area is larger than these two combined, and you could do it mathematically if you like, calculate the area of these triangles, and if you look at the producer surplus, you'll see a similar story. The total producer surplus of the combined economies now, this is going to be larger than this producer surplus plus this producer surplus. Now, there will not always be winners in this. The winners here are the demanders in country A, because instead of this little small consumer surplus that they had before, now they have this much larger consumer surplus right over there, and then the other winners are the suppliers in country B, because instead of this producer surplus that they had before, they now have this producer surplus, but the losers in this situation are the suppliers in country A, who now have a much lower producer surplus, so their triangle has shrunk to that right over there, and then the other losers in this situation are the consumers in country B, who now have to pay a higher equilibrium price, and so their consumer surplus is only this small triangle, when before it was this whole thing. So anyway, the big takeaway here is is that if you go from autarky to opening up economies, it can affect what the equilibrium prices and quantities are going to be, and oftentimes, or usually, it's going to increase your total consumer and producer surplus, although there will be some winners and there will be some losers."}, {"video_title": "Changing equilibria from trade AP\u24c7 Microeconomics Khan Academy.mp3", "Sentence": "Now, there will not always be winners in this. The winners here are the demanders in country A, because instead of this little small consumer surplus that they had before, now they have this much larger consumer surplus right over there, and then the other winners are the suppliers in country B, because instead of this producer surplus that they had before, they now have this producer surplus, but the losers in this situation are the suppliers in country A, who now have a much lower producer surplus, so their triangle has shrunk to that right over there, and then the other losers in this situation are the consumers in country B, who now have to pay a higher equilibrium price, and so their consumer surplus is only this small triangle, when before it was this whole thing. So anyway, the big takeaway here is is that if you go from autarky to opening up economies, it can affect what the equilibrium prices and quantities are going to be, and oftentimes, or usually, it's going to increase your total consumer and producer surplus, although there will be some winners and there will be some losers."}]