If you're seeing this message, it means we're having trouble loading external resources on our website.

If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked.

Main content
Current time:0:00Total duration:5:26
AP.MACRO:
MOD‑1 (EU)
,
MOD‑1.B (LO)
,
MOD‑1.B.3 (EK)
AP.MICRO:
MKT‑1.C (LO)
,
MKT‑1.C.3 (EK)

Video transcript

so we have three different possible production possibilities curve for rabbits and berries here which we've already talked about in other videos but the reason why I'm showing you three different curves is because these three different curves clearly have different shapes and we want to think about why you would have what and under what scenarios would you have these different shapes here are 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 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 that this curve here but let's just review it so there's a world where I'm eating all berries and I can get 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 on the berries I'm giving up or 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 picked that next or what 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 then third rabbit I'm going to give up 60 berries that fourth rabbit I'm 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 a hundred 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 costs let me write that down increasing increasing oc4 opportunity cost so with that out of the way which of these would describe a decreasing opportunity cost maybe you can 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 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 that first rabbit and so there I give up 100 berries so my opportunity cost for that first rabbit was a hundred 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 my rabbit catching shoes I've already invested in that I've already I'm all stretched stretched and limber maybe you know those 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 to catch that next extra rabbit I'm giving up those 20 berries so very clearly you see a decreasing opportunity cost and 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 imagine in this this fictional world we created where you know every rabbit is about as easy to catch as any other one and every berry is about as easy to pick as in 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 work no matter how many berries I am currently at so that's a constant opportunity cost when you have a straight line
AP® is a registered trademark of the College Board, which has not reviewed this resource.