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Main content

Current time:0:00Total duration:10:59

AP.MACRO:

MOD‑1 (EU)

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, MOD‑1.B.1 (EK)

AP.MICRO: MKT‑1 (EU)

, MKT‑1.C (LO)

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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 going to assume that when you're talking about hunting the only animal around you to hunt for these little rabbits and we talked about gathering the only thing that you can gather or 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 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 and when you do that all of a sudden you are able to get a hundred you're able to get a hundred berries and when we do the 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 and the general term for this and it sounds very fancy if you were to say it in a conversation is ceteris paribus ceteris ceteris paribus paribus which literally means so anytime someone says oh ins that you know ceteris paribus we assume this variable changes or whatever else they're saying we're assuming everything else is being held equal so ceteris ceteris means ceteris means all other things other other things you're probably familiar with etcetera since the same word essentially other things and paribus 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 you're in a dramatic way you're not changing you're not changing the tools you used with the technology everything else is equal the only variable you're changing is how much time you allocate defining rabbets 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 now we're looking to 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 can 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 Very's 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 two scenarios scenarios scenario a 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 want to do is plot these and on one axis I'll have the number of rabbits 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 will start that will 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 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 on all 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 scenario B scenario B for rabbits 100 berries for rabbits 100 berries that's right over there that's 100 berries so that is scenario B scenario C scenario C three rabbits 180 berries three rabbits 180 let's see this would be 150 180 will be like right over there so three so if you have time for three rabbits your 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 to fit actually to 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 you have if you have time for one rabbit you have time for 280 berries so that gets us right about right about there that is scenario E and then finally scenario after 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 Rab 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 varies so these are all points on the different combinations between the trade offs of rabbits and varies so let me connect all of these let me collect 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 so this right over here this curve right over here represents all the possible 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 the 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 know 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 these are just scenarios on on this curve and that curve we call once again fancy term simple idea are production production possibilities possibilities possibilities I've put two eyes 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 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 let me scroll see my scrolling thing okay so this right over here is impossible at 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 any point that's on this side of 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 I could get I could get many more berries or I could get more rabbits for 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 out 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 they are not efficient maybe somehow I'm not using my resources optimally to 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 start using your 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 the possibilities are better than any other possibility all we are saying is that you are doing the most that you can do any of these things you are making the most use of your time