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:6:26

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)

what I want to do in this video is think about how the opportunity cost can change as we move from scenario to scenario this is going to be particularly this example but it's a phenomenon that you will see in many economic scenarios 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 I'm 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 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 40 berries this is interesting now let's say we're in scenario D and we want 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 find 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 then I'm gonna have to give up 80 berries 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 gonna 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 the biggest are similar the more rabbits that I'm going after the every time I 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 that's it's not always the case but it's the case in this example increasing opportunity cost opportunity increasing opportunity cost every as we increase the number of rabbits we're going after and you can do it the other way you could say okay what if as we increase as especially if you did it on a unit basis if you said every incremental barrier every incremental hundred Berry's we're going after but the numbers aren't is 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 but why would this make sense why is this idea of increasing opportunity costs showing up in a lot of different economic and you could call this an economic model we have 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 be clear it does not show up in all of them but to think about our example is a hunter-gatherer we started here in Scenario F in Scenario F we aren't we we've decided to not pursue any rabbits even even the slower not so quick-witted rabbit who maybe you know 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 on the berries and not only are you getting the low literally the low-hanging fruit the easy berries you're getting the barrier 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 you're not giving up a lot in terms of berries one it didn't take you much time to get those literally those 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 twenty of them now if you want two rabbits to two rabbits a day not only you're going to get the the slowest of the rabbits the ones that aren't afraid of humans now you're gonna have to go get the slightly faster rabbit the the 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 then 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 faster 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 with eating rabbits so hopefully that gives you a sense of why increasing opportunity cost does show up and it 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 the the as we increase one the slope the negative slope is increasing so or another way to think about in Scenario F the slope is roughly like this and I encourage you to review the algebra playlist if the idea of slope is 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 you're giving up even more of the berries per unit rabbit and now indeed you're giving up even more and then you're giving up even more and so this this whenever you see a bow shaped curve like this so a curve that literally looks like this this shows that you have increasing opportunity costs as you increase more and more units you're going to have to give up more and more of the alternative