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♪ [music] ♪

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- [Tyler] Once you master [br]the economic way of thinking,

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you'll see the world [br]in a very different way.

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Two fundamental economic concepts [br]are everywhere you look:

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opportunity cost

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and tradeoffs.

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Let's start with opportunity cost.

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At this busy coffee shop,

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opportunity costs[br]lie behind every decision.

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Like for Jenny -- she's here [br]for her third date with Adam.

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Was that a good decision?

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After all,

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economics is all about[br]studying decisions.

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Making a good decision[br]is about comparing the benefits

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of that decision to the costs.

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The obvious costs[br]for this date, for Jenny,

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were the Uber ride[br]she paid for to get here

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and her grande chai tea latte[br]with whole milk.

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But what's missing?

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Her opportunity cost.

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Opportunity cost means the value [br]of the next best alternative.

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For instance, instead of going[br]on her third date with Adam,

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Jenny could've been binge watching[br]her favorite TV show.

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She might have been [br]on a first date instead,

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with Roman.

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Or she might have been [br]having breakfast

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with her very sweet sister.

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Let's say her next best option

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would have been [br]breakfast with her sister.

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Does the benefit [br]of this third date with Adam

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outweigh the opportunity cost?

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It might seem strange [br]to think this way about romance,

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and it doesn't mean

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that it's about calculating[br]every decision

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down to the last penny.

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Nonetheless, Jenny's time, [br]attention, and energy --

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those are scarce.

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And if she doesn't consider [br]the alternatives at all,

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she might be wasting [br]parts of her life.

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There's another fundamental[br]related concept from economics:

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tradeoffs.

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Take these sprinklers [br]in the ceiling of the coffee shop,

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for example.

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Adding sprinklers[br]can make it safer during a fire,

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but they also can cost [br]a lot of money to install.

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How much cheaper[br]would the coffee be without them?

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In a world of scarce resources,[br]one typically has to choose.

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There's a tradeoff --

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safer buildings cost more,

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but that means the coffee[br]can be more expensive.

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Hmm, the line is at the door here.

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Perhaps the owner has considered[br]opening a second location.

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As the building code, however,[br]becomes more stringent,

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the cost of opening [br]an additional location goes up.

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It's not just the direct [br]monetary costs

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of paying for things[br]like sprinklers,

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it's also the opportunity costs[br]of the extra time and effort

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to file permits, manage the work,[br]and schedule inspections.

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A more stringent building code [br]means a higher cost

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for opening up new businesses.

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And in turn, [br]that higher cost can mean

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that fewer new businesses [br]get opened.

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What's the right tradeoff[br]between making buildings safer...

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and making it easier [br]to launch new businesses?

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Once you see these tradeoffs,

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you'll find them [br]everywhere you look:

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healthcare,

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food,

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the environment,

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education.

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One more decision to consider:

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if you're a teacher,

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should you spice up[br]your economics class

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by checking out our free unit plan

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that uses this video?

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If you're a learner, [br]should you watch another MRU video?

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Well, YouTube is full [br]of entertaining videos,

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[cat meows]

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but please, of course, [br]consider the opportunity costs.

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♪ [music] ♪