WEBVTT

99:59:59.999 --> 99:59:59.999
- [Tyler] Once you master 
the economic way of thinking,

99:59:59.999 --> 99:59:59.999
you'll see the world 
in a very different way.

99:59:59.999 --> 99:59:59.999
Two fundamental economic concepts 
are everywhere you look --

99:59:59.999 --> 99:59:59.999
opportunity costs, and tradeoffs.

99:59:59.999 --> 99:59:59.999
Let's start with opportunity costs.

99:59:59.999 --> 99:59:59.999
At this busy coffee shop,

99:59:59.999 --> 99:59:59.999
opportunity costs lie 
behind every decision.

99:59:59.999 --> 99:59:59.999
Like for Jenny -- she's here 
for her third date with Adam.

99:59:59.999 --> 99:59:59.999
Was that a good decision?

99:59:59.999 --> 99:59:59.999
After all, economics is 
all about studying decisions.

99:59:59.999 --> 99:59:59.999
Making a good decision is 
about comparing the benefits

99:59:59.999 --> 99:59:59.999
of that decision to the costs.

99:59:59.999 --> 99:59:59.999
The obvious costs for this date

99:59:59.999 --> 99:59:59.999
for Jenny were the Uber ride
she paid for to get here,

99:59:59.999 --> 99:59:59.999
and her grande chai tea latte
with whole milk.

99:59:59.999 --> 99:59:59.999
But what's missing?

99:59:59.999 --> 99:59:59.999
Her opportunity cost.

99:59:59.999 --> 99:59:59.999
Opportunity cost means the value 
of the next best alternative.

99:59:59.999 --> 99:59:59.999
For instance, instead of going
on her third date with Adam,

99:59:59.999 --> 99:59:59.999
Jenny could've been binge watching
her favorite tv show.

99:59:59.999 --> 99:59:59.999
She might've been 
on a first date instead,

99:59:59.999 --> 99:59:59.999
with Roman.

99:59:59.999 --> 99:59:59.999
Or she might've been 
having breakfast

99:59:59.999 --> 99:59:59.999
with her very sweet sister.

99:59:59.999 --> 99:59:59.999
Let's say her next best option

99:59:59.999 --> 99:59:59.999
would've been 
breakfast with her sister.

99:59:59.999 --> 99:59:59.999
Does the benefit 
of this third date with Adam

99:59:59.999 --> 99:59:59.999
outweigh the opportunity cost?

99:59:59.999 --> 99:59:59.999
It might seem strange 
to think this way about romance,

99:59:59.999 --> 99:59:59.999
and it doesn't mean it's 
about calculating every decision

99:59:59.999 --> 99:59:59.999
to the last penny.

99:59:59.999 --> 99:59:59.999
Nonetheless, Jenny's time, 
attention and energy --

99:59:59.999 --> 99:59:59.999
those are scarce.

99:59:59.999 --> 99:59:59.999
And if she doesn't consider 
the alternatives at all,

99:59:59.999 --> 99:59:59.999
she might be wasting 
parts of her life.

99:59:59.999 --> 99:59:59.999
There's another 
fundamental related concept

99:59:59.999 --> 99:59:59.999
from economics -- tradeoffs.

99:59:59.999 --> 99:59:59.999
Take these sprinklers 
in the ceiling of the coffee shop,

99:59:59.999 --> 99:59:59.999
foe example.

99:59:59.999 --> 99:59:59.999
Adding sprinklers can 
make it safer during a fire,

99:59:59.999 --> 99:59:59.999
but they also can cost 
a lot of money to install.

99:59:59.999 --> 99:59:59.999
How much cheaper would 
the coffee be without them?

99:59:59.999 --> 99:59:59.999
In a world of scarce resources,
one typically has to choose.

99:59:59.999 --> 99:59:59.999
There's a tradeoff, 
safer buildings cost more.