WEBVTT

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

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

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Two fundamental economic concepts 
are everywhere you look --

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opportunity costs, and tradeoffs.

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Let's start with opportunity costs.

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At this busy coffee shop,

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opportunity costs lie 
behind every decision.

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

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Was that a good decision?

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After all, economics is 
all about studying decisions.

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Making a good decision is 
about comparing the benefits

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of that decision to the costs.

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The obvious costs for this date

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for Jenny were the Uber ride
she paid for to get here,

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and her grande chai tea latte
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 
of the next best alternative.

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

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Jenny could've been binge watching
her favorite tv show.

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She might've been 
on a first date instead,

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with Roman.

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Or she might've been 
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've been 
breakfast with her sister.

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Does the benefit 
of this third date with Adam

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outweigh the opportunity cost?

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It might seem strange 
to think this way about romance,

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and it doesn't mean it's 
about calculating every decision

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to the last penny.

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Nonetheless, Jenny's time, 
attention and energy --

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those are scarce.

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

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she might be wasting 
parts of her life.

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There's another 
fundamental related concept

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from economics -- tradeoffs.

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Take these sprinklers 
in the ceiling of the coffee shop,

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foe example.

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Adding sprinklers can 
make it safer during a fire,

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

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How much cheaper would 
the coffee be without them?

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

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There's a tradeoff -- 
safer buildings cost more,

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but that means the coffee can 
be more expensive.

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The line is out the door here.

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Perhaps the owner has considered
opening a second location.

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As the building code however
becomes more stringent,

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the cost of opening 
an additional location goes up.

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It's not just the direct 
monetary costs of paying

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for things like sprinklers.

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It's also the opportunity costs
of the extra time and effort

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to file permits, manage the work
and schedule inspections.

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A more stringent building code 
means a higher cost

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for opening up new businesses.

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And in turn, 
that higher cost can mean

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that fewer new businesses 
get opened.

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What's the right tradeoff
between making buildings safer...

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and making it easier 
to launch new businesses?

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Once you see these tradeoffs,

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you'll find them 
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, 
should you spice up

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your economics class 
by checking out our free unit plan

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that uses this video?

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

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Well, YouTube is full 
of entertaining videos,

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[cat meows]

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but please, of course, consider
the opportunity costs.