[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.25,0:00:01.54,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:00:03.64,0:00:04.77,Default,,0000,0000,0000,,In economics,
Dialogue: 0,0:00:04.77,0:00:07.78,Default,,0000,0000,0000,,you're likely to hear\Nthe word "marginal" a lot:
Dialogue: 0,0:00:08.47,0:00:09.72,Default,,0000,0000,0000,,marginal benefit,
Dialogue: 0,0:00:09.72,0:00:11.14,Default,,0000,0000,0000,,marginal cost,
Dialogue: 0,0:00:11.14,0:00:12.84,Default,,0000,0000,0000,,marginal revenue--
Dialogue: 0,0:00:12.84,0:00:14.48,Default,,0000,0000,0000,,the list goes on and on.
Dialogue: 0,0:00:14.76,0:00:16.73,Default,,0000,0000,0000,,So what is thinking on the margin,
Dialogue: 0,0:00:16.73,0:00:18.18,Default,,0000,0000,0000,,and why is it important?
Dialogue: 0,0:00:19.30,0:00:22.09,Default,,0000,0000,0000,,Marginal just means\Na little bit more
Dialogue: 0,0:00:22.09,0:00:23.30,Default,,0000,0000,0000,,or a little bit less.
Dialogue: 0,0:00:24.32,0:00:26.32,Default,,0000,0000,0000,,Let's imagine\Nthat you're watching a movie,
Dialogue: 0,0:00:27.23,0:00:28.76,Default,,0000,0000,0000,,and you can't hear the dialogue.
Dialogue: 0,0:00:29.06,0:00:31.42,Default,,0000,0000,0000,,You increase the volume\Njust a little bit.
Dialogue: 0,0:00:32.84,0:00:34.06,Default,,0000,0000,0000,,How high should you go?
Dialogue: 0,0:00:34.39,0:00:37.51,Default,,0000,0000,0000,,Well, that's a question\Nof comparing the marginal benefit
Dialogue: 0,0:00:37.51,0:00:40.06,Default,,0000,0000,0000,,to the marginal cost\Nof increasing the volume.
Dialogue: 0,0:00:42.38,0:00:44.39,Default,,0000,0000,0000,,The first notch up sounds good.
Dialogue: 0,0:00:44.64,0:00:46.90,Default,,0000,0000,0000,,Now you can hear\Nwhat the actors are saying.
Dialogue: 0,0:00:48.40,0:00:49.98,Default,,0000,0000,0000,,You increase it another notch.
Dialogue: 0,0:00:52.12,0:00:54.94,Default,,0000,0000,0000,,Speakers are distorting a little, \Nbut you still prefer it.
Dialogue: 0,0:00:57.90,0:00:58.92,Default,,0000,0000,0000,,One more notch.
Dialogue: 0,0:01:01.32,0:01:02.44,Default,,0000,0000,0000,,Uh-oh!
Dialogue: 0,0:01:03.07,0:01:04.72,Default,,0000,0000,0000,,Now there's an action scene.
Dialogue: 0,0:01:04.72,0:01:05.84,Default,,0000,0000,0000,,It's too loud!
Dialogue: 0,0:01:05.84,0:01:07.50,Default,,0000,0000,0000,,You don't want to wake up\Nyour roommates.
Dialogue: 0,0:01:08.75,0:01:10.30,Default,,0000,0000,0000,,So you decrease it a notch.
Dialogue: 0,0:01:12.72,0:01:14.14,Default,,0000,0000,0000,,You keep doing this,
Dialogue: 0,0:01:14.14,0:01:16.68,Default,,0000,0000,0000,,making marginal adjustments\Nup and down,
Dialogue: 0,0:01:16.68,0:01:20.23,Default,,0000,0000,0000,,comparing the marginal benefit\Nto the marginal cost,
Dialogue: 0,0:01:20.23,0:01:21.62,Default,,0000,0000,0000,,each step of the way.
Dialogue: 0,0:01:22.94,0:01:24.04,Default,,0000,0000,0000,,Thinking on the margin
Dialogue: 0,0:01:24.04,0:01:28.33,Default,,0000,0000,0000,,just means comparing the benefit\Nof the next decision to its cost.
Dialogue: 0,0:01:29.11,0:01:30.92,Default,,0000,0000,0000,,Notice that thinking\Non the margin --
Dialogue: 0,0:01:30.92,0:01:36.02,Default,,0000,0000,0000,,it's a method or way of arriving\Nat an optimal or best decision.
Dialogue: 0,0:01:36.68,0:01:39.82,Default,,0000,0000,0000,,If I asked you for the best volume\Nto watch a movie,
Dialogue: 0,0:01:39.82,0:01:41.52,Default,,0000,0000,0000,,you might have trouble answering.
Dialogue: 0,0:01:42.02,0:01:44.70,Default,,0000,0000,0000,,But if you keep thinking\Nand acting on the margin,
Dialogue: 0,0:01:45.06,0:01:46.33,Default,,0000,0000,0000,,you'll come to a point
Dialogue: 0,0:01:46.33,0:01:49.02,Default,,0000,0000,0000,,where the marginal benefits\Nequal the marginal costs --
Dialogue: 0,0:01:49.64,0:01:50.78,Default,,0000,0000,0000,,that's the optimum.
Dialogue: 0,0:01:51.18,0:01:52.60,Default,,0000,0000,0000,,So thinking on the margin
Dialogue: 0,0:01:52.60,0:01:55.84,Default,,0000,0000,0000,,is a way of searching for\Nand finding an answer
Dialogue: 0,0:01:55.84,0:01:58.22,Default,,0000,0000,0000,,to a problem that might otherwise\Nbe quite difficult.
Dialogue: 0,0:01:59.54,0:02:01.12,Default,,0000,0000,0000,,Thinking on the margin
Dialogue: 0,0:02:01.12,0:02:03.18,Default,,0000,0000,0000,,also tells you something else\Nof importance:
Dialogue: 0,0:02:03.74,0:02:05.58,Default,,0000,0000,0000,,what not to think about.
Dialogue: 0,0:02:06.14,0:02:08.54,Default,,0000,0000,0000,,Let's imagine you run\Na small clothing shop,
Dialogue: 0,0:02:08.76,0:02:12.77,Default,,0000,0000,0000,,and you think that the 1970s\Nare about to have a renaissance.
Dialogue: 0,0:02:13.68,0:02:15.04,Default,,0000,0000,0000,,I remember those times!
Dialogue: 0,0:02:15.04,0:02:16.10,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:02:16.10,0:02:19.94,Default,,0000,0000,0000,,So you load up on 100 pairs\Nof bell-bottom jeans.
Dialogue: 0,0:02:20.66,0:02:23.26,Default,,0000,0000,0000,,Let's say you paid $75 a pair.
Dialogue: 0,0:02:23.68,0:02:25.54,Default,,0000,0000,0000,,You price the jeans at $100 --
Dialogue: 0,0:02:26.06,0:02:30.08,Default,,0000,0000,0000,,a price that will cover your costs,\Nincluding rent and wages.
Dialogue: 0,0:02:31.12,0:02:35.84,Default,,0000,0000,0000,,But unfortunately, the jeans --\Nthey just don't sell.
Dialogue: 0,0:02:35.84,0:02:36.96,Default,,0000,0000,0000,,What do you do?
Dialogue: 0,0:02:37.18,0:02:38.86,Default,,0000,0000,0000,,You think about lowering the price,
Dialogue: 0,0:02:39.22,0:02:40.48,Default,,0000,0000,0000,,but your accountant tells you
Dialogue: 0,0:02:40.48,0:02:42.72,Default,,0000,0000,0000,,that if you lower the price\Nbelow $100,
Dialogue: 0,0:02:42.72,0:02:45.00,Default,,0000,0000,0000,,you're guaranteed to take a loss.
Dialogue: 0,0:02:45.44,0:02:46.54,Default,,0000,0000,0000,,(scream sound)
Dialogue: 0,0:02:47.72,0:02:49.99,Default,,0000,0000,0000,,Fortunately, you had\Na good Economics class
Dialogue: 0,0:02:49.99,0:02:51.45,Default,,0000,0000,0000,,in high school or college,
Dialogue: 0,0:02:51.90,0:02:54.58,Default,,0000,0000,0000,,so you remember\Nthat what you paid for the jeans
Dialogue: 0,0:02:54.58,0:02:55.59,Default,,0000,0000,0000,,is irrelevant.
Dialogue: 0,0:02:56.04,0:02:57.96,Default,,0000,0000,0000,,That cost is sunk.
Dialogue: 0,0:02:59.01,0:03:00.62,Default,,0000,0000,0000,,What matters now
Dialogue: 0,0:03:00.62,0:03:02.97,Default,,0000,0000,0000,,is to compare the marginal benefits
Dialogue: 0,0:03:02.97,0:03:05.79,Default,,0000,0000,0000,,and marginal costs of your options.
Dialogue: 0,0:03:06.50,0:03:10.06,Default,,0000,0000,0000,,One option would be to put\Nthe jeans in storage and hope --
Dialogue: 0,0:03:10.06,0:03:12.18,Default,,0000,0000,0000,,hope they'll come back in style.
Dialogue: 0,0:03:12.52,0:03:15.46,Default,,0000,0000,0000,,Maybe you can get $100\Nper pair in the future,
Dialogue: 0,0:03:16.16,0:03:18.26,Default,,0000,0000,0000,,but you get no money now,
Dialogue: 0,0:03:18.26,0:03:20.26,Default,,0000,0000,0000,,plus you have to pay for storage.
Dialogue: 0,0:03:21.82,0:03:24.70,Default,,0000,0000,0000,,Another option is to slash prices.
Dialogue: 0,0:03:25.07,0:03:27.41,Default,,0000,0000,0000,,Sell them all now for $50 each.
Dialogue: 0,0:03:27.41,0:03:29.58,Default,,0000,0000,0000,,That lets you clear out\Nyour inventory
Dialogue: 0,0:03:29.58,0:03:31.76,Default,,0000,0000,0000,,and invest in something else.
Dialogue: 0,0:03:32.58,0:03:34.24,Default,,0000,0000,0000,,You choose option two
Dialogue: 0,0:03:34.24,0:03:36.44,Default,,0000,0000,0000,,and invest in the next big thing:
Dialogue: 0,0:03:36.85,0:03:37.100,Default,,0000,0000,0000,,leg warmers!
Dialogue: 0,0:03:39.02,0:03:41.47,Default,,0000,0000,0000,,Now, I know this sounds simple,
Dialogue: 0,0:03:41.47,0:03:44.28,Default,,0000,0000,0000,,but actually, even experienced\Nbusiness people --
Dialogue: 0,0:03:44.76,0:03:48.66,Default,,0000,0000,0000,,they often focus too much\Non what they paid for an item
Dialogue: 0,0:03:49.24,0:03:52.96,Default,,0000,0000,0000,,and not enough\Non their best choices right now.
Dialogue: 0,0:03:53.52,0:03:56.36,Default,,0000,0000,0000,,It's called the sunk cost\Nor fixed cost fallacy.
Dialogue: 0,0:03:57.28,0:04:01.30,Default,,0000,0000,0000,,In fact, I snuck an example\Nof the fallacy right past you.
Dialogue: 0,0:04:01.56,0:04:02.58,Default,,0000,0000,0000,,Did you catch it?
Dialogue: 0,0:04:03.74,0:04:06.96,Default,,0000,0000,0000,,Earlier, I said you price\Nthe jeans at $100 --
Dialogue: 0,0:04:07.44,0:04:09.91,Default,,0000,0000,0000,,a price that will cover your costs,\Nincluding rent and wages.
Dialogue: 0,0:04:09.91,0:04:12.38,Default,,0000,0000,0000,,But that's also wrong.
Dialogue: 0,0:04:13.26,0:04:16.66,Default,,0000,0000,0000,,If bell-bottom jeans turn out to\Nbe in huge demand, for example,
Dialogue: 0,0:04:17.30,0:04:19.50,Default,,0000,0000,0000,,then you should price\Nthem for more than $100.
Dialogue: 0,0:04:20.60,0:04:23.18,Default,,0000,0000,0000,,What you paid for the jeans is irrelevant,
Dialogue: 0,0:04:24.34,0:04:27.84,Default,,0000,0000,0000,,whether your decision was\Na bad one or a good one.
Dialogue: 0,0:04:28.98,0:04:32.12,Default,,0000,0000,0000,,People fall prey to this\Nkind of error all the time,
Dialogue: 0,0:04:32.78,0:04:35.28,Default,,0000,0000,0000,,especially holding on to past mistakes.
Dialogue: 0,0:04:36.40,0:04:41.70,Default,,0000,0000,0000,,Maybe you've been told, never give up.\NWell, take the advice of an economist.
Dialogue: 0,0:04:42.40,0:04:45.46,Default,,0000,0000,0000,,Sometimes giving up is\Nthe smart thing to do.
Dialogue: 0,0:04:46.34,0:04:50.70,Default,,0000,0000,0000,,Is the movie you're watching boring? Well,\Nbuying the ticket was a bad decision.
Dialogue: 0,0:04:51.58,0:04:55.14,Default,,0000,0000,0000,,But that cost is sunk. Don't\Nthrow good time after bad.
Dialogue: 0,0:04:55.92,0:05:00.86,Default,,0000,0000,0000,,Walk out! No one likes to admit\Nthat they made a bad decision.
Dialogue: 0,0:05:01.56,0:05:05.94,Default,,0000,0000,0000,,And so they stay in bad relationships,\Nbad businesses, and bad careers,
Dialogue: 0,0:05:06.42,0:05:08.94,Default,,0000,0000,0000,,hoping, hoping to turn things around
Dialogue: 0,0:05:09.14,0:05:13.60,Default,,0000,0000,0000,,and prove that their past\Ndecisions weren't so bad after all.
Dialogue: 0,0:05:13.98,0:05:19.70,Default,,0000,0000,0000,,An economist says, ignore what\Nyou can't change. Ignore the past.
Dialogue: 0,0:05:20.14,0:05:25.74,Default,,0000,0000,0000,,Focus on the future. Let's\Nsummarize thinking on the margin.
Dialogue: 0,0:05:26.40,0:05:30.28,Default,,0000,0000,0000,,First, think about a little\Nbit more or a little bit less,
Dialogue: 0,0:05:30.46,0:05:33.10,Default,,0000,0000,0000,,and keep going until you arrive at a point
Dialogue: 0,0:05:33.38,0:05:38.14,Default,,0000,0000,0000,,where the marginal benefits equal the\Nmarginal costs. That's the optimum.
Dialogue: 0,0:05:38.66,0:05:40.94,Default,,0000,0000,0000,,Second, when making a choice,
Dialogue: 0,0:05:41.58,0:05:47.06,Default,,0000,0000,0000,,only think about the costs and\Nbenefits that change with that choice.
Dialogue: 0,0:05:47.98,0:05:49.70,Default,,0000,0000,0000,,Ignore sunk costs.
Dialogue: 0,0:05:50.38,0:05:54.90,Default,,0000,0000,0000,,Thinking on the margin, it's useful,\Nand not just for economics classes.
Dialogue: 0,0:05:55.84,0:05:58.02,Default,,0000,0000,0000,,But if you are teaching\Nan economics class,
Dialogue: 0,0:05:58.34,0:06:01.52,Default,,0000,0000,0000,,check out our free unit plan\Nthat incorporates this video.
Dialogue: 0,0:06:02.06,0:06:05.72,Default,,0000,0000,0000,,I promise, the marginal benefit\Nwill exceed the marginal cost.
Dialogue: 0,0:06:06.46,0:06:10.22,Default,,0000,0000,0000,,And if you're ready to test yourself,\Ncheck out our practice questions.
Dialogue: 0,0:06:11.18,0:06:16.38,Default,,0000,0000,0000,,Finally, if you're ready for more\Nmicroeconomics, Click for the next video.