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Opportunity Cost and Tradeoffs

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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
Title:
Opportunity Cost and Tradeoffs
Description:

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Video Language:
English
Team:
Marginal Revolution University
Duration:
04:38

English subtitles

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