hey econ students this is Jacob Clifford welcome to the microeconomics unit one summary video in this video series I'm going to cover all the key graphs and all the key concepts for each unit but I'm going pretty quick so jump on board and let's go now we're going to jump into unit one basic economic Concepts now if you've watched this video before and you're here just a review you can click ahead by clicking one of these again we're going to cover five different concepts we're going to look at what is economics and talk about scarcity and opportunity costs and trade-offs stuff like that then we're going to jump into the idea of key terms a bunch of different key terms if you're new to economics then we're going to talk about economic systems then we're talk about the idea of the production possibilities curve and then finally I'll talk about something called comparative advantage the first thing you should have already done is got the ultimate review packet it looks like this it's on my website and what you do is you watch this video and as we go through pause every once in a while to work out the questions and draw the graphs and do the other things that are inside the packet okay now before we jump into the content I want you to drop your pencil and I want you to do something all right right now take your right hand and I want you to do this thumb out and then pinky out thumb out then pinky out thumb out pinky out just like this all right now stop I want you have both hands do it with me thumbs out pinkies out thumbs out pinkies out just like this all right now what I want you to do is over again except this time thumb out pinky out thumb out pinky out it's all right so switch looks like this now it might seem stupid to you but there's actually two main reasons we did that and they're essential first I want you to recognize economics is the same way it's going to start off real easy economics is just logic that's all it is it's just a bunch of logic puzzles and it's very intuitive so it starts off really really easy and you go this is so easy and with two hands ah I can do this all day and then all of a sudden it starts getting tricky right like drawing the graphs or doing the calculations it's going to happen in this video we're going to start off talking about the idea of comparative advantage very easy concept countries should specialize and trade right that makes sense and then you start doing some calculations calculating the opportunity cost it's a little trickier but not that hard hard and then we'll start doing something called terms of trade and it gets a lot more difficult so go slow make sure you get the concepts go through each one and then by the end it'll be really easy to do the hard ones okay now the second reason for this activity was to find out if you can participate right when I ask you to do it did you do it did you even try now if you didn't you're probably not going to use these videos the right way you're never going to be able to do economics if you don't actually try I mean when you see me do this it looks like easy I can do this all day long and I can do all the calculations and draw all the of Economics really easy but it's going to be harder for you to do them so you got to practice so when I say pause the video pause the video and write down that key term or do that calculation because it's going to help you so please participate we're going to start off talk about what economics is it's the science of scarcity scarcity is the idea that we have unlimited wants and limited resources so in your class it's the first thing your teacher is going to talk about most people think economics is about money it's not it's about limited resources so economics is how we deal with the idea that can't have everything and we're forced to make choices it's really how individuals and societies deal with the idea of scarcity now there's some key terms I want you to go over there's a difference between microeconomics and macroeconomics and there's actually two different courses so if you're in college you're probably taking micro or macro and there're same thing for the AP test microeconomics is the study of small economic units so looking at firms and individuals and their decision-making and governments as well but macroeconomics is looking at the big picture the entire economy like inflation and unemployment and gross domestic product and how the economy is doing is there a recession how can the government help to get out of a recession should the government help to get out of a recession these are all Concepts you'll see in macroeconomics tradeoffs is another key concept it's all the things you give up when you make a decision but they're all the things not just one so what's the trade-off of watching this video well you could be watching some other video you could be hanging out with your friends you could be sleeping the time watch in this video has a cost the things that you're giving up but you can't do them all right you can only actually have done one the one best thing the thing you gave up is called your opportunity cost it's the most desirable alternative when a choice is made now most people think when we talk about cost we're talking about dollars and cents but it's not just that right there's other concepts for example who you should date you have to decide what's my opportunity cost if I date that girl if I date that guy who's the person I'm Giving Up by dating them now this concept is the most important Concept in economics and most importantly it sets you up for what the point of the class is this class will change the way you make decisions it's going to Enlighten your mind to allow you to make better choices opportunity cost is the key to that whenever you make a choice you got to think of well what am I giving up to make this choice so this happens for individuals businesses for the government this idea of opportunity cost is huge okay there's five key economic assumptions I'm going to go over each one of them pretty quick the first one all resources are scarce we have unlimited wants and limited resources and because of that we're forced to make choices and everything has a cost your teacher probably already told you there's no such thing as a free lunch right so everything has a cost something that you gave up to get it everyone responds to incentives and acts in their own self-interest right and then for number four everyone makes Decisions by looking at the additional benefit and the additional cost of your decision so you weigh the benefits and cost of every decision and last one life can be explained kind of kind of with graphs you can use graphs to explain life you can explain the economy with graphs it's not perfect but you're going to see a lot of graphs in this class starting here in unit one there's a couple other key terms I want to cover quickly first one is the idea of investment now when you hear the word investment you think of stocks and bonds and retirement accounts not in economics in economics investment is always when a business buys machines tools and capital for their own business so they're they're buying things to improve their business now I use the term I use this term Capital you're going to see that too A lot of people think capital is money no no no there's actually two types of good there's consumer goods which are made for direct consumption like pizza and there's capital goods capital goods are tools machines to produce stuff so blenders ovens knives those are the things for Pizza Company that's their Capital now there's also something called human capital human capital is the knowledge and skills required to produce things so like a doctor goes to school to get human capital and you can improve those things over time now another thing you're going to hear is something called the four factors of production when you produce something if you produce a computer if you produce a table if you produce a cell phone there's resources that go into it they can be categorized into four things land labor capital and some people say entrepreneurship so inside any product there's certain resources go into it who owns the resource determines what kind of economic system you have now let's look at the big picture scarcity means there's not enough for everyone so we have to figure out the best way to allocate our scarce resources now how we do that determines something called our economic system there's three three main uh economic questions every society has to answer what goods and services should be produced what uh how it should be produced and who consumes those goods and services so how do you figure this how to run Society well basically the idea is if you answer these questions the answers are all the government decides the government decides that's one way to run your society and there's another way where individuals decide so the the way these questions are answered determines your economic system it's the method Society uses to produce and distribute goods and services now there's really just two main types we're going to talk about we go a lot more detail in other videos but the idea is centrally planned and free market economies the centrally planned economy is one where the government owns all the resources it owns basically the workers tells them where they can work and what jobs they should have the basic ideas came from the idea of Carl Marx and there's a bunch of other people who've pushed the idea of uh centrally planned economies now free market or capitalist economies come from the idea of a guy named Adam Smith he basically said let individuals decide what to produce and how to produce it and who gets it and let the market do it all that's called capitalism now your standard AP or college introductory course is going to talk about free market economies they're going to focus on those because really that's what most of the world is doing the most important Concept in capitalism is the idea of the Invisible Hand the Invisible Hand is the idea that society's goals will be met as individuals seek their own goals so a business can't get rich and can't make money unless they do something that you want like they if I produce cars I gotta make awesome cars I got to make awesome computers I gotta make awesome phones if I don't then people aren't going to buy them so they got to make other people better off and so society's resources will go to the right place based on on what we want produced competition and self-interest regulate the free market system now there's all sorts of situations this doesn't work with monopolies and externalities and other Concepts you're going to learn in this course but the idea of the Invisible Hand is the reason why this computer was not made by the government that camera was not made by the government a lot of the stuff around you is not made by the government it's regulated by the government that's true and that's not necessarily a bad thing but we don't want the government saying exactly what to produce and how much to produce and who gets it that system hasn't worked and that brings us to the idea of mixed economy so mixed economy is a system that has both free market and centrally planned like parts to it some government involvement and different things more government involvement in some countries than others but if you want to learn more go ahead and click on one of these you've got economic thinkers and you've got economic system I did those with the crash course people there's also a video of me going to China where this Chinese lady checked me out it's pretty funny take a look anyways let's move on now it's time for the key graph in this course something called the production possibilities curve now your teacher might call it the C possibilities Frontier the point is it's all the same thing it's basically a model that shows the alternative ways we can use our scarce resources it's going to show trade-offs scarcity opportunity cost efficiency all on one graph now it starts off with a chart this chart showing bikes and computers a b c d is all different combinations so we can produce all bikes and no computers or all computers and no bikes or some combination between so if you actually plot this you come up with a production possibly as curve each point represents a specific combination of the two goods we can produce at full employment using all of our resources so if we take the chart put it on a graph it's going to look like this you've got bikes computers and you plot the different points and you've got boom right here production possibly is curve now a couple things you need to know first any point inside the curve is the idea of inefficiency if we're producing only two computers and two bikes we're being inefficient with our resources if we're producing any point on the curve then we're actually producing what's efficient right we're producing uh using all of our resources all of our workers all of our factors of production to produce this stuff and outside the curve you can't produce that quantity there's just not enough resources right so we could if there was more technology and uh better resources we could produce out there in the future but for right now for whatever reason we cannot produce right here at Point G okay there's a couple different shapes to this graph and I want you to take a look at it let's talk about calzones and pizzas notice when you produce another Pizza you lose one czone when you produce another Pizza you lose another calzone when you produce another Pizza you lose one more czone and the opportunity cost here it's constant when every single time you produce a pizza you lose one Cal Zone that's called constant opportunity cost and it shows you that resources between the two products are very similar there you can use resources for pizza the the same resources for producing the C zones now it's going to result in a production possibly is curve that's a straight line now let's look at a different scenario let's look at pizzas and robots right here when I produce the very first robot I gain one robot but I lose one pizza when I go here I gain one more robot but now I lose three pizzas later on I gain one robot and I lose 10 pizzas notice I I lost only one pizza here and now I'm losing 10 pizzas something's going on and it's called The Law of increasing opportunity cost as you produce more of anything the opportunity cost to produce it's going to get bigger and bigger the reason why is because resources are not easily adaptable between the production of these two products pizzas and robots let me explain why with an example if we're producing combination a we're producing all pizz so all workers including workers that are better suited towards robots are working at producing pizza now when we move to combination B we're moving out those scientists and those people who are good at making robots we gain one robot and we don't lose very many pizzas because they're not particularly good at making pizzas anyways now if you keep doing that you're going to keep moving resources away are out of producing pizzas towards robots but eventually you'll start using the resources that are better suited towards making pizza for example right here we get only one more robot but we're moving away these pizza makers who that's what job is right Luigi working in the back of the pizza restaurant he's way better at making pizzas than he has robots so the opportunity cost is super high remember it's 10 pizzas we have to give up moving from D to e again this is called increasing opportunity cost let's see if you understand it with another example we've got forks and spoons forks and apples which one of these is a straight line and which one is a boat out curve well right here forks and spoons straight line that's constant opportunity cost and a boat out Forex and apples that's increasing opportunity cost the idea here is you produce more and more spoons you're going to give up the same amount of forks each time but as you produce more and more apples you're give up a little bit of forks and more forks and more forks and a whole lot of forks now I've made a bunch of videos explaining this concept in fact I've made something called Ecom movies if you haven't seen them take a look but I've explained it in this video also click here or here I haven't I'm not going to talk about Shifting the production possibly curve in this video but there is some practice questions on your packet make sure to try those cuz it's pretty self-explanatory if for whatever reasons we have uh like new technology this entire curve can shift outward right we get more forks and more apples anyways go back and watch one of these videos if you need more details one of the things I do want to cover is the idea of growth in the future so take look at two different countries we've got Panama over here we've got Mexico over here let's say here's the production possibly is curve for Panama they can produce consumer goods and capital goods let's say they're producing a certain combination which is producing a whole lot of consumer goods now their future growth curve I'll put right here is out here right so they'll have growth over time they'll be able to produce more in the long run but over on this side Take a Look let's put another country there's Mexico and they're producing this combination less consumer goods which sucks they're getting less bananas and clothes and stuff like that but they are getting a whole lot more capital goods the question is what's going to the Future curve going to look like for Mexico is it going to be the same distance out as Panama is it going to be farther out is it going to be less growth well it's right here there's going to be way more growth why because capital is a resource the more Capital you produce the more production you can do in the future because capital is a shifter of the curve you can get more output by producing more Capital so I know it seems like I'm rushing through this stuff and I'm not trying to but just trust me this first unit at the beginning stuff is really easy that's why I'm going really fast trust me you're going to get it it's easy now I'm going to slow down this is something that's a lot trickier it's called specialization in trade it's this idea of comparative advantage right it starts off easy the idea of absolute Advantage people are sometimes better at producing than other people so some people can produce things better than other people this is the idea of absolute Advantage they can produce more output or they can use fewer resources produce the same output as some other person they're just better at making things now the United States probably has an absolute advantage in the production of shoes I we could probably produce a boatload of shoes if we wanted to because we could and we're just a very large powerful productive country but we don't produce shoes we could we probably could produce the most of the entire world but we don't we specialize in other things that we prod instead we let other countries specialize in shoes now that's the idea of comparative advantage comparative advantage the idea of having the production having a lower opportunity cost so I can produce this at a lower opportunity cost than somebody else the United States produces very few shoes but we produce a whole lot of things like airplanes or CGI movies right movies like Pixar movies we produce a lot of computer movies because that's what we're good at and we have a lower opportunity cost in another country who can't produce those things the idea here is that country should specialize in trade when they have a comparative advantage if you're better at producing something than I am and I'm not as good as that producing that thing and I'll specialize in the thing that I'm really good at we both can trade and we can both benefit right so I'll trade you the movies you trade me the shoes we both walk away happier this is a production possibly is curve it shows you how much sugar and wheat the US can produce and how much sugar and wheat Brazil can produce now first question which country has an absolute advantage in the production of sugar well the United States they can produce 30 tons and Brazil can only produce 20 tons so United States can produce more sugar now who has an absolute advantage in the production of wheat well the United States they produce 30 and Brazil can only produce 10 so you can see United States has an absolute advantage in both now people assume that if United States can produce more of both we should produce both but we don't this is the idea of international trade and comparative advantage so I'm going to work backwards here but stay with me let's say United States specializes in wheat Brazil specializes in producing the sugar and they trade one wheat for one and a half sugar I'll explain how I got that number later but just stay with me take a look at this new production possibly is curve this is the new numbers based on the trade if the United States produces all wheat then they can produce 30 wheat right they're down here they're producing 30 wheat and they trade one of their wheat and they get one and a half sugar they trade another one wheat they get another one and a half sugar with the trade right look down at this number 20 wheat and 15 sugar 20 wheat it's right here 15 sugar is outside the curve there producing in fact they're they're consuming not producing they're consuming outside the curve by trading because they're getting that sugar at a lower opportunity cost than if they produce it themselves look at Brazil if Brazil produced all sugar they produce 20 sugar they can trade one and a half sugar to get one wheat another one and a half sugar for one wheat another one and a half sugar look at this number here five and 10 five sugar is here 10 wheat is out here for both countries after trade their curves can shift outward and they can consume more than if they could produce on their own right that's the idea of the benefits of trade now the question is how did I get those numbers this is the tricky part what you got to do when you do these questions first you got to convert the graphs into a chart so I've got the countries us and Brazil on the top I've got wheat I've got sugar now I just plug in the numbers United States can produce 30 wheat or 30 sugar Brazil can produce 10 wheat or 20 sugar so absolute Advantage is really easy to spot it's just whichever country can produce more in this case so states can produce more wheat they have an absolute advantage in the production of Wheat and in Sugar now time to calculate comparative advantage to figure out the comparative advantage you got to figure out who has a lower opportunity cost so you have to calculate What's called the per unit opportunity cost for each country now it starts off pretty easy and by the way the way I set it up is how I would do it with my students set up the chart draw it out every single time like this and practice this over and over again your review packet has several practice questions but don't do them yet wait till I cover this first and I'm also going to give you a trick keep watching for the US one wheat costs one sugar if they produce one wheat they're giving up one sugar that's their opportunity cost for uh us one sugar cost one wheat that's an easy one now here's my question for Brazil how much does each one weat cost well that right answer is two one wheat costs two sugar it's Two Sugars they could have produced but they can't produce it when they're producing wheat and on the other side each one of the sugar is the reciprocal it's 1/2 so if they produce 20 sugars and they could be producing 10 wheat well each one of the sugar cost one half a wheat they gave up now that we have this we can figure out the comparative advantage because we can find out who has a lower opportunity cost so which country should be producing the wheat who has a comparative advantage in wheat well the United States they have a lower opportunity cost and only cost them one sugar compared to Brazil that cost them Two Sugars so have a lower opportunity cost when they write these questions you can't have a comparative Vantage for both so if you see a test question and you find out that us has a comparative advantage in weat you're done you know for a fact that Brazil has the compar Vantage in sugar but it always work out that way but look at the numbers it makes sense too 1/2 is less than one the point is to figure out comparative advantage you got to calculate something called per unit opportunity cost now there's two different types of questions there's output questions and there's input questions so for this one we've got Canada Mexico this is number of planes they can produce right here and this is the cars they can produce so planes and cars this is going to be an output question now on a test question they would give you more information they' say this is number of planes and cars that Canada and Mexico can produce but I'm just setting it up that's the idea of an output question now which country real quick has an absolute advantage in the production of planes well Canada they can produce more planes than Mexico which country has an absolute advantage of production of cars yeah Canada they can produce 20 and Mexico can only produce 10 so Canada has an absolute advantage in both Goods very true now let's go look down here this next one is the idea of Australia us this is number of phones if they produce 100 phones this is if to produce a th000 bikes this is the number of hours it takes to produce those 100 phones now this is called an input question because the resource is what's variable here so 50 hours to take uh to produce 100 phones this one US takes 40 hours to produce 100 phones and over here Australia takes 20 hours to produce a th000 bikes us takes 10 hours to produce those 1,000 bikes now the question is who has an absolute advantage in the production of phones the answer is the US notice now you're looking for a smaller number because we're looking for hours it's better to use fewer resource in this case fewer hours to uh produce the phones and over who has an absolute advantage in the production of bikes well the US they take fewer hours notice the numbers are exactly the same they're exactly the same numbers 50 40 20 5040 20110 the what matters is what the question's asking if it's an input question and we're looking at hours or if an output question and we're looking at the number of things they're producing the stuff they're actually making now you can figure figure this question out by doing what I showed you earlier calculating the per unit opportunity cost for Canada so in this case it' be one plane cost I'll put equal signs for cost a certain number of cars given up in this case it would be two fifths of a car given up right now you could do that but it's really timec consuming and some students get uncomfortable it becomes difficult for them so here's a trick it's called the quick and dirty now the reason why it's called the quick and dirty because it is super quick but it's dirty it's so academically dirty it's just it's not cheating it's just like you're not going to learn anything you just it's just a trick that's going to work every single time and all the people who didn't watch the video up to this point well they missed out because you're going to get the quick and dirty go ahead and tell all your friends about it Mr Clifford did the quick and dirty with me it was exciting this first you understand the idea that there's only two possible outcomes that's going to happen here to get comparative advantage Canada should be producing the planes and Mexico would produce the cars right so it would be this situation right here it would be this I'm gonna draw a diangle diagonal representing Canada would be producing planes and then Mexico cars or the other option is Mexico is going to be producing the planes and Canada's going to cars so this other is the other possibility remember you can't have a comparative advantage in both products they can't have a compar Advantage producing both so here's the quick and dirty so 50 * 10 gives you a certain total number of things produced which would be 500 right so that's again that's 50 * 10 or the other one is 40 * 20 40 * 20 is 800 now since 800 is is more than 500 that means that is the right answer bam quick and dirty no doubt about it guaranteed you can do all the other calculations if you want Mexico is going to be producing the planes and the Canada is going to be producing the cars right again here's how I got I multiplied the possible outcomes it's either this or this the one that gives me the most because that's what I want I want the most stuff right that means as a compartive Advantage right that's the idea of getting comparative advantage and it is quick and it is dirty now let's go down here except remember we're doing an input question so we're doing the same thing it's 50 right here times 10 which we already said is 500 or it's going to be the other option which is 40 * 20 which is 800 so which one's the right option well it's definitely 500 now you're going to use less hours to produce the phones and bikes and so no doubt about it us should be producing the bikes and right here Australia should be producing the phones again you could do all the other calculations if you wanted to but this is a quick and dirty way to get the right answer okay how you doing you with me you get the concepts all right we're going to take it to the next level we're going to learn this idea of what's called terms of trade terms of trade is that both countries can benefit but they don't benefit at every single term of trade for example they have to have a certain number of cars traded for a certain number of planes to benefit both countries so an example I gave you earlier was one wheat for one and a half sugar for Brazil and us would benefit both countries how did did I come with that number well that's what you're going to figure out again it's called terms of trade it's agreed upon conditions that would benefit both countries so we've got an example question Kenya India pineapples radios 30 10 40 and 40 what I want you to do right now is I want you to pause this video I want you to figure out who has an absolute advantage in pineapples and radios who has a comparative advantage in pineapples and radios also I want you to try I know you don't want to I know you want to do the quick and dirty but I want you to try to actually calculate the per unit opportunity cost for each one of those and figure out who has a lower opportunity cost all right all right pause the video see how you do okay you got it here we go for Kenya each one of those pineapples cost onethird of a radio they gave up right and each one of the radios cost three pineapples now though India is pretty easy it's one pineapple costs one Radio One radio costs one pineapple now that we're there it's time to figure out who has a comparative advantage who has a lower opportunity cost and it's easy because you have the numbers right Pineapples oneir uh I'm sorry for Kenya it costs oneir of radio for India cost one radio who would you rather have producing the pineapples the one that has a lower opportunity cost so Kenya should produce pineapples again I'm circling the one that has the lower opportunity cost the one who should specialize in pineapples right India has a lower opportunity cost one compared to three lower opportunity cost and producing the radios and so they have a comparative advantage now let's use the quick and dirty to check to see if you're actually right 30 time 40 gives you 1,00 40 time 10 gives you 400 1 1200s higher that must be its right answer done output question that's the quick and dirty but we're not done remember we have to learn something called terms of trade so we have to figure out each one radio can be traded for how many pineapples to benefit both countries now I'll tell you right now one radio for 10 pineapples is good for one country but not good for the other country and one radio for like a half a pineapple is good for one country but not the other so there's a a a range you have to get the a right number in that range now I'll help you out and figure out how you get this what you got to do is you look right here this tells you once you've calculated this PR and opportunity cost the number for one radios for a certain number of pineapples has to be between three and one right for example two would work so one radio for two pineapples would benefit both countries but why is that well the reason why is this if Kenya Kenya produces radios by themselves so remember K Wow Kenya's producing pineapples right they're producing pineapples if they want to produce radios they're going to make them themselves or they trade form if they make it themselves how much does it cost them well it cost them three pineapples right so if they produce themselves cost them three they'd rather trade two pineapples and get a radio than they would produce uh give up three pineapples and get one radio by producing themselves so this works for Kenya they're like awesome that's a great trade it's better to give up two than three but now let's look at India right they can produce pineapples on their own if they do it's going to cost them one radio right so they produce a pineapple and it's going to cost them one radio but in this case they can give up one radio and get two pineapples right if they give up one radio because they're specializing in radios they can get two pineapples as opposed to giving up a radio and getting only one pineapple themselves so in this case one radio for two pineapples benefits both countries and that's a terms of trade that is great for both of them okay the last concept you're going to see in this unit is something called the circular flow model now I'm not going to explain it here but there's a video that explains the entire thing basically it shows you the relationship between households and businesses and the government again there's video it's right there you click on this it'll explain the concept the basics that you need to understand is the idea that businesses supply and demand they supply products but they demand resources and individuals you and me we also supply and demand right we demand products but we Supply our resources in the resource market so watch that video it'll explain the whole concept of the circular flow okay now it's time for you to practice when you see me do it it's really easy right I can do this I can figure out terms of trade I do all calculations let's see see if you can do it right now grab your ultimate review packet try the output question and the input question that I gave you check the answers to verify you're actually getting it now if you've watched the videos and you filled out the packet right now it's time to do the multiple choice questions for unit one try the questions check your answers if you're confused click on the learn more link it'll send you back to a video to practice make sure you're getting it and then move on from there thank you so much for watching my videos make sure to subscribe like and leave a comment let me know if this is working you want me to speed up you want me to slow down tell me what you need and I'll help you learn the concepts thank you so much for supporting my channel by getting the awesome ultimate review packet hopefully it's helping you learn the concept cuz I know it will thanks for watching until next time