welcome back everybody for the final installment of the chapter two lecture videos uh so let me pull up my desktop for you so we can get on to lecture notes okay so now we're going to look at a ppf with increasing opportunity cost okay and so this is a little bit of a trickier concept in this this uh uh constant producing costs and i like to illustrate it with a um little picture i like to draw um so we're gonna consider another production possibly frontier and imagine a small island economy that has the ability to produce two goods airplanes and apples as with any society island has the scarce resources that can be voted the production of these goods some resources will be best suited for producing apples and some are best suited for producing airplanes and that's going to be important so here let's do my drawing so here's my island okay um and let's just say that you can roughly divide this island into like five sections okay so just like five areas in the island and the reason i'm doing it this way is remember this island can produce two goods airplanes or apples okay so this is gonna involve me trying to draw an airplane that's not good um and so let's say that any of these sections is big enough to have one airplane plant okay so if you devoted all of your resources to producing airplanes you'd end up with five airplanes being produced you know let's say per day or something like that okay and then i'm gonna make a table because i'm gonna summarize everything we do and like always i'm gonna have a few different points that are gonna end up being on our ppf and then we're going to have the number of airplanes and the number of apples okay i've always drawn this picture in class i've never done it digitally before so hopefully it's going to work from a distance all right so let's uh start with no airplane plants and let's just put some apple orchards everywhere so i'm just going to draw some apples oh yeah that's looking more like a heart than an apple um you know what i'm not going to try to draw good apples ever i'll just do circles so it's apples here some apples here some apples here some apples here okay um there's sort of a method to my madness here and some apples here okay okay so that is our island okay so um each of these apples represents like an apple orchard let's just say each of those can produce um a bushel of apples oh i'm like looking at the math i did here um sorry i just want to make sure all right so let's say each of these represents five bushels of apples okay i'm just looking at my eventual table and i just want to uh make sure i'm consistent here okay so every one of those apples represents every one of those little dots is an apple orchard that can produce five bushels of apples so here we go this is our island country not producing any airplanes there's freezing apples so 5 10 15 20 25 30 35 40 45 50 55 60 65 70. 75 bushels of apples no airplanes and we're calling that point a so remember the whole point of production possibilities frontier in case i've lost you already is we want to represent the different options this country has and this is one option no airplane factories just the apple orchards everywhere 75 bushels apples are pre-produced today and no airplanes are being produced okay so here's the thing let's say we want to produce an airplane so point b one airplane where are you gonna put the airplane plant remember the idea is that each of these sections can hurt can have an airplane plant that can produce one airplane per day okay so where are you going to put it and i want you to be thinking about this right pretend we're in a lecture and i just ask this question and i'm hoping people raise their hand so i want you to legitimately think about the answers question where do you put the airplane plant just kind of throw it like a dart board and see where it randomly lands or is there a thought process here is there an efficient place to put that first airplane plant okay so hopefully you see there is an efficient place because wherever i put this airplane plant i'm not producing apples anymore so if i put it here we're going to lose 15 bushels of apples if put here we're gonna lose five times five twenty five bushels of apples if you put it here you're only losing five bushels of apples so obviously that is the place to put the first airplane plant so now let me draw a picture of my airplane this is gonna be good and you gotta have some wings or else it's not an airplane totally looks just like a 747 yep i know i really should just teach art and just give up this whole economics thing um so there we go that is another option we put an airplane plant here kind of looks terrible and we're still left with 5 10 15 20 25 30 35 40 45 50 55 66 70 bushels of apples okay let's say that's not enough we want another airplane plant again where are you going to put it so hopefully you see the idea here if you don't put the airplane plants randomly resources have strengths remember back in chapter one we talked about division of labor we talked about how people have strengths it's the same is true for resources some land is probably better for producing apples some land is not as good for producing apples so you want to use resources to their strengths so you want to keep the apples in places that's good for apple production and you're going to put your airplanes elsewhere all right i'm not even going to pretend anymore there we go and so we're left with 60 apples 5 10 15 20 20 25 30 35 40 45 50 55 60. okay you can keep going hopefully at this point you see that the pattern so we can take away those apples and draw an airplane factory here okay so now we have that's going to be point d three and looks like forty five nine times five forty five okay so what's the message here the message is we're gonna end up with a ppf with increasing opportunity cost why is it increasing because we put that first airplane plant we put put the first airplane plant in our island we didn't put it somewhere random we put it the place that was producing the least amount of apples that meant the trade-off between that first airplane plant and the apples we lose was you only lost looking at my table i'm creating and i'm just gonna i lost my cursor i'm just gonna finish my table here clear all the drawings move forward if we keep going the table looks like this so when we had that first airplane plan we moved from point a to point b we were only giving up five bushels of apples okay that's a relatively small opportunity cost right but as we move forward and got more and more airplane plants we were no longer giving up bad apple places we eventually had to get the best apple places so we moved from four to five and we took out the last bit of apples left in our country we had to give up 25 bushels of apples to do it that's increasing opportunity cost as you move from zero airplanes to five airplanes with every step you're taking out an area that is better suited for apples so your opportunity cost increases and this we think is the truth about production when you have any sort of specialization when you have any sort of specialization possible you're always going to start with the least specialized areas as you give it up and so you're always going to start with the smallest opportunity cost and as you move you'll move to the places with the highest level of specialization okay if i turn this into an a ppf it looks like this again it's the same ppf we just saw this is point a with 75 apples and zero airplanes b with 70 apples and one airplanes and now you're seeing the shape of a ppf with a with an increasing opportunity cost a ppf with increasing opportunities always has this bowed out concave shape okay that is increasing opportunity cost some racers and islands are better used for certain objects like really fertile land is best used for for apples so at point a designed to sacrifice some apples just meant sacrificing a few apples so notice every step along the way from a to b to c to d to e death is one airplane so moving laterally moving left to right we're moving one airplane each time but notice how different the movements down from a to b is a small movement down a little bit bigger a little bit bigger a little bit bigger biggest movement down because as you move from a to f you give up more apples each time okay so that is the the the increasing opportunity cost i got my daughter's water bottle because i couldn't find mine um so that's the our increasing opportunity cost as we move um uh through this ppf and hopefully you can see and contrast the difference between the constant opportunity costs with the red and white wine okay um so finishing up our talk about the ppf i just want to show you some other things that the ppf can do for us is we can use this ppf to get this real basic picture of what economic growth looks like so as an economy grows and this is something going to talk about a lot of nikon 100 but i still want to just just because we're leveraging this model i want to show it for um econ 201 class as an economy grows increases in resources means an increase in productive capability that would be an increase in the ppf by shipped outward so if we are having an increase in economic growth the economy is getting bigger getting stronger this is what we expect to see in our ppf we have more available our productive capabilities increase so we push the ppf outward if for some reason there's a decrease in productive capability something like a pandemic or a war or something that reduces the productive capability of an economy you would shift inside so we think about those that spot the point you we saw in our original ppf and that was unattainable with current resources we see that if you have economic growth if this economy gets more resources because as more land more people more technology you could see an increase and get to those unattainable spots sometimes growth doesn't look like this sometimes growth is specialized in one sector so for example what if there's a technological improvement in airplane production so what if all of a sudden we can produce airplanes more more innovatively cheaper more efficiently than we did before well we would expect a change in our ppf if that that change only affects the airplane sector and doesn't affect growing apples because i don't know how does being able to have a better airplane production technology affect apples this is what we would see notice that the ppf increases but increases in a special way it looks more like a pivot why does it look like a pivot because as this is saying we can produce more airplanes with no change the amount of apples we can produce okay and lastly you can have negative changes what if there's a disease that affects the apple orchards or there's like a frost and the weather is too cold and apples don't grow as well this year how'd that affect the ppf well that shouldn't affect airplane production so that's why you don't see any change here but you can produce less apples and that's why you see it shifted there so that's just a little picture it's not that big of a deal in this class but something i want to show you about something we can look out for there pbf the last thing um that the ppf does for us and we're not going to go into too many details with this i have in previous semesters but we're just going to briefly talk about it is comparative advantage in international trade so every society must choose how much each good to produce but it doesn't need to produce every good it consumes you get what i'm saying here is just because you produce it doesn't mean you can need to consume it and just because you don't produce something doesn't mean you can't consume something trade exists right if the us decides we don't want to produce as much fruit that doesn't mean we can't consume as much fruit we can acquire it through international trade so the notion of trade-offs and opportunity costs is actually the basis for international trade so if you think about the stuff that the us imports as opposed to the stuff the u.s produces here so again certain fruits and agricultural products um certain uh uh like textiles are very rarely produced in the united states most shirts are produced outside the us which is actually strange because most cotton is grown here but then we take our cod now we grow here and we send it across the ocean it gets turned into t-shirts and then we bring it back um and the reason all this is is because of what's called comparative manager absolutely or absolute management compare advantage okay absolute advantage over another country is producing a good that could that uses fewer resources sorry is if one good good can produce a kind a good with fewer resources sorry that's what you just say meaning that if we look at the us's ability to produce let's say um uh t-shirts and we look at bangladesh's ability to produce t-shirts the one that could produce more t-shirts has the absolute advantage and you might think well clearly bangladesh has an absolute advantage but i'm not necessarily sure that's true yes they have they are currently devoting resources to producing t-shirts the u.s is not but i'm not but i feel pretty confident saying that the u.s decided one day that all t-shirts were gonna be made in the u.s we would be able to produce the factories to produce bank a t-shirt it's probably even faster than bangladesh but what's more important is comparative advantage and comparative advantage is about opportunity cost okay so comparative advantage is about what country can produce something at a lower opportunity cost and so you hear a lot about the us importing so much and this is why for when it comes to manufacturing when it comes to producing physical goods the opportunity cost for the us is really high why because we have the most skilled workforce in the world we have some of the highest education in the world we have the most resources in the world and so we have focused our economy in more than just production because the giant factory with thousands of workers manufacturing something takes up a lot of resources and in other countries that can be the best use of those resources it turns out that's usually not the case in the united states the reason we have to pay our workers so much more here then you have to pay workers in a country like bangladesh is because our workers view their time as more valuable right and that's partly perception because you look around and see wages in the united states versus the other countries and they look around see wages and a wage of something like two three dollars an hour is not acceptable here because the opportunity cost is too high people will not accept that because it's not worth their time to work under those conditions whereas in other countries those two three dollars an hour they view they can view that as worth their time okay that doesn't mean it's any less exploitative it's not an argument i'm trying to make here i'm trying to make why why do we import so much it's this is the answer because of comparative advantage analogy i'd like to give why u.s imports when we could produce great stuff here you know the way donald trump will talk about it oh big beautiful factories the reason we import so here's the knowledge i like to give is when i was living my old house so this is a few years ago there was a um a kid who lived down the street okay his name was wyatt um and he at one point like knocked on our door and offered to mow my lawn like weekly i mean i always mowed my own lawn it was something i was fine doing um and i started so he sat acid like he's just trying to get his first job as a teenager and i was like sure and so i was paying him like 10 bucks a week so here's my question who has the absolute advantage in mowing my lawn i mean who's better at it me or wyatt you might think oh then why this no there's no 13 or 14 year old kid who can mow along better than me not to say like like bragging about like i'm stronger i'm faster i i paid better attention to detail i cared more about my lawn my lawn would look better when i was doing it okay so why am i paying this kid ten dollars because he had the comparative advantage meaning to me the time it takes for me to mow my lawn just you give me that trade-off ten bucks versus that time off it was worth it to me to have somebody else do it even if it was last good job that's what comparative advantage is is that trade-off is worth the opportunity cost of mowing my lawn to me was worth more than ten dollars an extra two hours on the weekends to spend time with my kids worth it for me right whereas for wyatt that ten dollars was worth it for him because to him opportunity cost is what i mean this kid's got so much free time he's a kid you remember what it was like to be a kid so a couple hours to mow lawns um was absolutely worth it to him to get that ten dollars that's what comparative advantage is all about it's not that the us can't produce the best stuff because we probably can okay it's just not worth it for us okay that's what comparative advantage is all about comparative advantage says it's your opportunity cost is too high and so you have somebody else to do it you pay for it pay for it essentially okay so last slides in on this in these notes is um and this is from the textbook com confronting objections the economic approach it's not really related to any of the things from this chapter but they had to shoehorn in somewhere so the first objection the economic approach people firms and societies do not act like this people don't really draw budget constraints or ppfs to consider options and that is true people don't actually budge draw budget constraints but the premise informs us on every decision people do act as these models conclude so even if they don't act as the models are constructed i believe they act as the models conclude the conclusion that the results of the models reflect the real world and that allows us to see how changes in a variable might alter behavior so we get to chapter six and both both uh both classes are going to take this we're going to expand on that budget constraint module to actually get into consumer choice do i think people actually consume that way no but do i think that the end result reflects real decisions i do and i think by understanding those decisions you better understand the real world second objection people's firms in society should not act like this so economists often suggest people maximize their own satisfaction so we get to to chapter six that is going to be the assumption we make is that the only goal of the consumer is to maximize satisfaction and that can be seen as selfish and the objection that is maximizing satisfaction can involve seemingly unselfish acts the benefit of volunteering cannot waive the cost the opportunity to cost your time i'm a platelet donor if you don't know what donating platelets is it's like donating blood except it takes a lot more time they stick me on this machine where they have both my arms connected to um tubes or two like needles and they pull the blood out of one arm it goes through this machine they separate the blood and the plasma from the just the regular red blood cells and they put the blood cells back in my body and they take the blood the plasma the platelets to donate to people in need of those sort of uh uh those sort of medical interventions um and it takes me about three hours um between showing up for an appointment and leaving and i sit there like this for about an hour and 45 minutes um and i've done it over a hundred times um meaning you know i have i have something like 400 units of my platelets and plasma that have been donated to people in need and i'm not doing this for you guys think oh man my professor is awesome why do i do this because to me the benefit i receive remember economic decision making everything is a cost and a benefit the benefit i receive which is i feel good about myself i feel like i'm helpful it helps me create this idea of myself that i'm a good person which matters to me i feel like i'm a good role model for my kids that matters to me that is benefit the cost is my opportunity cost it's the time it's the pain every once in a while there's some things have gone wrong i fainted on the machine before sometimes they one time they had the the needle didn't go directly into a vein and so like it's looked like there was a golf ball in my arm because the blood was going where it shouldn't go that was disgusting um to me the benefit outweighs those costs and that's why i keep going back because it's worth it to me so even though it may seem unselfish that act you can model this as a completely selfish act because at the end of the day every decision is about the benefits outweighing the cost and to me the benefit outweighs the cost and every time you give money to charity that's why you're doing it because the benefit to you outweighs the cost seemingly selfish acts stretch across the society can lead to best outcomes why do pharmaceuticals companies invent drugs because they want to help the world hell no they do it because they want to turn a big big profit but it helps the world you know how many companies right now are racing to try to get the the vaccine for kovid to the market they're doing it for money let's be clear they're doing it because they want to make the most money possible but that selfish act is going to lead to us eventually god willing being able to eradicate this disease okay so that's the idea of why um i mean that's sort of the the story of capitalism as a whole is that selfish acts can lead to best outcomes and as somebody who is who's a understands free markets but can also be critical of them um i believe in this concept i also believe that it's up to the the government to recognize when this is not going right and to step in and do some uh interventions that to to help create these efficient outcomes right because selfish acts can also lead to dangerous workplaces uh and things like that okay so that's it um we're done with chapter two um if you have any questions on the homework or on the quiz please let me know and i will see you again for the chapter three lectures