- [Tyler] Once you master the economic way of thinking,
you'll see the world in a very different way.
Two fundamental economic concepts are everywhere you look --
opportunity costs, and tradeoffs.
Let's start with opportunity costs.
At this busy coffee shop,
opportunity costs lie behind every decision.
Like for Jenny -- she's here for her third date with Adam.
Was that a good decision?
After all, economics is all about studying decisions.
Making a good decision is about comparing the benefits
of that decision to the costs.
The obvious costs for this date
for Jenny were the Uber ride she paid for to get here,
and her grande chai tea latte with whole milk.
But what's missing?
Her opportunity cost.
Opportunity cost means the value of the next best alternative.
For instance, instead of going on her third date with Adam,
Jenny could've been binge watching her favorite tv show.
She might've been on a first date instead,
with Roman.
Or she might've been having breakfast
with her very sweet sister.
Let's say her next best option
would've been breakfast with her sister.
Does the benefit of this third date with Adam
outweigh the opportunity cost?
It might seem strange to think this way about romance,
and it doesn't mean it's about calculating every decision
to the last penny.
Nonetheless, Jenny's time, attention and energy --
those are scarce.
And if she doesn't consider the alternatives at all,
she might be wasting parts of her life.
There's another fundamental related concept
from economics -- tradeoffs.
Take these sprinklers in the ceiling of the coffee shop,
foe example.
Adding sprinklers can make it safer during a fire,
but they also can cost a lot of money to install.
How much cheaper would the coffee be without them?
In a world of scarce resources, one typically has to choose.
There's a tradeoff -- safer buildings cost more,
but that means the coffee can be more expensive.
The line is out the door here.
Perhaps the owner has considered opening a second location.
As the building code however becomes more stringent,
the cost of opening an additional location goes up.
It's not just the direct monetary costs of paying
for things like sprinklers.
It's also the opportunity costs of the extra time and effort
to file permits, manage the work and schedule inspections.
A more stringent building code means a higher cost
for opening up new businesses.
And in turn, that higher cost can mean
that fewer new businesses get opened.
What's the right tradeoff between making buildings safer...
and making it easier to launch new businesses?
Once you see these tradeoffs,
you'll find them everywhere you look --
healthcare,
food,
the environment.
education.
One more decision to consider --
if you're a teacher, should you spice up
your economics class by checking out our free unit plan
that uses this video?
If you're a learner, should you watch another MRU video?
Well, YouTube is full of entertaining videos,
[cat meows]
but please, of course, consider the opportunity costs.