Increasing opportunity cost | Microeconomics | Khan Academy | Summary and Q&A

TL;DR

This video explains the concept of increasing opportunity cost and why it is prevalent in economic models.

Key Insights

• 🙈 Increasing opportunity cost is a phenomenon seen in many economic scenarios.
• 👋 Pursuing additional units of a good often requires sacrificing increasing amounts of another good.
• 🙇 Increasing opportunity cost is represented by a bow-shaped curve in a production possibilities frontier.
• 🧑‍💼 The concept of increasing opportunity cost shows the necessity of making trade-offs and the limited nature of resources.
• 🏋️ It is essential to consider opportunity cost when making decisions and weighing the benefits and drawbacks of different choices.
• 🧑‍🏭 Increasing opportunity cost can be influenced by factors such as the availability of resources and technological advancements.
• 🌍 Economic models simplify real-world scenarios to showcase the underlying principles of scarcity and choice.

Transcript

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Questions & Answers

Q: Why does the opportunity cost of obtaining rabbits increase as the number of rabbits desired increases?

The opportunity cost of obtaining rabbits increases because as individuals pursue more rabbits, they must give up more berries, which becomes increasingly costly in terms of time and effort.

Q: Does increasing opportunity cost appear in all economic models?

No, increasing opportunity cost is not present in all economic models. It depends on the specific variables and trade-offs considered in each model.

Q: Why does the production possibilities frontier show a bow-shaped curve?

The bow-shaped curve of the production possibilities frontier represents increasing opportunity cost. As more resources are allocated towards one good (rabbits), the trade-off becomes steeper, resulting in a higher opportunity cost of obtaining additional units of that good.

Q: What is the significance of increasing opportunity cost in economic models?

Increasing opportunity cost highlights the reality of trade-offs and the need to make choices. It demonstrates that as individuals allocate more resources towards one option, the cost of obtaining additional units of that option increases.

Summary & Key Takeaways

• The video examines how the opportunity cost changes as different scenarios are considered.

• As the desire for rabbits increases, the opportunity cost of obtaining them in terms of berries also increases.

• The concept of increasing opportunity cost is illustrated through a production possibilities frontier.