So let's move on to the last key economic idea here. To make the best decisions, we use marginal analysis. So that sounds like a kind of a funky term, but in economics, marginal just means extra or additional. Right? Like the idea of one more. Right? What is one more? How is it going to change our current situation? Like what happens if we produce 1 more unit? What happens if I eat one more slice of pizza, things like that. So I hope you notice this big green box because I was trying to catch your eye with it. And inside, we've got a key formula that we're going to use throughout the entire class. I'm going to introduce you to it now. It's the idea that marginal benefit equals marginal cost. Okay. We're going to define those terms in a second, but I just wanted to point out how important this is for the class. It's going to help us in all sorts of calculations and it's going to be a key point on a lot of graphs. We're going to use it when we're defining allocative efficiency. Right now I'll have an example for you with optimum consumption, like how much we should consume, right, the optimum amount consume, or finding the profit maximizing point in different business structures. How do we make the most profit? All of these are related to the marginal benefit equaling the marginal cost, and I promise it's going to come up quite a bit in this course. So let's define those terms. And even before we get to the graph here and you're like woah woah woah woah woah woah woah woah woah woah Brian, I haven't seen a graph since high school, man. I don't know what you're about to do, but it's scaring me. I feel your pain and we're going to have a graphing review at the end of this section. That's going to kind of be a refresher for you. It's not going to go so deep, but it is going to help you have the tools ready to do really well in this course. So when we get to the graph, I'm going to use blue for our marginal benefit, and let's go ahead and define marginal benefit right now. When we think of marginal benefit, it's remember marginal is additional. Right? So it's kind of like the additional satisfaction that we get from something. It's really hard, you know, it's a subjective kind of thing, it's pretty qualitative. It's not so easy to just define how much happiness, you know, does going to the movies bring me. Oh, it brings me 10 happiness. Right? It's not so easy. But in this class, you know, they they kinda quantify it in that sense, and, most of the time, it's just going to be given to you. You can't really be expected to know how to define these benefits in number terms. Right? So we're going to kinda call marginal benefit here. We'll say it's the additional satisfaction. Right? Additional satisfaction that you're getting from one more of something. Right? And in our example, we're going to be talking about pizza. So So it's the additional satisfaction from eating one more slice of pizza. Right, and for cost we're going to be using red. And I guess I'll take this moment to point out that in this class we are going to be using a lot of colors especially when it comes to graphs, and I really suggest that you do the same thing. Even on the exams, I would suggest bringing a couple of different color pens. It just makes it so much easier, to keep your work separate and just keep track of everything. I really suggest using at least 2 colors, maybe even 3 when you're when you're taking this class. So we're going to use red for marginal cost and this is basically well, it's the additional cost. Right? I'm using cost again, but it doesn't have to be a monetary cost. Right? It could be a cost, an emotional cost, a psychological cost, could even be like a time cost, right? The time you spend doing something is part of the cost. So I'm just going to put additional cost here. It's a little easier to understand than marginal benefit. And let's go ahead and dive into the graph. Okay. I'm not going to use so many numbers here. We're just going to gonna use the graph as a tool. So let's start with our marginal benefit, and let's think about eating slices of pepperoni pizza. Right. The goal here is to find out what is the optimum amount of pizza that I should eat. So, you know, it's almost lunchtime here and man that first slice of pizza is sounding really good right now. I'm pretty hungry, and I think that if I were to eat a slice of pizza right now, probably bring me quite a bit of happiness. I'm just going to put it way up here. No numbers, right? We're just saying that there's a lot of happiness with that first slice of pizza. And the second slice, yeah, you know, still sounds delicious, still sounds cheesy, and oh, yeah. That sounds good, but that first bite that I got from that first slice of pizza, I'm not getting it back again, right? I'm still eating delicious pizza but that first slice was extra delicious. So it's still bringing me quite a bit of happiness but not as much as that first slice. The third slice, I'm still hungry, still feeling pretty good. I'm going to eat another slice of pizza and I'm still going to feel pretty good about it. By that fourth slice, well, now I'm getting full. But, I was still hungry so, you know, still bringing me happiness so it seems okay. How about once I get to that fifth slice of pizza? Now, you know, I'm starting to, like, question myself. I don't know if I should be eating this much pizza at once, but, you know, if I did it anyway, I'd probably still get some benefit from it. Maybe, you know, even if it's like, I'm not going to starve today, right, or tomorrow I guess if I eat 5 slices of pizza. And by the sixth pizza, you know, I'm I'm not getting much happiness out of it at all. It's just a lot of pizza at this point. So now let's talk about the marginal delicious, we're just going to talk about like emotional benefits and emotional costs here, right? Psychological or like you know nutritional costs, nothing nothing monetary. So that first slice of pizza, I'm really hungry. There's not a high cost here. I'm I'm hungry. I want the pizza, so there's not really much cost. How about that second slice? Well I'm not as hungry anymore and now I might start thinking about my health, right? The third slice, it's starting to come up. The fourth slice. Now I'm not even hungry anymore. Right? I ate that that fourth slice of pizza, and now I feel satiated. That fifth slice of pizza, it's going to come at a cost. Right? Now I'm bloated. Right? I can't even, like, get up after lunch. I'm going to need a 30 minute break. Probably, you know, it's a little much. And that sixth piece, the slice of pizza now I'm just, you know, I'm, I just got a stomachache now. It just wasn't worth it. Right? So the idea I think you might see at this fourth slice of pizza, they're kinda overlapping here, but the idea I think you'll see what's going to be happening here. Why don't we go ahead and connect our lines? So here, we're going to have what's called the marginal benefit line. Right? And let's draw our marginal cost line this way. And you can see that the marginal cost is increasing the more pizza I eat. Okay? So what do we find here? I think it's pretty obvious on the graph that there's one point that seems to stand out right here in the middle, and that is when our marginal benefit equals our marginal cost. And just like we defined right up here, marginal benefit equals marginal cost at our optimum consumption. Right? So here at 4 slices of pizza, that is how much pizza I should eat and I'll be most satisfied. So let's think about some different situations. What if I had only eaten three slices of pizza? What would have happened? Right. Let's say I'm at this point right here, I ate three slices of pizza. Well, you can see that the marginal benefit at three slices of pizza, if I were to eat one more, I'd be bringing in you know still some happiness, right? I'm still hungry and the marginal cost is still down here. It's less than the marginal benefit. So the idea is I should keep eating pizza because the marginal benefit is greater than the marginal cost of that next slice of pizza. So when I have three slices of pizza, I should have another one. But what if I'm here at 5 slices of pizza? Right, that fifth slice of pizza, now the marginal cost is greater than the marginal benefit. I'm not even hungry anymore, I'm starting to question myself right like why am I eating so much pizza, and I find that that's too much pizza. So for me, right here, we're going to find that four slices of pizza is the correct amount, and, you what you could think is like, you know, maybe for you, four isn't the right amount.
Table of contents
- 1. Introduction to Macroeconomics1h 57m
- 2. Introductory Economic Models59m
- 3. Supply and Demand3h 43m
- Introduction to Supply and Demand10m
- The Basics of Demand7m
- Individual Demand and Market Demand6m
- Shifting Demand44m
- The Basics of Supply3m
- Individual Supply and Market Supply6m
- Shifting Supply28m
- Big Daddy Shift Summary8m
- Supply and Demand Together: Equilibrium, Shortage, and Surplus10m
- Supply and Demand Together: One-sided Shifts22m
- Supply and Demand Together: Both Shift34m
- Supply and Demand: Quantitative Analysis40m
- 4. Elasticity2h 26m
- Percentage Change and Price Elasticity of Demand19m
- Elasticity and the Midpoint Method20m
- Price Elasticity of Demand on a Graph11m
- Determinants of Price Elasticity of Demand6m
- Total Revenue Test13m
- Total Revenue Along a Linear Demand Curve14m
- Income Elasticity of Demand23m
- Cross-Price Elasticity of Demand11m
- Price Elasticity of Supply12m
- Price Elasticity of Supply on a Graph3m
- Elasticity Summary9m
- 5. Consumer and Producer Surplus; Price Ceilings and Price Floors3h 40m
- Consumer Surplus and WIllingness to Pay33m
- Producer Surplus and Willingness to Sell26m
- Economic Surplus and Efficiency18m
- Quantitative Analysis of Consumer and Producer Surplus at Equilibrium28m
- Price Ceilings, Price Floors, and Black Markets38m
- Quantitative Analysis of Price Ceilings and Floors: Finding Points20m
- Quantitative Analysis of Price Ceilings and Floors: Finding Areas54m
- 6. Introduction to Taxes1h 25m
- 7. Externalities1h 3m
- 8. The Types of Goods1h 13m
- 9. International Trade1h 16m
- 10. Introducing Economic Concepts49m
- Introducing Concepts - Business Cycle7m
- Introducing Concepts - Nominal GDP and Real GDP12m
- Introducing Concepts - Unemployment and Inflation3m
- Introducing Concepts - Economic Growth6m
- Introducing Concepts - Savings and Investment5m
- Introducing Concepts - Trade Deficit and Surplus6m
- Introducing Concepts - Monetary Policy and Fiscal Policy7m
- 11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)1h 37m
- Calculating GDP11m
- Detailed Explanation of GDP Components9m
- Value Added Method for Measuring GDP1m
- Nominal GDP and Real GDP22m
- Shortcomings of GDP8m
- Calculating GDP Using the Income Approach10m
- Other Measures of Total Production and Total Income5m
- Consumer Price Index (CPI)13m
- Using CPI to Adjust for Inflation7m
- Problems with the Consumer Price Index (CPI)6m
- 12. Unemployment and Inflation1h 22m
- Labor Force and Unemployment9m
- Types of Unemployment12m
- Labor Unions and Collective Bargaining6m
- Unemployment: Minimum Wage Laws and Efficiency Wages7m
- Unemployment Trends7m
- Nominal Interest, Real Interest, and the Fisher Equation10m
- Nominal Income and Real Income12m
- Who is Affected by Inflation?5m
- Demand-Pull and Cost-Push Inflation6m
- Costs of Inflation: Shoe-leather Costs and Menu Costs4m
- 13. Productivity and Economic Growth1h 17m
- 14. The Financial System1h 37m
- 15. Income and Consumption52m
- 16. Deriving the Aggregate Expenditures Model1h 22m
- 17. Aggregate Demand and Aggregate Supply Analysis1h 18m
- 18. The Monetary System1h 1m
- The Functions of Money; The Kinds of Money8m
- Defining the Money Supply: M1 and M24m
- Required Reserves and the Deposit Multiplier8m
- Introduction to the Federal Reserve8m
- The Federal Reserve and the Money Supply11m
- History of the US Banking System9m
- The Financial Crisis of 2007-2009 (The Great Recession)10m
- 19. Monetary Policy1h 32m
- 20. Fiscal Policy1h 0m
- 21. Revisiting Inflation, Unemployment, and Policy46m
- 22. Balance of Payments30m
- 23. Exchange Rates1h 16m
- Exchange Rates: Introduction14m
- Exchange Rates: Nominal and Real13m
- Exchange Rates: Equilibrium6m
- Exchange Rates: Shifts in Supply and Demand11m
- Exchange Rates and Net Exports6m
- Exchange Rates: Fixed, Flexible, and Managed Float5m
- Exchange Rates: Purchasing Power Parity7m
- The Gold Standard4m
- The Bretton Woods System6m
- 24. Macroeconomic Schools of Thought40m
- 25. Dynamic AD/AS Model35m
- 26. Special Topics11m
1. Introduction to Macroeconomics
Three Key Economic Ideas
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