SOPA and PIPA

WEBVTT
Kind: captions
Language: en

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Let's say that you´re the owner of some type of copyrighted material-

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maybe it's a movie, maybe it's music of some kind-

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and you observe that there is a site that is operating

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outside of the United States and that site-at least in your mind-

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seems to be infringing on your copyright by US law.

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So this is the site in question - and you're saying that it is doing illegal things, at least by US standards.

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The problem is that there's nothing you can do -

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it's operating outside of US soil and outside of US laws.

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You can even go to the government, even if the government wanted to do something about it,

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it really couldn't. Because once again, it's outside the US jurisdiction.

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The purpose of SOPA-and it seems fairly benign at first-

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is to give some tools to these actors to stop this.

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The problem-and we´ll see that it's quite a large problem-

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is that it gives tools to these actors to do much more than just stopping illegal activity;

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it allows them essentially to go on, to some degree, a kind of a witch hunt

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for anyone that might even have a whiff of enabling this type of activity.

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-it won´t even just be for foreign sites.

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So let's write this down, so SOPA stands for:

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Stop Online Piracy Act -

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and it sounds pretty reasonable -

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and this is the version of the bill that's coming from the House of Representatives.

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The one from the Senate, that's slightly different

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but they have the same intent, is PIPA [Protect IP Act].

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And what it does is, if you can´t go after this site itself

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maybe you can go after sites that is somehow benefiting this site.

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And those sites are inside the United States.

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So this is outside, this is inside the United States.

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So things that are doing that might include search engines.

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So search engines like Google or Bing.

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They obviously link to this site over here. You might have ad networks -

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so sites that allow this site over here to display ads and to get revenue from them -

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that are benefiting this site over here.

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You might have payment sites like PayPal

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or credit card processors that this site uses to collect revenue.

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And, maybe most importantly, you have things like the DNS servers within the US

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that associate this site's domain name with the actual servers.

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And I wont get too technical about it, but when you type in

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something like www.shady.foreign

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, and once again, we´re gonna see that this site might

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not even have to be shady or foreign-

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but when you type something like that in -

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there´re servers in the United states that associate that with these servers

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that might be operated outside the United States - that associate this text with a number

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that points to this website, that points to this website's servers.

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So these are all things within the United States -

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that to some degree this site is dependent on.

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So what SOPA does is, it allows these actors here -

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the ones that are obviously concerned with enforcing their copyrights -

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to issue court orders and notices to these actors right over here

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that essentially compels them, very strongly, to immediately

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cut off ties with this illegal site - or what they think is an illegal site.

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Now that might seem reasonable to you, except for the fact that

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it's kind of a "shoot first and think later" type of policy.

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The basic way it works is, you presume guilt until this guy

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somehow tries to prove his innocence and we´ll see

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this guy isn't necessarily outside the US.

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It might even be completely legal, or what I would consider

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completely legal sites inside the US.

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Essentially as soon as this allegation is made and either a court order

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or a notice is payed, these enablers have to cut off ties to this site -

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and you can imagine that if these cut off ties to this site,

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- this sites´ business - whatever it might be - whether illegal or legal,

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immediately gets obliterated, especially this one here

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including search engines, ad networks and payments.

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And if they don´t comply then these guys are going to start having a legal battle.

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So these guys are not only going to have to comply-and that by itself is hard-

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but if they don´t comply, then they themselves are going to be in trouble.

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Now it gets really obviously creepy, when you start

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going into - so when you think of this - you´re like

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okay, so maybe we can work around this a little bit.

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But it gets creepy when you even know this is the spirit of the legislation,

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when you actually read the wording of the legislation-

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and obviously that's what matters, not the name or the intent-

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But actually how it's worded-I mean, the way it's worded

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- it´s pretty clear that its intent is to go after much more

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than just a site that's explicitly selling illegal pharmaceuticals or

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allowing people to download movies or, or videos or music

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that these owners don´t have access to.

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When you read the wording, it's pretty clear that they want to be able

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to shut down anything that is in any way associating with itself -

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or in any way enabling it.

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And you see it in the wording. So this is actually section 1.0.3 of the SOPA legislation

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- and this is how they define a site that is dedicated to theft of US property.

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So an internet site is dedicated to theft of US property if -

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and, so you know, it's useable by people in the United States -

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and this is interesting: It´s "primarily designed or operated for the purpose of,"

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"has only limited purpose or use other than,"

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"or is marketed by its operator or another acting in concert"

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"with that operator for use in, offering goods or services in a manner"

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"that engages in, enables, or facilitates" - now this is interesting -

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enables or facilitates all of these violations.

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And these are the violations that would be illegal:

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You´re selling things that you can´t sell,

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you´re infringing on other people´s copyright.

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And it might seem harmless, this "enables, or facilitates", until you think about

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what that could encapsulate.

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If I have a site, like this, I am part of a site: Khan Academy

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Let´s say someone puts a message on Khan Academy

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and from Khan Academy they link to a site that actually is really illegal

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and that is really shady and they link to it in the message boards.

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Well, under this am I enabling, is Khan Academy enabling or facilitating?

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And if that's the case, then Khan Academy - by this definition -

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would be considered to be a site that is dedicated to theft of US property.

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And there are much bigger players than just Khan Academy,

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that can be thrown into this bucket, players like YouTube or Vimeo or any site.

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Or even a news site, that allows people to put comments,

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or allows people to put images, things like Flickr.

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That maybe had - in some way - their users infringing on the copyright

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now all of the sudden the whole site - based on this definition - the entire site

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can be defined as a site dedicated to theft of US property.

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By this definition YouTube could be that, if it's viewed in kind of

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enabling or facilitating.

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Khan Academy, any news site could be viewed like that.

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Vimeo could be viewed that way,

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a photo sharing site could be viewed like that.

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People might take a photo or something that they don´t have the copyright

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and upload an image and all the sudden - by this definition -

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based on just a sense that that's being violated,

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they won´t just be able to shut down these illegal sites;

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they would be able to shut down things like YouTube, or Vimeo,

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or even things like CNN.com, if someone puts a message

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or an image, that they think is somehow violating.

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And so it's not just going-right now the methodology is,

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if there is some content on YouTube or Vimeo or some other site,

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that they feel is infringing on their copyright,

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there are laws, where they contact YouTube directly,

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they point them to the content, that seems to be infringing

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and YouTube, or Vimeo, or whoever will take down that content.

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But what this allows them to do is shoot first and think later:

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"Oh, look: You´re enabling that"; if they could convince some court

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to give a court order, they can start giving notice to these players right over here

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to cut off ties with major - what I would consider very legal sites -

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like YouTube or Vimeo or CNN.

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It´s really almost any site that allows people to upload things onto it,

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or put links on it, which is almost - Facebook is another one -

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anything that has user generated content.

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On just a whim they could take down the entire site -

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not just take down that user generated content -

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they could, on just convincing one judge, or convincing just any of these,

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they could cut off ties with Facebook.

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Not even making Facebook.com point to Facebook anymore.

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CNN - they could just completely take down these sites on a whim.

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And it gets worse than that, because you would say:

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"well, look, if they can take this down on a whim and, you know,"

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"maybe they kind of thought it was, but they didn't do their homework"

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"and then they realize that it wasn't copyright infringement,"

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"couldn't these guys sue back?"-although, already, the damage would have been done,

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these sites would have been taken down;

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they would have lost millions or billions of dollars;

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millions, or tens or hundreds of millions, of users would not be able to access these things

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and this would also be true for Wikipedia,

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if someone uploaded something that wasn't completely, 100%, vetted,

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they could take down the entire site, not just that content.

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And you say: "Okay, that's bad enough!"

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"But couldn't these people say: `Hey, look, you wrongfully took us down,`"

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"`we´re going to sue you now`". Well to see that they can´t and

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to see how one-sided this legislation is, notice:

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The threshold for being able to sued back, if you kind of

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misrepresented a violation - the only way you´re kind of held

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accountable is if you knowingly, materially misrepresented the violation.

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So, if the copyright holder just says: "Oh, I think someone on YouTube"-you know-

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"I feel pretty good that someone on YouTube is violating"

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and that YouTube is enabling a violation and, therefore, YouTube

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is a site dedicated to theft of US property and it later on

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it finds out that it wasn't, it was fair use or maybe that person

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actually did have the copyright to it,

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they can´t be sued, because they said: "Oh, I just thought it was";

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they weren't knowingly materially misrepresenting themselves.

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So even if it ends up not even being a violation, these guys

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could take the site down. Maybe some small producers actually

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secured the rights, put it up on YouTube and then,

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all of the sudden, these guys take down all of YouTube based on

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not actually knowing what they are talking about.

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And there can´t even be a counter suit in that case, based on the law.

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And it gets even creepier than that, because to be considered this

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you don´t even just have to enable or facilitate - which is almost anything-

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one could argue a computer is enabling or facilitating this on some level.

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But you are considered to be a site dedicated to theft of US property,

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even if you do nothing illegal, even if you don´t enable anything illegal,

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but if you just take actions that make it difficult for authorities to confirm

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that you´re doing something illegal. So if you view this in the physical world:

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obviously, some people are doing illegal things in their homes

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and, obviously, some people lock their doors to keep people out of their homes.

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And maybe people are doing illegal things, it would even be

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more likely to lock their doors and close their shutters.

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What this would do-and this would do it in the virtual sense-

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is say: "Look! Just by taking the deliberate action of closing your shutters"

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"and looking your doors, which makes it hard for federal agents to confirm"

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"that you´re doing illegal things - just by doing that - that itself is an illegal act".

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This is maybe one of the creepiest and draconian Intrusions of privacy,

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that I have actually heard of,

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that was even attempted to be passed into law.

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So if I were you - just as a kind of a privacy and liberty loving American - I´d be worried.


Optimal point on budget line

WEBVTT
Kind: captions
Language: en

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So let's just review what
we've seen with budget lines.

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Let's say I'm
making $20 a month.

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So my income is $20 per month.

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Let's say per month.

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The price of chocolate
is $1 per bar.

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And the price of
fruit is $2 per pound.

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And we've already
done this before,

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but I'll just redraw
a budget line.

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So this axis, let's say this
is the quantity of chocolate.

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I could have picked
it either way.

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And that is the
quantity of fruit.

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If I spend all my
money on chocolate,

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I could buy 20 bars
of chocolate a month.

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So that is 20.

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This is 10 right over here.

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At these prices, if I
spent all my money on fruit

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I could buy 10 pounds per month.

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So this is 10.

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So that's 10 pounds per month.

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That would be 20.

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And so I have a budget
line that looks like this.

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And the equation of this budget
line is going to be-- well,

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I could write it like this.

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My budget, 20, is going
to be equal to the price

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of chocolate, which is 1, times
the quantity of chocolate.

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So this is 1 times the
quantity of chocolate,

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plus the price of
fruit, which is

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2 times the quantity of fruit.

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And if I want to
write this explicitly

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in terms of my
quantity of chocolate,

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since I put that
on my vertical axis

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and that tends to be
the more dependent axis,

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I can just subtract 2
times the quantity of fruit

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from both sides.

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And I can flip them.

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And I get my
quantity of chocolate

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is equal to 20 minus 2
times my quantity of fruit.

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And I get this budget
line right over there.

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We've also looked at the idea
of an indifference curve.

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So for example,
let's say I'm sitting

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at some point on my
budget line where

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I have-- let's say I am
consuming 18 bars of chocolate

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and 1 pound of fruit.

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18-- and you can
verify that make sense,

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it's going to be $18
plus $2, which is $20.

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So let's say I'm at this
point on my budget line.

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18 bars of chocolate,
so this is in bars,

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and 1 pound of fruit per month.

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So that is 1.

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And this is in pounds.

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And this is chocolate, and
this is fruit right over here.

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Well, we know we have this
idea of an indifference curve.

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There's different combinations
of chocolate and fruit

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to which we are
indifferent, to which

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we would get the same
exact total utility.

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And so we can plot
all of those points.

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I'll do it in white.

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It could look
something like this.

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I'll do it as a dotted line, it
makes it a little bit easier.

00:02:36.160 --> 00:02:37.800
So let me draw it like this.

00:02:37.800 --> 00:02:41.160
So let's say I'm
indifferent between any

00:02:41.160 --> 00:02:44.270
of these points, any of those
points right over there.

00:02:44.270 --> 00:02:45.770
Let me draw it a
little bit better.

00:02:45.770 --> 00:02:49.710
So between any of these
points right over there.

00:02:49.710 --> 00:02:52.650
So for example, I could
have 18 bars of chocolate

00:02:52.650 --> 00:02:57.900
and 1 pound of fruit,
or I could have--

00:02:57.900 --> 00:03:00.420
let's say that is
4 bars of chocolate

00:03:00.420 --> 00:03:05.620
and roughly 8 pounds of fruit.

00:03:05.620 --> 00:03:06.550
I'm indifferent.

00:03:06.550 --> 00:03:09.500
I get the same
exact total utility.

00:03:09.500 --> 00:03:12.420
Now, am I maximizing
my total utility

00:03:12.420 --> 00:03:14.410
at either of those points?

00:03:14.410 --> 00:03:16.370
Well, we've already
seen that anything

00:03:16.370 --> 00:03:18.200
to the top right
of our indifference

00:03:18.200 --> 00:03:20.870
curve of this white curve right
over here-- let me label this.

00:03:20.870 --> 00:03:24.240
This is our indifference curve.

00:03:24.240 --> 00:03:26.450
Everything to the top right
of our indifference curve

00:03:26.450 --> 00:03:27.280
is preferable.

00:03:27.280 --> 00:03:29.340
We're going to get
more total utility.

00:03:29.340 --> 00:03:31.250
So let me color that in.

00:03:31.250 --> 00:03:34.720
So everything to the top right
of our indifference curve

00:03:34.720 --> 00:03:35.930
is going to be preferable.

00:03:35.930 --> 00:03:37.730
So all of these other
points on our budget

00:03:37.730 --> 00:03:39.604
line, even a few points
below or budget line,

00:03:39.604 --> 00:03:42.660
where we would actually
save money, are preferable.

00:03:42.660 --> 00:03:45.660
So either of these
points are not

00:03:45.660 --> 00:03:47.550
going to maximize
our total utility.

00:03:47.550 --> 00:03:50.280
We can maximize or total utility
at all of these other points

00:03:50.280 --> 00:03:52.570
in between, along
our budget line.

00:03:52.570 --> 00:03:55.140
So to actually maximize
our total utility

00:03:55.140 --> 00:03:58.300
what we want to do is find
a point on our budget line

00:03:58.300 --> 00:04:03.863
that is just tangent, that
exactly touches at exactly one

00:04:03.863 --> 00:04:05.820
point one of our
indifference curves.

00:04:05.820 --> 00:04:07.560
We could have an infinite
number of indifference curves.

00:04:07.560 --> 00:04:08.640
There could be another
indifference curve

00:04:08.640 --> 00:04:09.510
that looks like that.

00:04:09.510 --> 00:04:10.450
There could be another
indifferent curve

00:04:10.450 --> 00:04:11.500
that looks like that.

00:04:11.500 --> 00:04:13.958
All that says is that we are
indifferent between any points

00:04:13.958 --> 00:04:14.860
on this curve.

00:04:14.860 --> 00:04:18.260
And so there is an indifference
curve that touches exactly

00:04:18.260 --> 00:04:21.792
this budget line, or exactly
touches the line at one point.

00:04:21.792 --> 00:04:23.500
And so I might have
an indifference curve

00:04:23.500 --> 00:04:25.530
that looks like this.

00:04:25.530 --> 00:04:29.230
Let me do this in a
vibrant color, in magenta.

00:04:29.230 --> 00:04:32.610
So I could have an indifference
curve that looks like this.

00:04:32.610 --> 00:04:36.280
And because it's tangent, it
touches at exactly one point.

00:04:36.280 --> 00:04:38.410
And also the slope of
my indifference curve,

00:04:38.410 --> 00:04:40.118
which we've learned
was the marginal rate

00:04:40.118 --> 00:04:45.620
of substitution, is the exact
same as the slope of our budget

00:04:45.620 --> 00:04:47.320
line right over there,
which we learned

00:04:47.320 --> 00:04:49.440
earlier was the relative price.

00:04:49.440 --> 00:04:53.690
So this right about here
is the optimal allocation

00:04:53.690 --> 00:04:55.780
on our budget line.

00:04:55.780 --> 00:04:57.260
That right here is optimal.

00:04:57.260 --> 00:04:59.120
And how do we know
it is optimal?

00:04:59.120 --> 00:05:01.750
Well, there is no other
point on the budget line

00:05:01.750 --> 00:05:03.090
that is to the top right.

00:05:03.090 --> 00:05:07.340
In fact, every other
point on our budget line

00:05:07.340 --> 00:05:10.200
is to the bottom left of
this indifference curve.

00:05:10.200 --> 00:05:14.740
So every other point on our
budget line is not preferable.

00:05:14.740 --> 00:05:18.710
So remember, everything
below an indifference curve--

00:05:18.710 --> 00:05:19.835
so all of this shaded area.

00:05:19.835 --> 00:05:21.460
Let me actually do
it in another color.

00:05:21.460 --> 00:05:23.380
Because indifference
curve, we are different.

00:05:23.380 --> 00:05:25.463
But everything below an
indifference curve, so all

00:05:25.463 --> 00:05:29.370
of this area in green,
is not preferable.

00:05:29.370 --> 00:05:31.480
And every other point
on the budget line

00:05:31.480 --> 00:05:35.090
is not preferable to that
point right over there.

00:05:35.090 --> 00:05:37.510
Because that's the only point--
or I guess you could say,

00:05:37.510 --> 00:05:39.010
every other point
on our budget line

00:05:39.010 --> 00:05:43.270
is not preferable to the points
on the indifference curve.

00:05:43.270 --> 00:05:46.260
So they're also not preferable
to that point right over there

00:05:46.260 --> 00:05:49.570
which actually is on
the indifference curve.

00:05:49.570 --> 00:05:51.880
Now, let's think
about what happens.

00:05:51.880 --> 00:05:55.310
Let's think about what
happens if the price of fruit

00:05:55.310 --> 00:05:56.480
were to go down.

00:05:56.480 --> 00:06:04.790
So the price of fruit were to
go from $2 to $1 per pound.

00:06:04.790 --> 00:06:07.610
So if the price of fruit
went from $2 to $1, then

00:06:07.610 --> 00:06:09.790
our actual budget line
will look different.

00:06:09.790 --> 00:06:11.362
Our new budget line.

00:06:11.362 --> 00:06:13.070
I'll do it in blue,
would look like this.

00:06:13.070 --> 00:06:14.180
If we spent all our
money on chocolate,

00:06:14.180 --> 00:06:15.280
we could buy 20 bars.

00:06:15.280 --> 00:06:18.040
If we spent all of our money
on fruit at the new price,

00:06:18.040 --> 00:06:20.460
we could buy 20 pounds of fruit.

00:06:20.460 --> 00:06:25.120
So our new budget line would
look something like that.

00:06:28.090 --> 00:06:29.840
So that is our new budget line.

00:06:35.630 --> 00:06:38.210
So now what would be
the optimal allocation

00:06:38.210 --> 00:06:40.990
of our dollars or the best
combination that we would buy?

00:06:40.990 --> 00:06:43.270
Well, we would do the
exact same exercise.

00:06:43.270 --> 00:06:46.030
We would, assuming
that we had data

00:06:46.030 --> 00:06:48.282
on all of these
indifference curves,

00:06:48.282 --> 00:06:49.990
we would find the
indifference curve that

00:06:49.990 --> 00:06:53.520
is exactly tangent to
our new budget line.

00:06:53.520 --> 00:06:56.910
So let's say that this
point right over here

00:06:56.910 --> 00:07:00.830
is exactly tangent to
another indifference curve.

00:07:00.830 --> 00:07:01.980
So just like that.

00:07:01.980 --> 00:07:05.270
So there's another indifference
curve that looks like that.

00:07:05.270 --> 00:07:07.180
Let me draw it a
little bit neater.

00:07:07.180 --> 00:07:10.910
So it looks something like that.

00:07:10.910 --> 00:07:13.890
And so based on how the price--
if we assume we have access

00:07:13.890 --> 00:07:16.980
to these many, many, many,
many, many indifference curves,

00:07:16.980 --> 00:07:21.110
we can now see based
on, all else equal,

00:07:21.110 --> 00:07:24.090
how a change in
the price of fruit

00:07:24.090 --> 00:07:26.750
changed the quantity
of fruit we demanded.

00:07:26.750 --> 00:07:29.890
Because now our optimal spent
is this point on our new budget

00:07:29.890 --> 00:07:34.540
line which looks like it's
about, well, give or take,

00:07:34.540 --> 00:07:36.810
about 10 pounds of fruit.

00:07:36.810 --> 00:07:39.640
So all of a sudden,
when we were-- so let's

00:07:39.640 --> 00:07:41.060
think about just the fruit.

00:07:41.060 --> 00:07:42.560
Everything else
we're holding equal.

00:07:42.560 --> 00:07:47.030
So just the fruit, let's
do, when the price was $2,

00:07:47.030 --> 00:07:50.600
the quantity demanded
was 8 pounds.

00:07:50.600 --> 00:07:52.520
And now when the price
is $1, the quantity

00:07:52.520 --> 00:07:54.205
demanded is 10 pounds.

00:07:54.205 --> 00:07:55.580
And so what we're
actually doing,

00:07:55.580 --> 00:07:58.530
and once again, we're kind of
looking at the exact same ideas

00:07:58.530 --> 00:07:59.650
from different directions.

00:07:59.650 --> 00:08:03.160
Before we looked at it in terms
of marginal utility per dollar

00:08:03.160 --> 00:08:05.130
and we thought about
how you maximize it.

00:08:05.130 --> 00:08:07.190
And we were able to
change the prices

00:08:07.190 --> 00:08:09.539
and then figure out and derive
a demand curve from that.

00:08:09.539 --> 00:08:12.080
Here we're just looking at it
from a slightly different lens,

00:08:12.080 --> 00:08:14.860
but they really are
all of the same ideas.

00:08:14.860 --> 00:08:17.280
But by-- assuming
if we had access

00:08:17.280 --> 00:08:18.870
to a bunch of
indifference curves,

00:08:18.870 --> 00:08:22.880
we can see how a change in
price changes our budget line.

00:08:22.880 --> 00:08:25.610
And how that would change
the optimal quantity

00:08:25.610 --> 00:08:28.244
we would want of
a given product.

00:08:28.244 --> 00:08:29.910
So for example, we
could keep doing this

00:08:29.910 --> 00:08:32.429
and we could plot
our new demand curve.

00:08:32.429 --> 00:08:34.220
So I could do a demand
curve now for fruit.

00:08:34.220 --> 00:08:36.730
At least I have two points
on that demand curve.

00:08:36.730 --> 00:08:39.010
So if this is the
price of fruit and this

00:08:39.010 --> 00:08:42.872
is the quantity demanded of
fruit, when the price is $2,

00:08:42.872 --> 00:08:44.400
the quantity demanded is 8.

00:08:47.620 --> 00:08:49.000
And when the price
is-- actually,

00:08:49.000 --> 00:08:50.610
let me do it a
little bit different.

00:08:50.610 --> 00:08:53.820
When the price is $2--
these aren't to scale--

00:08:53.820 --> 00:08:56.905
the quantity demanded is 8.

00:08:56.905 --> 00:08:58.687
Actually let me
do it here-- is 8.

00:08:58.687 --> 00:08:59.770
And these aren't to scale.

00:08:59.770 --> 00:09:03.710
But when the price is $1,
the quantity demanded is 10.

00:09:03.710 --> 00:09:06.625
So $2, 8, the quantity
demanded is 10.

00:09:09.140 --> 00:09:11.570
And so our demand curve,
these are two points on it.

00:09:11.570 --> 00:09:14.010
But we could keep changing
it up assuming we had access

00:09:14.010 --> 00:09:15.630
to a bunch of
indifference curves.

00:09:15.630 --> 00:09:18.150
We could keep changing
it up and eventually plot

00:09:18.150 --> 00:09:23.640
our demand curve, that might
look something like that.


Budget Line

WEBVTT
Kind: captions
Language: en

00:00:00.336 --> 00:00:01.614
What I want to do in this video

00:00:01.614 --> 00:00:04.450
is introduce you to the
idea of a budget line.

00:00:04.450 --> 00:00:06.534
Actually, probably isn't a new idea.

00:00:06.534 --> 00:00:08.902
It's a derivative idea of what you've seen

00:00:08.902 --> 00:00:11.945
and often in an
introductory algebra course

00:00:11.945 --> 00:00:13.875
where A, you've gotten a
certain amount of money

00:00:13.875 --> 00:00:16.469
and you can spend it on a
certain combination of goods.

00:00:16.469 --> 00:00:17.990
What are all the different possibilities

00:00:17.990 --> 00:00:19.395
that you can actually buy?

00:00:19.395 --> 00:00:21.866
That's really what a budget line is.

00:00:21.866 --> 00:00:23.200
Let's say that you have an income

00:00:23.200 --> 00:00:24.751
and I'll do it both in the abstract

00:00:24.751 --> 00:00:25.834
and the concrete.

00:00:25.834 --> 00:00:27.065
I'll do it variables

00:00:27.065 --> 00:00:29.330
and then I'll also do
it with actual numbers.

00:00:29.330 --> 00:00:35.603
Lets say your income, your
income in a month is Y

00:00:35.603 --> 00:00:38.264
and lets say that you
spend all of your money.

00:00:38.264 --> 00:00:43.421
Your income is equal to your expenditures.

00:00:43.421 --> 00:00:45.332
Assuming in our little model here

00:00:45.332 --> 00:00:47.268
that you're not going
to be saving any money.

00:00:47.268 --> 00:00:51.270
To show how overly simplified
we can make a model

00:00:51.270 --> 00:00:53.094
we are going to only assume

00:00:53.094 --> 00:00:55.100
that you can spend on two different goods

00:00:55.100 --> 00:00:56.667
and that's so that we can actually plot

00:00:56.667 --> 00:00:59.073
all the combinations on
a two dimensional surface

00:00:59.073 --> 00:01:00.401
like the screen over here.

00:01:00.401 --> 00:01:02.600
Obviously, most people buy many more

00:01:02.600 --> 00:01:04.600
or they at least are
choosing between many,

00:01:04.600 --> 00:01:06.018
many more than two goods.

00:01:06.018 --> 00:01:08.270
But let's say you can
choose between 2 goods

00:01:08.270 --> 00:01:11.190
and let's just take goods
that we've been doing

00:01:11.190 --> 00:01:12.552
using in recent videos.

00:01:12.552 --> 00:01:16.727
That 2 goods that you buy are
either chocolate or fruit.

00:01:16.727 --> 00:01:18.049
You could buy chocolate by the bar

00:01:18.049 --> 00:01:19.596
or fruit by the pound.

00:01:19.596 --> 00:01:20.989
What are going to be your expenditures

00:01:20.989 --> 00:01:23.889
assuming you spend it all
on chocolate and fruit?

00:01:23.889 --> 00:01:26.311
Well, there's going to be the amount

00:01:26.311 --> 00:01:27.262
that you spend on chocolate

00:01:27.262 --> 00:01:28.604
will be the price of chocolate

00:01:28.604 --> 00:01:30.732
times the quantity of chocolate you buy

00:01:30.732 --> 00:01:31.938
which is the number of bars.

00:01:31.938 --> 00:01:34.464
And then the amount you spent on fruit

00:01:34.464 --> 00:01:36.357
will be the price of fruit per pound

00:01:36.357 --> 00:01:40.026
times the quantity of fruit.

00:01:40.026 --> 00:01:49.046
For example, if Y = $20 a month

00:01:49.046 --> 00:01:52.583
and the price, actually
we'll plot this in a second,

00:01:52.583 --> 00:01:58.136
the price of chocolate
is equal to $1 per bar

00:01:58.136 --> 00:02:04.258
and the price of fruit
is equal to $2 per pound.

00:02:04.258 --> 00:02:05.798
I think these were the prices I used

00:02:05.798 --> 00:02:07.802
in a per pound of fruit.

00:02:07.802 --> 00:02:09.789
Then all of a sudden, you
would know what this is,

00:02:09.789 --> 00:02:12.528
you would know what this is and this is.

00:02:12.528 --> 00:02:13.949
You know what the Ps are and the Y

00:02:13.949 --> 00:02:16.495
and then you could
actually graph one of these

00:02:16.495 --> 00:02:19.456
quantities relative to the other.

00:02:19.456 --> 00:02:21.413
What we can do is, and let's do that,

00:02:21.413 --> 00:02:27.491
we can graph the quantity
of 1 relative to the other.

00:02:27.491 --> 00:02:29.082
Why don't we put the quantity of chocolate

00:02:29.082 --> 00:02:32.993
on this axis over here and
let's put the quantity of fruit

00:02:32.993 --> 00:02:34.416
on this axis over here.

00:02:34.416 --> 00:02:37.782
First, if we wanted to
graph it I like to put it,

00:02:37.797 --> 00:02:38.991
since I've put quantity of chocolate

00:02:38.991 --> 00:02:40.327
on the vertical axis here,

00:02:40.327 --> 00:02:43.923
I'd like to solve this equation
for quantity of chocolate

00:02:43.923 --> 00:02:45.456
as a function of quantity fruit

00:02:45.456 --> 00:02:47.525
and it should make it pretty
straight forward to graph.

00:02:47.525 --> 00:02:48.489
Let's try that out.

00:02:48.489 --> 00:02:49.743
First, I'm just going to rewrite this

00:02:49.743 --> 00:02:51.659
without expenditures in between.

00:02:51.659 --> 00:02:53.598
We have our income,

00:02:53.598 --> 00:02:57.741
our income Y = price of chocolate

00:02:57.741 --> 00:03:00.151
times the quantity of chocolate

00:03:00.151 --> 00:03:05.993
plus the price of fruit
times the quantity of fruit.

00:03:05.993 --> 00:03:09.522
Now, I want to solve for
the quantity of chocolate.

00:03:09.522 --> 00:03:10.592
Let me make that orange

00:03:10.592 --> 00:03:13.986
so we know that this is
this one right over here.

00:03:13.986 --> 00:03:15.884
If I want to solve for that,

00:03:15.884 --> 00:03:19.402
the best way I could isolate
it one side of this equation.

00:03:19.402 --> 00:03:22.154
Let me get rid of this this
yellow part right over here

00:03:22.154 --> 00:03:23.330
and the best way to do that

00:03:23.330 --> 00:03:25.073
is to subtract it from both sides.

00:03:25.073 --> 00:03:27.740
Let's subtract the price of fruit

00:03:27.740 --> 00:03:29.397
times the quantity of fruit

00:03:29.397 --> 00:03:31.407
and I could substitute
the numbers in first

00:03:31.407 --> 00:03:32.926
and that might actually
make it a little bit

00:03:32.926 --> 00:03:33.928
easier to understand

00:03:33.928 --> 00:03:35.392
but I like to keep it general first.

00:03:35.392 --> 00:03:38.260
You see, you don't have to
just use with these numbers

00:03:38.260 --> 00:03:40.125
you could just see the
general result here.

00:03:40.125 --> 00:03:42.070
I'm going to subtract it
from the left hand side

00:03:42.070 --> 00:03:43.659
and the right hand side

00:03:43.659 --> 00:03:45.659
and the whole point is to get rid of it

00:03:45.659 --> 00:03:47.317
from the right hand side.

00:03:47.317 --> 00:03:49.568
This cancels out, the left hand side

00:03:49.568 --> 00:03:54.406
becomes your income
minus the price of fruit

00:03:54.406 --> 00:03:56.527
times the quantity of fruit.

00:03:56.527 --> 00:03:59.067
This is going to be equal
to your right hand side

00:03:59.067 --> 00:04:00.565
which is just the price of chocolate

00:04:00.565 --> 00:04:02.329
times the quantity of chocolate.

00:04:02.329 --> 00:04:04.657
Now if we want to solve for
the quantity of chocolate

00:04:04.657 --> 00:04:09.585
we just divide both sides
by the price of chocolate

00:04:09.585 --> 00:04:12.024
and then you get it,
and I'll flip the sides.

00:04:12.024 --> 00:04:13.210
You get the quantity of chocolates,

00:04:13.210 --> 00:04:16.395
is going to be equal to your income,

00:04:16.395 --> 00:04:22.084
your income divided by
the price of chocolate

00:04:22.084 --> 00:04:28.525
minus the price of fruit
times the quantity of fruit

00:04:28.525 --> 00:04:31.728
all of that over the price of chocolate.

00:04:31.728 --> 00:04:34.801
All over that over the price of chocolate.

00:04:34.801 --> 00:04:36.882
We can actually substitute
these numbers in here

00:04:36.882 --> 00:04:39.798
and then we can actually
plot what essentially

00:04:39.798 --> 00:04:42.046
this budget line will look like.

00:04:42.046 --> 00:04:47.190
In our situation, 20, Y = 20,

00:04:47.190 --> 00:04:49.861
the price of chocolate is equal to 1.

00:04:49.861 --> 00:04:51.731
Price of chocolate is equal to 1.

00:04:51.731 --> 00:04:53.466
This term right over here,

00:04:53.466 --> 00:04:57.395
$20 per month divided by $1 per bar

00:04:57.395 --> 00:05:00.133
which would actually give
you 20 bars per month

00:05:00.133 --> 00:05:01.395
if you work out the units.

00:05:01.395 --> 00:05:04.319
This term right over here
just simplifies to 20.

00:05:04.319 --> 00:05:05.891
This is actually an interesting term,

00:05:05.891 --> 00:05:09.058
your income, your income in
dollars divided by the price

00:05:09.058 --> 00:05:10.794
of an actual good or service.

00:05:10.794 --> 00:05:12.731
You could view this term right over here

00:05:12.731 --> 00:05:17.106
as your real income.

00:05:17.106 --> 00:05:18.394
The reason why it's called real income

00:05:18.394 --> 00:05:20.922
is it's actually pegging
what your earnings

00:05:20.922 --> 00:05:22.590
to what you can buy.

00:05:22.590 --> 00:05:24.063
It's pegging it to a certain real goods,

00:05:24.063 --> 00:05:26.992
it's not tied to some
abstract quantity like money

00:05:26.992 --> 00:05:29.332
which always has a changing buying power.

00:05:29.332 --> 00:05:32.130
What you could buy for $20
in 2010 is very different

00:05:32.130 --> 00:05:34.968
than what you could buy for $20 in 1940.

00:05:34.968 --> 00:05:38.061
Here, when you divide your income,

00:05:38.061 --> 00:05:40.599
divide it a by a price of some good

00:05:40.599 --> 00:05:43.664
it's really telling you your
income in terms of that good.

00:05:43.664 --> 00:05:46.397
You could view your
income as $20 per month

00:05:46.397 --> 00:05:47.885
or you could view your income

00:05:47.885 --> 00:05:49.467
if you wanted your
income in chocolate bars.

00:05:49.467 --> 00:05:50.729
You could say my income is,

00:05:50.729 --> 00:05:53.798
I could buy 20 chocolate bars each month.

00:05:53.798 --> 00:05:56.465
So I could say, my income
20 chocolate bars per month.

00:05:56.465 --> 00:05:57.588
They would be equivalent to you

00:05:57.588 --> 00:05:58.964
assuming that you could
sell the chocolate bars

00:05:58.964 --> 00:06:00.192
for the same price you could buy it

00:06:00.192 --> 00:06:02.190
and that's somewhat of an assumption.

00:06:02.190 --> 00:06:03.797
But you could say I have
the equivalent income

00:06:03.797 --> 00:06:05.197
of 20 bars a month.

00:06:05.197 --> 00:06:06.329
You could have also done it in fruit.

00:06:06.329 --> 00:06:09.329
I have the equivalent
income of 20 divided by 2,

00:06:09.329 --> 00:06:12.256
10 pounds of fruit a month.

00:06:12.256 --> 00:06:14.259
It's trying your income to real things,

00:06:14.259 --> 00:06:16.862
not the abstract quantity like money.

00:06:16.862 --> 00:06:18.591
Anyway, this is going to be equal to,

00:06:18.591 --> 00:06:20.134
let me write it over here.

00:06:20.134 --> 00:06:22.585
My quantity of chocolate

00:06:22.585 --> 00:06:27.533
is going to be equal to this
term right over here as 20.

00:06:27.533 --> 00:06:28.460
If you wanted to do the units,

00:06:28.460 --> 00:06:30.125
it would be 20 bars per month

00:06:30.125 --> 00:06:32.126
and you could do a little
bit of dimensional analysis

00:06:32.126 --> 00:06:33.288
to come up with that.

00:06:33.288 --> 00:06:34.663
You could treat the
units just like numbers

00:06:34.663 --> 00:06:36.129
and see how the cancel out.

00:06:36.129 --> 00:06:40.946
20 bars per month minus the price of fruit

00:06:40.946 --> 00:06:42.731
divided by the price of chocolate.

00:06:42.731 --> 00:06:45.202
$2 per pound of fruit.

00:06:46.370 --> 00:06:48.738
The price of fruit is going to be $2

00:06:48.738 --> 00:06:50.427
and I actually want to look at the units

00:06:50.427 --> 00:06:52.063
because that's interesting.

00:06:53.954 --> 00:06:55.410
Let me write it here.

00:06:55.410 --> 00:07:01.536
The price of fruit is
equal to $2 per pound.

00:07:01.536 --> 00:07:03.495
Let me write it this way.

00:07:03.495 --> 00:07:09.065
$2 per pound of fruit,

00:07:09.065 --> 00:07:10.826
I'll show you how the units cancel out.

00:07:10.826 --> 00:07:13.833
Then we're dividing that
by the price of chocolate.

00:07:13.833 --> 00:07:16.198
Dividing it by the price of chocolate

00:07:16.198 --> 00:07:23.268
which is equal to $1 per bar of chocolate.

00:07:23.268 --> 00:07:24.995
Now, obviously the math is
fairly straight forward.

00:07:24.995 --> 00:07:27.999
We just get 2, but the units
are a little bit interesting.

00:07:27.999 --> 00:07:30.746
You have a dollar and the
numerator of the numerator

00:07:30.746 --> 00:07:32.330
and a dollar, the numerator
of the denominator,

00:07:32.330 --> 00:07:33.729
those will cancel out.

00:07:33.729 --> 00:07:35.202
You could actually view this as,

00:07:35.202 --> 00:07:36.673
this is going to be the same thing

00:07:36.673 --> 00:07:37.934
just to look at the units.

00:07:37.934 --> 00:07:39.129
This is going to be,

00:07:39.129 --> 00:07:42.933
this is the same thing as the
numerator times the inverse

00:07:42.933 --> 00:07:47.084
times the reciprocal of the
denominator right over here.

00:07:47.084 --> 00:07:52.499
You could say $2 per pound times,

00:07:52.499 --> 00:07:55.201
the reciprocal of 1 is just 1,

00:07:55.201 --> 00:07:59.501
times 1 bar per dollar.

00:07:59.501 --> 00:08:01.411
Then the dollars cancel out

00:08:01.411 --> 00:08:11.227
and you are left with 2
bars per pound of fruit.

00:08:11.565 --> 00:08:12.882
What we've actually done over here,

00:08:12.882 --> 00:08:14.401
this term right over here,

00:08:14.401 --> 00:08:18.262
it gives us bars of
chocolate per pound of fruit.

00:08:18.262 --> 00:08:21.864
It simplifies to 2 bars of
chocolate per pound of fruit.

00:08:21.864 --> 00:08:24.141
It's actually giving
you the opportunity cost

00:08:24.141 --> 00:08:25.724
of a pound of fruit.

00:08:25.724 --> 00:08:27.468
It's saying hey, you
could buy a pound of fruit

00:08:27.468 --> 00:08:29.998
but you'd be giving up
2 bars of chocolate.

00:08:29.998 --> 00:08:32.807
Because the price, you could
get 2 bars of chocolate

00:08:32.807 --> 00:08:34.600
for every pound of fruit.

00:08:34.600 --> 00:08:36.788
You could view this as the relative price,

00:08:36.788 --> 00:08:44.468
this right over here is the relative price

00:08:44.468 --> 00:08:46.330
of fruit in this example.

00:08:46.330 --> 00:08:47.459
It's telling you the opportunity cost,

00:08:47.459 --> 00:08:49.323
it's telling you how much fruit cost

00:08:49.323 --> 00:08:51.453
in terms of chocolate bars.

00:08:51.453 --> 00:08:53.388
Regardless, that number is
fairly straight forward,

00:08:53.388 --> 00:08:55.129
it was just a 2.

00:08:55.129 --> 00:09:01.796
Minus 2 times the quantity of fruit.

00:09:01.796 --> 00:09:03.903
This is fairly straight forward to plot.

00:09:03.903 --> 00:09:06.659
If the quantity of fruit it 0,

00:09:06.659 --> 00:09:09.925
our quantity of chocolate is 20.

00:09:09.925 --> 00:09:11.928
This is going to be 20 over here.

00:09:11.928 --> 00:09:14.720
This is 20 and this is going to be 10.

00:09:14.720 --> 00:09:17.056
This is 15, this is 5.

00:09:17.056 --> 00:09:20.529
This is a point on our
budget line right over there.

00:09:20.529 --> 00:09:22.805
There is multiple ways that
you could think about this.

00:09:22.805 --> 00:09:26.997
One way you could say is
if you buy no chocolate,

00:09:26.997 --> 00:09:28.466
if the quantity of chocolate is 0,

00:09:28.466 --> 00:09:30.800
what is going to be the quantity of fruit?

00:09:30.800 --> 00:09:33.058
Then you could solve this
or you could just say,

00:09:33.058 --> 00:09:34.059
"Look, if I have $20 a month

00:09:34.059 --> 00:09:35.328
"then I'm going to spend it all on fruit.

00:09:35.328 --> 00:09:36.789
"I can buy 10 pounds of fruit."

00:09:36.789 --> 00:09:40.661
So to say that this right over here is 10.

00:09:40.661 --> 00:09:43.928
Let's say this right over
here is 10, this is 5,

00:09:43.928 --> 00:09:46.156
so this is also on our budget line

00:09:46.156 --> 00:09:48.132
and every point in between

00:09:48.132 --> 00:09:50.220
is going to be on our budget line.

00:09:50.220 --> 00:09:53.599
Every point in between is
going to be on our budget line.

00:09:53.599 --> 00:09:54.800
Another way you could have done this

00:09:54.800 --> 00:09:56.925
and this comes straight
out of kind of your typical

00:09:56.925 --> 00:09:57.878
algebra 1 course.

00:09:57.878 --> 00:10:01.739
You could say, in this case,

00:10:01.739 --> 00:10:02.638
if you view this as the Y axis,

00:10:02.638 --> 00:10:03.889
you say your Y interceptor,

00:10:03.889 --> 00:10:06.303
you say, "My chocolate
quantity interceptor is 20

00:10:06.303 --> 00:10:09.322
"and then my slop is negative 2.

00:10:09.322 --> 00:10:10.553
"My slope is negative 2."

00:10:10.553 --> 00:10:13.471
For every extra pound of fruit I buy

00:10:13.471 --> 00:10:18.136
I have to give up 2 pounds of chocolate.

00:10:18.136 --> 00:10:20.803
You could also view this as
the opportunity cost of fruit.

00:10:20.803 --> 00:10:23.721
You see this slope as we go forward,

00:10:23.721 --> 00:10:26.053
if we buy one more pound quantity of fruit

00:10:26.053 --> 00:10:31.384
we're giving up 2 bars of chocolate.

00:10:31.384 --> 00:10:32.599
One statement I did just make,

00:10:32.599 --> 00:10:36.968
I said every point on
this line is a possibility

00:10:36.968 --> 00:10:38.971
and I can only say that if we assume

00:10:38.971 --> 00:10:42.257
that both of these goods
are divisible goods

00:10:42.257 --> 00:10:45.386
which means we can buy
arbitrarily small amounts of it,

00:10:45.386 --> 00:10:47.322
that we could buy 10th
of a bar of chocolate

00:10:47.322 --> 00:10:49.320
on average especially.

00:10:49.320 --> 00:10:52.066
Or we could buy 100th of a pound of fruit.

00:10:52.066 --> 00:10:54.468
If they weren't divisible,
they're indivisible

00:10:54.468 --> 00:10:56.990
then only the whole quantities

00:10:56.990 --> 00:10:59.218
would be the possibility points.

00:10:59.218 --> 00:11:00.655
We'll just assume they're divisible,

00:11:00.655 --> 00:11:02.990
especially even if the store only sells

00:11:02.990 --> 00:11:04.519
indivisible bars of chocolate.

00:11:04.519 --> 00:11:07.261
If you buy one bar of
chocolate every 4 months,

00:11:07.261 --> 00:11:11.634
on average you're buying .25
bars of chocolate per month.

00:11:11.634 --> 00:11:14.142
Even that, on average, almost anything,

00:11:14.142 --> 00:11:16.721
almost anything here is divisible.

00:11:16.721 --> 00:11:18.976
This line right over here shows

00:11:18.976 --> 00:11:21.189
all of the combinations we can buy.

00:11:21.189 --> 00:11:22.471
All of the combinations

00:11:22.471 --> 00:11:24.325
of the divisible goods we could buy

00:11:24.325 --> 00:11:26.136
if we spend all of our money.

00:11:26.136 --> 00:11:29.120
That right over there is our budget line.

00:11:29.120 --> 00:11:35.325
That is our budget line.

00:11:35.325 --> 00:11:36.886
That is our budget line.

00:11:36.886 --> 00:11:42.278
And any combination out
here is unaffordable.

00:11:42.278 --> 00:11:44.340
We don't have enough money for that.

00:11:44.340 --> 00:11:47.019
Any combination down here is affordable.

00:11:47.019 --> 00:11:48.675
Actually, we would end up with extra money

00:11:48.675 --> 00:11:50.464
if we're below the budget line.

00:11:50.464 --> 00:11:52.471
This isn't all that
different than what we saw

00:11:52.471 --> 00:11:54.248
with the production
possibilities frontier.

00:11:54.248 --> 00:11:56.649
Remember, we had a curve
that really showed all of the

00:11:56.649 --> 00:11:58.047
if we were producing 2 goods,

00:11:58.047 --> 00:12:00.223
what combinations of
goods we could produce.

00:12:00.223 --> 00:12:01.385
Anything on that curve

00:12:01.385 --> 00:12:03.984
for the productions possibility
frontier was efficient.

00:12:03.984 --> 00:12:06.385
Anything outside of it was unattainable

00:12:06.385 --> 00:12:09.947
and anything inside was
attainable but inefficient.


Deriving demand curve from tweaking marginal utility per dollar

WEBVTT
Kind: captions
Language: en

00:00:00.523 --> 00:00:03.402
A few videos ago we saw
that we could maximize

00:00:03.402 --> 00:00:07.736
total utility given our $5 spending

00:00:07.736 --> 00:00:11.057
by calculating the
marginal utility per dollar

00:00:11.057 --> 00:00:13.478
for each incremental dollar we could spend

00:00:13.478 --> 00:00:15.337
on each of these goods

00:00:15.337 --> 00:00:17.813
and then just for each
dollar maximizing it.

00:00:17.813 --> 00:00:21.644
Our 1st dollar, we got 100
utility points per dollar

00:00:21.644 --> 00:00:23.142
for that first chocolate bar

00:00:23.142 --> 00:00:24.412
and that was more than any

00:00:24.412 --> 00:00:25.791
than the first fruits,

00:00:25.791 --> 00:00:27.001
so that's where we spent it.

00:00:27.001 --> 00:00:29.136
Then we got more for the 2nd chocolate bar

00:00:29.136 --> 00:00:31.404
for that 1st pound of fruit,

00:00:31.404 --> 00:00:32.270
so we spend it there.

00:00:32.270 --> 00:00:35.250
Then for the 3rd pound or
for the 3rd bar of chocolate.

00:00:35.250 --> 00:00:39.604
Then it became equal to spend
for the 1st pound of fruit

00:00:39.604 --> 00:00:42.804
so then we spent the next $2
on that 1st pound of fruit

00:00:42.804 --> 00:00:44.751
because the price of fruit were $2.

00:00:44.751 --> 00:00:46.079
What I want to do in this video

00:00:46.079 --> 00:00:48.605
is explore what happens
when I change the price

00:00:48.605 --> 00:00:50.001
of the chocolate bars.

00:00:50.001 --> 00:00:54.465
What happens to our marginal
utility per dollar over here?

00:00:54.465 --> 00:00:57.603
In particular, what happens
to the quantity demanded?

00:00:57.603 --> 00:00:59.836
If you think about what we're doing it,

00:00:59.836 --> 00:01:01.748
we figured out with 1 price

00:01:01.748 --> 00:01:03.208
what was the quantity demanded,

00:01:03.208 --> 00:01:04.534
we demanded 3 bars.

00:01:04.534 --> 00:01:05.866
If we change the price

00:01:05.866 --> 00:01:07.203
and we get another quantity demanded,

00:01:07.203 --> 00:01:10.209
we're essentially starting
to plot our our demand curve

00:01:10.209 --> 00:01:12.273
and we can actually
derive our demand curve

00:01:12.273 --> 00:01:15.081
from this information right over here.

00:01:15.081 --> 00:01:16.580
Let's see how we could do that.

00:01:16.580 --> 00:01:23.420
Let's now assume that our
chocolate bars are $2.

00:01:23.420 --> 00:01:25.069
Now we're going to calculate.

00:01:25.069 --> 00:01:27.669
The marginal utility per dollar,

00:01:27.669 --> 00:01:29.836
this applies to both of these columns.

00:01:29.836 --> 00:01:31.840
This is for what it was $1 per bar,

00:01:31.840 --> 00:01:33.999
this is now when it's $2 per bar.

00:01:33.999 --> 00:01:37.836
Well, for that first bar,
I'm still getting 100 points

00:01:37.836 --> 00:01:40.832
of marginal utility, but now it's $2.

00:01:40.832 --> 00:01:44.474
So 100 divided 2 is going to give me

00:01:44.474 --> 00:01:48.331
50 marginal utility points per dollar.

00:01:48.331 --> 00:01:51.075
Then for that next bar,

00:01:51.075 --> 00:01:53.733
I get 80 marginal utility points.

00:01:53.733 --> 00:01:56.283
I'm still enjoying it but
enjoying it a little bit less

00:01:56.283 --> 00:01:58.124
but I'm paying $2 for it.

00:01:58.124 --> 00:02:01.334
I'm getting 80 divided by 2 is 40 points,

00:02:01.334 --> 00:02:03.472
you know, and I'm just
giving these arbitrary units,

00:02:03.472 --> 00:02:05.538
40 points per dollar.

00:02:05.538 --> 00:02:08.008
Then the 3rd bar is 30 points per dollar.

00:02:08.008 --> 00:02:12.537
Then the 4th bar is 20 points per dollar.

00:02:12.537 --> 00:02:16.267
Now, how would I spend my $5?

00:02:16.267 --> 00:02:17.703
Let me do this a little bit,

00:02:17.703 --> 00:02:18.933
let me do it over here.

00:02:18.933 --> 00:02:21.876
How would I spend my $5 now?

00:02:21.876 --> 00:02:25.284
My first dollar, where
would I get the most

00:02:25.284 --> 00:02:27.291
marginal utility per dollar?

00:02:27.291 --> 00:02:29.933
Where would I get the
most bang for my buck?

00:02:29.933 --> 00:02:35.048
My very 1st dollar, I can
either buy half a bar here,

00:02:35.048 --> 00:02:36.706
I could buy half a here

00:02:36.706 --> 00:02:39.998
and I'm assuming that,
for the sake of simplicity

00:02:39.998 --> 00:02:41.135
let's assume that I get the same

00:02:41.135 --> 00:02:44.887
marginal utility per dollar
for the 1st half a bar

00:02:44.887 --> 00:02:46.469
and for the 1st bar.

00:02:46.469 --> 00:02:50.207
That is constant until
I get to one entire bar.

00:02:50.207 --> 00:02:53.335
That's also true for, and
even if I buy a fraction

00:02:53.335 --> 00:02:54.741
of the pound here.

00:02:54.741 --> 00:02:57.807
My 1st dollar, I can't use these numbers,

00:02:57.807 --> 00:02:59.950
this is when the bars
were a dollar per bar,

00:02:59.950 --> 00:03:02.631
now they're $2 per bar.
This is the reality.

00:03:02.631 --> 00:03:05.009
Now actually it makes
sense for me to, at least,

00:03:05.009 --> 00:03:09.666
for that 1st dollar I can
buy a half pound of my fruit

00:03:09.666 --> 00:03:13.405
at a marginal utility per dollar of 60.

00:03:14.805 --> 00:03:24.577
My 1st dollar will go
towards .5 pounds of fruit

00:03:24.577 --> 00:03:28.644
and I'm getting a marginal
utility per dollar of 60.

00:03:28.644 --> 00:03:34.081
Where is my 2nd dollar going to go?

00:03:34.081 --> 00:03:37.005
Well, I can still get another half pound

00:03:37.005 --> 00:03:40.011
at a marginal utility of 60.

00:03:40.011 --> 00:03:41.924
Remember, we have to
ignore these right here

00:03:41.924 --> 00:03:43.457
for the sake of this argument

00:03:43.457 --> 00:03:45.924
or for the sake of this
scenario right now.

00:03:45.924 --> 00:03:47.660
I could still get another half pound

00:03:47.660 --> 00:03:52.005
for marginal utility per dollar of 60,

00:03:52.005 --> 00:03:56.532
so now I buy another half pound of fruit

00:03:56.532 --> 00:04:01.088
and my marginal utility per dollar is 60.

00:04:01.088 --> 00:04:05.654
Now, where is my 3rd dollar,

00:04:05.654 --> 00:04:07.844
my 3rd dollar going to be spent?

00:04:07.844 --> 00:04:12.306
Well, I could spend it now

00:04:12.306 --> 00:04:15.348
at a rate of a dollar per half bar,

00:04:15.348 --> 00:04:17.198
or $2 per bar for chocolate

00:04:17.198 --> 00:04:20.727
or a dollar per half bar, $2
per bar for fruit over here.

00:04:20.727 --> 00:04:22.061
I'm actually neutral.

00:04:22.061 --> 00:04:22.864
I could spend it.

00:04:22.864 --> 00:04:24.397
Let me just, for the sake of fun,

00:04:24.397 --> 00:04:30.375
say list on half a bar of chocolate

00:04:30.375 --> 00:04:36.152
and my marginal utility per dollar is 50.

00:04:36.152 --> 00:04:41.460
Then my 4th dollar, once again,

00:04:41.460 --> 00:04:43.405
I could do a couple of
different things here.

00:04:43.405 --> 00:04:45.133
I could buy another half bar

00:04:45.133 --> 00:04:47.263
because I can buy up to a whole bar

00:04:47.263 --> 00:04:50.064
at this marginal utility per
dollar up to a whole bar.

00:04:50.064 --> 00:04:51.213
So why not do that?

00:04:51.213 --> 00:04:53.066
I'll buy another half chocolate bar,

00:04:53.066 --> 00:04:54.879
so now I have a whole chocolate bar.

00:04:54.879 --> 00:04:57.212
Once again, I'm able
to continue buying that

00:04:57.212 --> 00:05:02.065
at 50 utility units per dollar.

00:05:02.065 --> 00:05:08.881
Then my 5th dollar over here,
what would I do with that?

00:05:08.881 --> 00:05:12.733
Well, I don't want to buy
any more chocolate bars

00:05:12.733 --> 00:05:14.403
because my marginal utility per dollar

00:05:14.403 --> 00:05:15.464
of the chocolate bar

00:05:15.464 --> 00:05:18.467
because I've exhausted what
I can buy at this utility,

00:05:18.467 --> 00:05:20.285
this utility per dollar.

00:05:20.285 --> 00:05:23.234
My marginal utility per
dollar has gone down now,

00:05:23.234 --> 00:05:24.738
but now I could still buy fruit

00:05:24.738 --> 00:05:26.130
at that same 50.

00:05:26.130 --> 00:05:29.996
Now, with that dollar, since
the fruit is $2 per pound,

00:05:29.996 --> 00:05:31.905
I can buy another half pound of fruit

00:05:31.905 --> 00:05:36.565
at a marginal utility
per dollar rate of 50.

00:05:36.565 --> 00:05:41.871
Now I buy another half pound of fruit

00:05:41.871 --> 00:05:45.821
at a marginal utility per dollar of 50.

00:05:45.821 --> 00:05:50.859
You can calculate the total
marginal utility I got,

00:05:50.859 --> 00:05:52.407
this is the marginal utility per dollar

00:05:52.407 --> 00:05:54.570
and this is a dollar spent

00:05:54.570 --> 00:05:56.334
at that marginal utility per dollar.

00:05:56.334 --> 00:05:58.905
My total utility I should say,

00:05:58.905 --> 00:06:00.531
the marginal utility is the increment,

00:06:00.531 --> 00:06:04.534
but my total utility now is 60 + 60 is 120

00:06:04.534 --> 00:06:07.152
plus 50 + 50 + 50.

00:06:07.152 --> 00:06:14.585
So it's 120 + 150 = 270 total utility.

00:06:14.585 --> 00:06:15.754
Even more interesting here,

00:06:15.754 --> 00:06:18.581
let's think about the
quantity of chocolate bars

00:06:18.581 --> 00:06:22.160
that I have now bought
once the price is gone up.

00:06:22.160 --> 00:06:25.869
I have now bought exactly 1 chocolate bar.

00:06:25.869 --> 00:06:28.705
You could say my 3rd and 4th dollars

00:06:28.705 --> 00:06:30.869
were spent on 1 bar right over here,

00:06:30.869 --> 00:06:32.329
I bought 1 bar.

00:06:32.329 --> 00:06:34.265
Let's think about it, all else equal.

00:06:34.265 --> 00:06:35.532
Remember, ceteris paribus.

00:06:35.532 --> 00:06:37.268
We haven't changed the price of fruit,

00:06:37.268 --> 00:06:39.412
we haven't changed consumer preferences

00:06:39.412 --> 00:06:40.934
which would have changed your

00:06:40.934 --> 00:06:42.960
marginal utility numbers right over here.

00:06:42.960 --> 00:06:43.878
All else equal.

00:06:43.878 --> 00:06:46.381
What happened just when we changed

00:06:46.381 --> 00:06:47.594
the price of chocolate bars?

00:06:47.594 --> 00:06:48.864
Let me write it down.

00:06:48.864 --> 00:06:50.593
Just think about chocolate.

00:06:50.593 --> 00:06:53.164
If we just think about chocolate bars.

00:06:53.164 --> 00:06:57.011
Let me write price and quantity.

00:06:57.011 --> 00:07:04.422
When the price was $1
the quantity demanded

00:07:04.422 --> 00:07:08.319
was 3 bars.

00:07:08.319 --> 00:07:11.124
That was the 1st video we
saw on marginal utility.

00:07:11.124 --> 00:07:13.657
We demanded 3 bars.

00:07:13.657 --> 00:07:19.133
Now when the price has gone up to $2,

00:07:19.133 --> 00:07:24.260
the quantity demanded is exactly 1 bar.

00:07:24.260 --> 00:07:25.796
We could do everything in between,

00:07:25.796 --> 00:07:28.617
we could see what happens
if the price was a dollar 50

00:07:28.617 --> 00:07:29.861
or if the price was 50 cents,

00:07:29.861 --> 00:07:30.999
if we actually lower the price.

00:07:30.999 --> 00:07:32.323
We would see how the,

00:07:32.323 --> 00:07:34.523
and there might actually be a situation

00:07:34.523 --> 00:07:36.462
where you would have to
have higher quantities here

00:07:36.462 --> 00:07:37.792
especially when you lower the price.

00:07:37.792 --> 00:07:39.458
But by doing that,

00:07:39.458 --> 00:07:43.277
assuming you have enough rows here

00:07:43.277 --> 00:07:44.277
and we might not have it,

00:07:44.277 --> 00:07:45.198
if you lower the price.

00:07:45.198 --> 00:07:47.369
Assuming you have the marginal utility

00:07:47.369 --> 00:07:49.730
at different quantities for the two goods,

00:07:49.730 --> 00:07:52.590
you can figure out exactly
how much chocolates

00:07:52.590 --> 00:07:55.328
someone would buy given
different changes in price.

00:07:55.328 --> 00:07:59.104
We at least have 2 points
for the demand curve now.

00:08:00.334 --> 00:08:03.881
If we assume that this is
price and this is quantity

00:08:03.881 --> 00:08:05.095
right over here,

00:08:05.095 --> 00:08:09.926
when the price was $1, the
quantity demanded was 3,

00:08:09.926 --> 00:08:16.730
and when the price is $2,
the quantity demanded is 1.

00:08:16.730 --> 00:08:21.198
There, we have 2 points
for our demand curve.

00:08:21.198 --> 00:08:27.193
Our demand curve might
look something like that.

00:08:27.193 --> 00:08:29.655
If it was linear, it would go straight.

00:08:29.655 --> 00:08:32.460
It would go something straight like that.

00:08:32.460 --> 00:08:34.127
But we at least have 2 points on the curve

00:08:34.127 --> 00:08:35.923
and we could keep trying
different prices out

00:08:35.923 --> 00:08:37.925
using these information to figure out

00:08:37.925 --> 00:08:42.400
the exact shape of that curve.


Equalizing Marginal Utility per Dollar Spent

WEBVTT
Kind: captions
Language: en

00:00:00.590 --> 00:00:02.290
In the last video,
we thought about how

00:00:02.290 --> 00:00:05.951
we would allocate our $5 between
chocolate bars and fruit.

00:00:05.951 --> 00:00:07.950
And the way we did it,
and it was very rational,

00:00:07.950 --> 00:00:10.375
we thought about how much bang
would we get for each buck.

00:00:10.375 --> 00:00:12.375
And we saw, look, starting
off, our first dollar

00:00:12.375 --> 00:00:14.919
we got a lot of bang
for our buck-- and this

00:00:14.919 --> 00:00:17.210
is really just another way
of saying bang for the buck,

00:00:17.210 --> 00:00:19.950
marginal utility per price.

00:00:19.950 --> 00:00:22.072
So we got a lot of utility
for price starting off

00:00:22.072 --> 00:00:23.280
for that first chocolate bar.

00:00:23.280 --> 00:00:24.988
A little less for the
next chocolate bar,

00:00:24.988 --> 00:00:28.060
but still more than we would
get for a pound of fruit.

00:00:28.060 --> 00:00:31.060
Then more for the
next chocolate bar,

00:00:31.060 --> 00:00:34.450
and only then did
we start buying

00:00:34.450 --> 00:00:37.590
some fruit, buying
some pounds of fruit.

00:00:37.590 --> 00:00:39.427
What do I do in this
video is generalize it.

00:00:39.427 --> 00:00:41.510
I want to think about maybe
a more continuous case

00:00:41.510 --> 00:00:44.454
where we can buy very, very
small increments of each

00:00:44.454 --> 00:00:45.120
of the products.

00:00:45.120 --> 00:00:48.259
It doesn't have to be in
chunks, like chocolate bars.

00:00:48.259 --> 00:00:49.800
And what I'm going
to do is I'm going

00:00:49.800 --> 00:00:53.260
to plot the marginal utility
per price, which is really

00:00:53.260 --> 00:00:55.881
bang for your buck,
on the vertical axis.

00:00:55.881 --> 00:00:56.380
So

00:00:56.380 --> 00:00:59.220
This right over
here on this axis.

00:00:59.220 --> 00:01:02.070
Let's say this is the
marginal utility per price.

00:01:02.070 --> 00:01:05.239
And let's say it also
goes from 0 to 100.

00:01:05.239 --> 00:01:06.870
So that would be 50.

00:01:06.870 --> 00:01:09.260
And the numbers actually
don't matter so much here.

00:01:09.260 --> 00:01:12.680
And then this will
be dollar spent.

00:01:12.680 --> 00:01:18.140
So dollars spent, so your buck.

00:01:18.140 --> 00:01:21.150
So this is bang for your buck
and then this is your buck.

00:01:21.150 --> 00:01:27.460
So this is 1, 2, 3, 4, 5 and 6.

00:01:27.460 --> 00:01:29.590
Now we're going to do
arbitrary products.

00:01:29.590 --> 00:01:32.060
So let's say one product
looks something like this.

00:01:32.060 --> 00:01:33.902
And once again, you
have diminishing utility

00:01:33.902 --> 00:01:35.610
as you get more and
more of that product.

00:01:35.610 --> 00:01:38.060
In the case of fruit,
the more pounds of fruit

00:01:38.060 --> 00:01:40.566
you get the more tired
you get of fruit.

00:01:40.566 --> 00:01:41.940
The less fruit
you need for that,

00:01:41.940 --> 00:01:45.430
or the less you want fruit for
that next incremental pound.

00:01:45.430 --> 00:01:47.520
So let's-- but it
could be anything.

00:01:47.520 --> 00:01:49.670
This is true of most things.

00:01:49.670 --> 00:01:52.850
So this is product A,
could be a service as well.

00:01:52.850 --> 00:01:55.130
So product A, let me
write it this way.

00:01:55.130 --> 00:02:02.620
So this is the marginal
utility for A per price of A.

00:02:02.620 --> 00:02:05.250
And let me get another
product right over here.

00:02:05.250 --> 00:02:09.180
So let's say my other product
looks something like this.

00:02:09.180 --> 00:02:15.280
So this is my marginal utility
for product B per price of B.

00:02:15.280 --> 00:02:17.690
So it's really saying
bang for the buck.

00:02:17.690 --> 00:02:21.060
So just to start
off-- and I won't even

00:02:21.060 --> 00:02:22.720
constrain how much
money we have.

00:02:22.720 --> 00:02:25.600
I just want to think about
how we would spend that money.

00:02:25.600 --> 00:02:27.850
So if I were to spend,
if I had a penny,

00:02:27.850 --> 00:02:29.750
where would I spend a penny.

00:02:29.750 --> 00:02:33.140
And I'm assuming I can buy these
in super small chunks, as small

00:02:33.140 --> 00:02:36.110
as maybe the penny or even
maybe fractions of penny.

00:02:36.110 --> 00:02:37.931
So if I just had
a penny, and I had

00:02:37.931 --> 00:02:39.680
to think about where
am I getting the best

00:02:39.680 --> 00:02:42.070
bang for my buck for that
penny, I'm clearly getting it

00:02:42.070 --> 00:02:45.235
with product A. So I would
spend that penny on product A

00:02:45.235 --> 00:02:47.680
and I would get this much
bang for my buck, which

00:02:47.680 --> 00:02:52.670
would be this entire
part right over here.

00:02:52.670 --> 00:02:53.880
Let me color it in.

00:02:53.880 --> 00:02:56.430
So my first-- I'll
spend it right on A.

00:02:56.430 --> 00:02:58.680
Let me do it in a color
that's more likely to be seen,

00:02:58.680 --> 00:03:00.520
so I'll do it in
this blue color.

00:03:00.520 --> 00:03:02.591
So I'll spend it on
A. My first, in fact,

00:03:02.591 --> 00:03:04.090
where would I spend
my first dollar?

00:03:04.090 --> 00:03:06.339
Well, the whole first dollar
I'm getting a better bang

00:03:06.339 --> 00:03:09.945
for my buck on A. So my first
dollar I will spend on A.

00:03:09.945 --> 00:03:12.320
And the total utility
I will get is actually

00:03:12.320 --> 00:03:14.070
going to be the area
under this curve.

00:03:14.070 --> 00:03:15.500
It's going to be
this whole area.

00:03:15.500 --> 00:03:18.610
It's going to be dollars times
marginal utility with price.

00:03:18.610 --> 00:03:21.910
That would give you, obviously,
the area of this rectangle

00:03:21.910 --> 00:03:23.020
right over here.

00:03:23.020 --> 00:03:25.400
The reason why it wouldn't
be the area of this larger

00:03:25.400 --> 00:03:27.608
rectangle, it would just be
the area under the curve,

00:03:27.608 --> 00:03:32.410
is you're not getting 100
marginal utility per price

00:03:32.410 --> 00:03:33.650
for the entire dollar.

00:03:33.650 --> 00:03:36.030
It's going down the entire time.

00:03:36.030 --> 00:03:38.040
And so your actual
total marginal utility

00:03:38.040 --> 00:03:40.220
is actually just
the area under this.

00:03:40.220 --> 00:03:41.800
And when you take
calculus you'll

00:03:41.800 --> 00:03:43.506
get a better
appreciation for that.

00:03:43.506 --> 00:03:45.380
But let's just think
about, once again, where

00:03:45.380 --> 00:03:47.600
our dollar is going to be spent.

00:03:47.600 --> 00:03:51.105
So actually even if
we've spent already $1,

00:03:51.105 --> 00:03:53.480
our next penny we would still
want to spend on product A,

00:03:53.480 --> 00:03:55.880
because we're still getting
more bang for the buck.

00:03:55.880 --> 00:03:58.340
We're still getting more
bang for the buck all the way

00:03:58.340 --> 00:04:01.290
until right around there.

00:04:01.290 --> 00:04:03.840
Now something
interesting is happening.

00:04:03.840 --> 00:04:05.400
So we've spent about $2.

00:04:05.400 --> 00:04:07.152
We've spend our first
$2 all on product A

00:04:07.152 --> 00:04:08.860
because we're getting
more bang for buck,

00:04:08.860 --> 00:04:11.660
even though that bang was
diminishing every penny or even

00:04:11.660 --> 00:04:14.220
every fraction of a
penny that we spent.

00:04:14.220 --> 00:04:18.019
But now where will we
spend our next penny?

00:04:18.019 --> 00:04:20.630
Well, we could spend
it on product A again.

00:04:20.630 --> 00:04:23.850
But look, we can get about the
same marginal utility spending

00:04:23.850 --> 00:04:26.850
it on product B. So we
could jump right over there,

00:04:26.850 --> 00:04:30.840
spend it on product B. Now where
could we spend our next dollar?

00:04:30.840 --> 00:04:32.680
Well, we get about the
same marginal utility

00:04:32.680 --> 00:04:34.930
whether we spend it on a
little bit more of product B,

00:04:34.930 --> 00:04:37.722
or a little bit more of product
A. So we could do either.

00:04:37.722 --> 00:04:39.680
If we spent a little bit
too much on product A,

00:04:39.680 --> 00:04:42.060
then we could have gotten
more marginal utility spending

00:04:42.060 --> 00:04:44.540
on product B. So
what we would do

00:04:44.540 --> 00:04:49.550
is, once we've gotten to this
threshold right about here,

00:04:49.550 --> 00:04:52.070
we actually are going to spend
every incremental fraction

00:04:52.070 --> 00:04:53.445
of a penny-- we're
actually going

00:04:53.445 --> 00:04:55.386
to want to split between
product A and product

00:04:55.386 --> 00:04:57.760
B. If we spend too much on
one and we go down this curve,

00:04:57.760 --> 00:05:01.522
we could have gotten higher
utility spending on this one.

00:05:01.522 --> 00:05:02.980
If we spend too
much on this one we

00:05:02.980 --> 00:05:04.580
could get higher
utility spending

00:05:04.580 --> 00:05:06.350
on this one right over here.

00:05:06.350 --> 00:05:08.710
So there's a very
interesting phenomenon here.

00:05:08.710 --> 00:05:10.590
Assuming that we
eventually spent enough

00:05:10.590 --> 00:05:12.320
that we buy some of
both, obviously we

00:05:12.320 --> 00:05:14.220
started just buying
product A because it

00:05:14.220 --> 00:05:17.640
had higher utility, at least,
for those first few dollars--

00:05:17.640 --> 00:05:20.890
but assuming that we end up
buying some mix of the two,

00:05:20.890 --> 00:05:24.340
which we do end up spending
if we spend more than $2--

00:05:24.340 --> 00:05:25.940
there's an interesting thing.

00:05:25.940 --> 00:05:32.740
The marginal utility for B, or
the marginal utility for price

00:05:32.740 --> 00:05:34.930
for B that I spent on
that last little increment

00:05:34.930 --> 00:05:38.510
is going to be the same as
the marginal utility per price

00:05:38.510 --> 00:05:43.030
for that last increment of
A. So if this was, if B was,

00:05:43.030 --> 00:05:46.880
I don't know, if it was fruit
and let's say A was chocolate

00:05:46.880 --> 00:05:49.210
but we could buy them in
very, very small increments--

00:05:49.210 --> 00:05:54.160
we're saying for that last
fraction of a pound of fruit

00:05:54.160 --> 00:05:58.020
you're getting the same
marginal utility per price

00:05:58.020 --> 00:06:00.390
as you're getting for that
last fraction of a bar

00:06:00.390 --> 00:06:03.300
or fraction of a
pound of chocolate.

00:06:03.300 --> 00:06:05.090
So there's a general
principle over here.

00:06:05.090 --> 00:06:07.460
And it really just comes from
this very straightforward thing

00:06:07.460 --> 00:06:09.510
that as soon as you can
get better marginal utility

00:06:09.510 --> 00:06:11.350
on the other one, you
start spending there.

00:06:11.350 --> 00:06:12.766
But then they start
to look equal.

00:06:12.766 --> 00:06:15.480
And you would keep dividing
your money between the two.

00:06:15.480 --> 00:06:17.170
And so the general
principle, if you're

00:06:17.170 --> 00:06:19.550
allocating money
between two goods,

00:06:19.550 --> 00:06:21.609
for that last increment--
not across the board,

00:06:21.609 --> 00:06:23.900
just that last increment--
that's why the word marginal

00:06:23.900 --> 00:06:24.460
is so important.

00:06:24.460 --> 00:06:26.380
For that last ounce of
chocolate versus that

00:06:26.380 --> 00:06:32.420
very last ounce of fruit,
the marginal utility

00:06:32.420 --> 00:06:36.000
for price for that last
increment of one good

00:06:36.000 --> 00:06:40.790
will be the same as
the marginal utility

00:06:40.790 --> 00:06:44.280
per price of the second good.

00:06:44.280 --> 00:06:46.490
Now I really want to
emphasize what this is saying.

00:06:46.490 --> 00:06:49.420
This is not saying that the
marginal utility for price

00:06:49.420 --> 00:06:51.120
of the two goods are the same.

00:06:51.120 --> 00:06:53.556
And not even that one is
better than the other.

00:06:53.556 --> 00:06:55.180
This is just saying
as you spend money,

00:06:55.180 --> 00:06:57.450
and let's say you spend
enough money to buy both,

00:06:57.450 --> 00:07:00.120
at some point you're going
to get to a threshold

00:07:00.120 --> 00:07:02.090
where you're neutral
between the two, where

00:07:02.090 --> 00:07:04.240
the marginal
utility for price is

00:07:04.240 --> 00:07:08.762
the same for an incremental of
B versus an incremental of A.

00:07:08.762 --> 00:07:12.550
And at that point you're
juts going to keep switching

00:07:12.550 --> 00:07:13.744
between the two products.

00:07:13.744 --> 00:07:15.410
Because obviously,
if you focus too much

00:07:15.410 --> 00:07:17.654
on this right over here--
let's say you focus,

00:07:17.654 --> 00:07:19.070
let's say at that
point you switch

00:07:19.070 --> 00:07:23.070
and you just start buying
a bunch of product B

00:07:23.070 --> 00:07:23.832
right over here.

00:07:23.832 --> 00:07:25.040
Well, that didn't make sense.

00:07:25.040 --> 00:07:26.490
Because you were
buying product B

00:07:26.490 --> 00:07:27.948
when you could have
actually gotten

00:07:27.948 --> 00:07:30.074
higher marginal utility
buying some of product A.

00:07:30.074 --> 00:07:31.990
And that's the same
reason why you didn't just

00:07:31.990 --> 00:07:34.520
keep going down A, because
you could have gotten

00:07:34.520 --> 00:07:36.530
higher marginal
utility over here.

00:07:36.530 --> 00:07:39.070
This is closer to, I don't
know, 75 while you're only

00:07:39.070 --> 00:07:42.140
getting 70 right over here.