Allocative efficiency and marginal benefit | Microeconomics | Khan Academy

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Marginal Utility and maximization
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Microeconomics on Khan Academy: Topics covered in a traditional college level introductory microeconomics course
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[@Victoravna]

my economics prof sucks at teaching so these videos actually save me. Thanks khan academy.

[@gollavillihari2516]

Alena, can we be friends

[@owenschmidt6166]

@@gollavillihari2516 simp!

[@shanmukhasharma1947]

@@gollavillihari2516 Keep going bro one day you will succeed🦾

[@akmalmaksumov9738]

"squirrels" lol that made day, and the fact that he keeps saying squirrels instead of rabbits makes me wonder y didn't he just picked squerels over rabbits

[@PeaceBrotherhood]

"Let me give ourselves some real estate on the right" LOL

[@ammaryasir18]

are u still alive?

[@nickm.777]

Really useful videos. Best/Most favourite out of the ones I tried so far. Tried learning by just reading the textbook, but watching the process and analogy use in real time is a whole other thing. Thanks!

[@AP-eh6gr]

a plain English summary for those who got confused.. Hunting/gathering on my own, at A i collected 0 berries and 5 rabbits I could move to B for 100 berries and 4 rabbits instead ie *am willing to give up a rabbit for 100 berries* at B i collected 100 berries and 4 rabbits I could move to C for 180 berries and 3 rabbits instead ie *am willing to give up a rabbit for 80 berries* at C i collected 180 berries and 3 rabbits I could move to D for 240 berries and 2 rabbits instead ie *am willing to give up a rabbit for 60 berries* at D i collected 240 berries and 2 rabbits I could move to E for 280 berries and 1 rabbit instead ie *am willing to give up a rabbit for 40 berries* at E i collected 280 berries and 1 rabbit I could move to F for 300 berries and NO rabbits instead ie *am willing to give up a rabbit for 20 berries* at F i collected 300 berries and NO rabbits On my own I cannot collect any more berries at this stage and *neither can i think of giving up a rabbit coz i have none* But while at a hypothetical convenience store, at F i collected 300 berries and 0 rabbits *for an extra rabbit 'id be willing' to give up 100 berries* at E i collected 280 berries and 1 rabbits *for an extra rabbit 'id be willing' to give up 80 berries* at D i collected 240 berries and 2 rabbits *for an extra rabbit 'id be willing' to give up 60 berries* at C i collected 180 berries and 3 rabbits *for an extra rabbit 'id be willing' to give up 40 berries* at B i collected 100 berries and 4 rabbits *for an extra rabbit 'id be willing' to give up 20 berries* at A i collected 0 berries and 5 rabbits I don't have any berries so *I wouldn't even think of asking a rabbit in exchange of some berries* But at F would i REALLY pay the store a 100 berries for a rabbit? I wouldn't because I can get it by myself for the cost of just 20 berries. And as it turns out, the point where it all evens out is D

[@xhulioballiu8538]

wow sir you made a great point

[@someoneelse4579]

You're an icon, a legend, and you're the moment.

[@bryce5055]

I learn more in 1-2 hours of your videos than I do taking a full semester at ASU. Thank you SO MUCH!

[@EthanWhelpley]

Well, you went to ASU 🤷🏻‍♂️

[@rajendramishra1188]

You can explain I understand that the topic thanku so much.....

[@claytonjohnson3133]

I think it is helpful to look at MC and MB curves from the perspective of two different people instead of the same person. The MC curve is the person producing rabbits and it costs them only 20 berries to produce their first rabbit at point F. The MB curve is a consumer who already has 300 berries and will be willing to give up 100 berries to obtain their first rabbit at point F.

[@similozungu9447]

wow this is truly helpful

[@sonofaimran]

LOL I love this guy. Seriously, these videos will go down in history. This is revolutionizing the way people learn. I prefer these lectures to my professors any day. Perfect balance of simple, basic, understanding (in all concepts her covers, not just economics) and a little humor too. No babbling pretentiousness and fluff here; plus no foreign accent. American Universities < Khan Academy.

[@ShampainxWoW]

The real question is: How many squarrels does it take to change a lightbulb?

[@brazilianguy1648]

I would like to thank you Sal for this excellent course in economics. This is the first time I attend to a course on this subject and I am finding it very useful and interesting. That said, I would like to ask you a question related to the video number 4. I researched on the internet about the definition of marginal benefit and found that it corresponds to the maximum amount that a consumer is willing to pay for some product. Wouldn't it be simpler to present the concept of Allocative Efficiency as follows below? The hunter-gatherer decides to open a convenience store to sell his rabbits… In scenario F, suppose that the consumer is willing to trade 100 berries for a rabbit. This is advantageous for the hunter-gatherer because in this scenario the marginal cost of take a rabbit is 20 berries. The consumer decides to continue exchanging berries by rabbits, but there comes a point where this exchange is no longer advantageous to the hunter-gatherer. In Scenario C, for example, the hunter-gatherer fails to collect 80 berries for taking the time to hunt a rabbit (Marginal cost = 80 berries), but at that point the consumer is only willing to give 20 berries for a rabbit, then this is not a good deal for the hunter-gatherer. The balance point that I’m calling allocative efficiency, the marginal benefit is equal to the marginal cost and maintain the marginal benefit bigger or equal to marginal cost is a good deal for the hunter-gatherer. I will keep watching the course because I am learning a lot from you Sal. Thank you very much! 

[@sophiemarissa]

Thanks for posting these. If you could do videos on causes & effects of globalisation, international trade, recording and financing international trade, international competitiveness, poverty and inequality, limits to growth and development, state promoting growth and development, ect. Quite a list but it is what I am going to be covering by this summer and these videos help me so much! Videos on PACs and campaign finance in the USA would be nice too! I thought there is no harm in requesting.

[@gdogvibes1]

Can you give me an example, such as an actual business or company you know this applies to?

[@saxonhomeboy177]

Due to the unfortunate high school curriculum in my state, I had to skip out on economics this year to take a humanities course. However, next year I will be taking economics as an elective, and thanks to you and this playlist, hopefully I'll have a bit of a head start.

[@lowkeyscreenprotectors]

nice, What do you do now?

[@saxonhomeboy177]

@@lowkeyscreenprotectors Dropped out of college and learned to weld lmao

[@mariyamerchant6130]

@@saxonhomeboy177no way💀💀💀

[@AlexMilanov]

In other words you have 1.2/2=60% effectiveness in C and D and less than 60 in B and E and 50% in A and F. I might be missing the point in regards to marginal costs and marginal benefits but mathematically seems I get the optimal and same effectiveness in C and D where in C I get 60% of the total possible both rabbits and berries and in D I get 80% out of the possible rabbits and 40% of the possible berries. Which means in D I want to get more rabbits and still be as effective as possible.

[@stratossaviolakis6675]

This is the first video in microeconomic and marcoeconomic playlist. Where are the previous videos? Can anyone help

[@zakhiasadiq7930]

HI please use this example an explain me the gains from trade using increasing costs

[@lisat8692]

thanks! this helped a lot :)

[@TommysGuitar]

So wouldn't Allocative efficiency also be known as profit maximization?

[@AlexMilanov]

Scenario C: 3 out of 5 rabbits is 3/5 = 0.6 ; 180 out of 300 berries is 180/300 = 0.6 ; so you get 1.2 out of the total you can get. Scenario D: 2/5 = 0.4 ; 240/300 = 0.8 total again 1.2 (in this case you get more berries than rabbits but the percentage is the same) let's take B: 4/5 = 0.8 ; 100/300 = 0.33.. -> less than 1.2 E: 1/5 = 0.2; 280/300 = 9.333.. again less than 1.2

[@apoorvsharda5492]

As a matter of fact we also attain equilibrium at Scenario C as if look at the average spending on a rabbit, it amounts to 60 berries ( (20+40+60+80+100)/5) which means if we convert everything in terms of berries we get max output in scenario C&D as 360 berries and this count decreases gradually upwards and downwards likewise

[@ad2181]

I like working under the boss's PPF curve it's easier and can be maintained longer.

[@ermankoc918]

Sir ı couldn't understand your MB line. Yes in scenario F you should give up 20 berries for one more rabbit but unclear concept is 100 berries as MB in scenario F. How did you find that number? What is the explanation ? thank you

[@amansrivastava8978]

I believe it is just an assumption and what he mainly wanted to tell was that it is a bad deal if the marginal cost is higher than the marginal benefit. But surely would have been better if he'd explained the true definition of MB and allocative efficiency, like what they really mean in layman terms.

[@claytonjohnson3133]

This is a late reply and mainly meant for other viewers benefit. At scenario F you have 300 berries and 0 Rabbits. Because you have a ton of berries they are not very valuable to you but since you have no rabbits they are quite valuable therefore you be willing to give up 100 berries to obtain 1 rabbit.

[@1324brendan]

an wouldnt a strait line be more equal instead of a curve. like having. 0. 60, 120, 180, 240, 300 on strait line.

[@VickiBee]

It's amazing. If they know this about allocative efficiency what the hell are they so upset about when they learn that there will be a trade-off? It means my economist friend was right all along and that they just don't want the trade-off. He agreed that economics was emotional, which made no sense to ME b/c everyone always told me it was nothing but logical.

[@giovanniortega3050]

Good Video!!

[@huwngnosleep]

in Khan Academy, I saw two courses about microeconomics, which are AP®︎/College Microeconomics and Microeconomics, what differences between those two courses? And my major is not about economics, so which course shoud I take?

[@neriyacohen7805]

why is it 3th video of "Basic Economic Concepts | AP Microeconomics | Khan A" while its not following the ideas of the 2th video?

[@1324brendan]

like if u change the shape of the curve u get differnt numbers. i just trying to figure out how he got that particular curve to give him that set of numbers.

[@cesarvialpando3933]

Even tho my english is not my mother tongue , this is more easier than learning eco in my native language

[@1324brendan]

how did he get the numbers 300, 280, 240, 180, 100 an 0 all on the one curve, i keep getting different numbers when try an copy it by drawing the graph perfect. i might get one or two of the numbers on a curve but not all. how did he gat a curve to fit those numbers.

[@vhviki]

This guy is hilarious - love it how he makes economics funny, "we have a lot of berries n we might be in the mood for a rabbit" that is pure gold!

[@gollavillihari2516]

Can we be friends

[@AlexMilanov]

Actually it's D or C. Depending on what you are interested in more. Rabbits or Berries.

[@XJenniferLeighX]

It depends on the type of market. In a competitive market you always want MC=MB but in a monopoly and an oligopoly it is different- which I'm sure is covered in other videos. If MB outweighs MC more and more firms will enter the industry until the price comes down and MC=MB this should always happen in a competitive market.

[@magnanimoushi1086]

What I learn in KZbin is better than what I learn in my university

[@hilda41216]

OMG I LOVE YOU TO BITS!! i have no idea what the heck marginal cost = marginal benefit meant until i clicked on your video by chance! THANK YOU SO MUCH for clearing my doubts!! :D

[@gollavillihari2516]

Modda goodu ra lanjakodaka

[@MrDavi909]

squirrels everywhere XD

[@walkietalkie8373]

Video No.4, 12:56, it should be MB is higher than MC

[@MenachemSchmuel]

Depending on what you're more interested in, any of the options are correct. Using the values he assigned to rabbits and berries, the correct answer is D; however, if for whatever reason a single rabbit is worth 1000 berries to a consumer (as in, the marginal benefit of a rabbit in berries is 1000), then scenario A is always the correct choice because you gain more by getting rabbits than by harvesting any berries..

[@jcool3474]

how did he come up with the numbers for marginal benefit???????????????????

[@shalinc8840]

He just assumed it.

[@caseykreicar]

inberries

[@Mr_Wolf07]

what software you use to write?

[@larwhelan]

This man is gonna get me a degree :)

[@rajendramishra1188]

Lar Whelan 8

[@frostleslee]

Correct me if I'm wrong, but should the MB and MC lines not be moved one unit (rabbit) to the right? This would mean that the Allocative efficiency is 3 rabbits. As the lines are now, it looks like the hunter would be willing to pay 100 berries for 0 rabbits.

[@mylesbishop1240]

SQUIRRELS I like how he says Squerels

[@qpwoeiru83]

i like how Mr. Kahn repeats himself. Productive efficiency, efficiency, Efffiiiciency. if you want more rabbits, one more rabbit. more berries, more berries. you can get more rabbits, more rabbits.

[@chananson3075]

Sir, i want to ask is there any difference between opportunity cost and marginal cost?

[@nadivvv]

Mama

[@nilosithu1257]

In markets, We can only see Allocative efficiency. It's hard to see productive efficiency. Because if you're only in productive efficiency point, You probably go out of business.

[@gdogvibes1]

So the goal would be to always get Marginal cost to = Marginal benefit, or at least to always have Marginal benefit, out weight Marginal cost.

[@carachaen]

Al really wants to catch those squirrels

[@DrMewTwo2]

You have had the marginal benefit and marginal cost (of each letter state), throughout these videos as functions of moving from those lettered states to one additional rabbit (the next lettered state) so your conclusion of D as the state of allocative efficiency is incorrect, rather the state of allocative efficiency is C because at D where the marginal benefit and marginal cost is equal for gaining one more rabbit the hunter-gatherer would take the additional rabbit because they consider the marginal benefit equal to the cost. The benefit and cost intersect and equal each other at D on the graph but those numbers represent the cost/benefit of moving from D to C. At C where the marginal cost is more than the marginal benefit is the point where more rabbits wouldn't be worth the cost in berries.

[@rhystucker1673]

I've finally found something that calculus is useful for!

[@crjacinro]

Im quite confuse on how did you get the value 100 for MB at scenario F... Why would he pay 100 berries just to get 1 rabbit? and Why is it considered a "marginal benefit" in fact that you are the one paying 100 rabbits. ? ... Is my understanding correct or i am missing something? Thanks sal.. :-)

[@MyLegsAreKindaLong]

Why do it called marginal benefit? Is there any benefit of buying it from the store?

[@benjamin.zhimomi]

The Case here is you can hunt a Rabbit down for the same time you can collect 20 berries but you are not and a because there is only 1 rabbit (or shortage) people are willing to pay more for a Rabbit, 100 Berries to be precise. Thus it becomes more profitable to hunt 1 more rabbit than collect rabbit for the same time (in this case 40 berries for the second rabbit)

[@Khaled_Fadl]

How on the earth the Marginal Benefit equal what would the one pay ?!

[@clarkkhoury]

sal for president!

[@xhulioballiu8538]

what is up with those squirrels

[@tienanzhang6317]

In other words, only when a consumer have less than 2 rabbits will the convenience store go on to sell rabbits.

[@IgorBosiljcic]

Wait a minute! The calculation of MB is wrong. You cannot say how much would you pay a convenient store to get a rabbit because in this case you are the store. Lets say you are in position F. You wouldnt pay that store 100 berries because you can get the extra rabbit for only 20.

[@rollmosses1351]

Igor Bosiljcic go and have a look at the law of diminishing marginal utility

[@MultiCheeseGrater]

I prefer calling it marginal utility, more professional

[@1324brendan]

like woulnt be better to straiten the line. equal out the graph..so now 1 rabbit is worth 60 berries. so now everyone in the community that has rabbits or berries have even trades with 1 price for a rabbit in stead of five. like with the hyperthetical convenient store that sells rabbits. with his system.you would have to show proof of how many berries or rabbits you have before they could no the price of the rabbit or berries to sell you. it would be better everyone knowing 1 rabbit is worth 60b

[@Out1sSaidAsOat]

Why couldn't he just pick squirrels instead of rabbits if his Freudian slip keeps calling out squirrels?

[@Khaled_Fadl]

Does anyone here understand anything form this video ?

[@meanmanturbo]

Good video, but picking the marginal benefit in the precise backwards order of the marginal costs might lead to hasty conclusions without a large asterisk. Otherwise, brilliant stuff as always.

[@engkortheng]

the thing about khan academy is they go extremely slow, after watching like twenty videos you realize that the things he cover are so basic your prof didn't bother to explain. I appreciate these videos, but they have wasted so much of my time. Yet I come back to these videos...but no more. i'm not gonna get tricked again. so thank you and fu at the same time

[@SethTheOrigin]

They’re good tho for something a prof breezes through but you didn’t fully understand.

[@steampoweredmaniac5359]

How many suarrel’s do you think he’s caught and devoured?

[@21forwards]

this guy and squirrels

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[@syth406]

Lol squirrels again

[@TFrills]

Hahaha you pronouce squirrel funny. You say "skwi-relle" and where I come from people just say "skwirl" the say way as you would pronounce "girl"

[@louisrowson3952]

+TFrills Assume you're american?

[@TFrills]

louis rowson I'm from northern California. Not all Americans pronounce things the same way.

[@louisrowson3952]

+TFrills So you are from America.. thank you for answering my question.

[@TFrills]

louis rowson There are plenty of people in America that pronounce Squirrel differently than I do. Here in Northern California, people usually say "Skwirl" or "Carmle" instead of "Cair-ah-mel". On the east coast they say it more proper, like British people. They say "Cair-ah-mel" and "Squi-relle"

[@lalaithan]

+TFrills I'm from the east coast and only northern New Englanders talk like that, definitely not all or a general amount of us. But I agree with the more proper. ;)

[@UnitedPebbles]

You are being dictate by the curve! it is based on data not from your free will of drawing.

[@prettyasiangirl7342]

REPORT THIS PAGE!

[@ashleycorea5340]

this is boring omfg