Marginal Analysis, Roller Coasters, Elasticity, and Van Gogh: Crash Course Economics #18

This week Jacob and Adriene teach you about marginal analysis, which you're using RIGHT NOW! The video is coming from inside the house! Or something. You'll learn how marginal analysis guides the decision making if cities, nations, companies, and amusement park enthusiasts. We'll also look at the idea of elasticity, and what people are willing to pay for certain stuff based on the supply. Why is a Van Gogh worth more than an OBEY poster? (hint: it's because they're still cranking out the OBEY posters, and Vincent is dead) All this and more on Crash Course Economics!

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[lulupipe]

Some notes for y'all:
Micro-economics looks at individual markets and the decision-making of consumers and businesses.

Micro-economics asks questions such as "should we increase minimum wage?" or "how many workers should we hire?".

Important aspect of Micro-economics: marginal utility
- Marginal utility is an analysis of how businesses and consumers make decisions.
Marginal is similar to "additional". Marginal costs = additional costs. Marginal benefits = additional benefits.

Businesses use marginal utility when considering employment. They compare the marginal costs of hiring the worker with the benefits. If hiring the worker results in more revenue (profit) then they are employed. +$ > -$ = More revenue +$ < -$ = Loss

- Utility means satisfaction or how much happiness is generated when humans consume goods or services
- The Law of Diminishing Marginal Utility means that as you consume more of a good or service, the utility, or satisfaction is lowered each time.

The Law of Diminishing Marginal Utility can be reworded as "The Law of Decreasing Additional Satisfaction".

- Utils are units to quantify satisfaction. They are completely subjective, meaning that they are based/influenced on people's opinions.

People use Marginal Analysis unconsciously every day.

Demand curve sloping downwards can represent marginal benefits. Supply curve sloping upwards is marginal costs. The Equilibrium is efficient because the benefits of the goods consumed are equal to the costs. This is how markets are so good at managing scarce resources.

- The Law of Supply is when an increase in price gives producers an incentive to produce more.
- Substitution Effect is that as prices rise, consumers will replace more expensive goods with alternate, similar, cheaper ones.

Diamond Water Paradox: Water's utility is VERY HIGH, crucial for life. But since it is plentiful to most people, the marginal utility is really low. Since we don't get much additional satisfaction from water, prices stay low. Diamonds on the other hand, the additional satisfaction, or marginal utility is VERY HIGH, due to its "scarcity" or the fact that diamond mining is run by monopolies.

Relative Scarcity generally means that the more rare an item is, the higher the price. This doesn’t apply for everything though. Utility is Subjective. Demand is dependent on peoples preferences.

Elasticity shows how sensitive quantity is to a change in price. Things that people need with little substitutes usually mean that if prices rise, people will not buy that much less of the good. Examples of goods that have a relatively inelastic demand include healthcare, coffee and fuel.
Elasticity of demand means that goods with lots of substitutes will only be chosen if their prices are lower than their substitutes.

There is also Elasticity of Supply. Inelasticity means that even if prices rise, the supply of goods will not change. Relatively elastic supply is when quantity is sensitive to price change because producers can respond quickly.

[chillsahoy]

Marginal analysis reminds me a lot of how much of a difference it makes when you spend additional time on a task (e.g. perfecting an essay). The first few hours or planning, writing, reviewing and editing are highly productive. Then, each additional hour you spend will result in a relatively smaller improvement, until spending more time on it is no longer worth it.

[Angie_suv]

I’ve been struggling to understand elasticity for the whole time of getting my degree and you explained it so easy in 12 minutes
Feel like going to my Uni accountant and demanding my money back tf

[martinharris]

"diamonds are scarce" *south african mafia laughing secretely*

[andreciagl]

Yes. The additional benefits of watching this video was definitely greater than the additional cost 👏🏾👏🏾👏🏾👏🏾👏🏾👏🏾

[YellowToomNook]

*Stan*: How much does it cost to ride the rollercoaster?
*Employee*: Less!
*Stan*: _Is confused_

[rayable]

Marginal Analysis, Law of diminishing marginal utility, Utils - Discount deals, Law of supply, Diamond water paradox, Relative scarsity, Substitution effect, Elasticity of demand, Relativly inelastic .

[MrJord]

finally gets onto microeconomics when my microeconomics class has already been finished

[writbanalim]

"No substitute for coffee"

TEA, YOU UNCULTURED HEATHENS

[killerfrenchy]

9:38 " I don't really need pizza." Speak for yourself.

[benaaronmusic]

I'm full of utils.
Thanks, Crash Course.

[MacroAggressor]

"Diamonds are intrinsically worthless..." - De Beers chairman Nicky Oppenheimer, 1999

[CarlyleA]

The inelastic demand of products, like pharmaceuticals, is a big reason why the free market needs some regulation.

[HeeminGamin]

"What if I see something that would give me a lot of utils and I take it?"
"That's illegal"
"You don't understand it'll give more utils than it would give to them"
"Still illegal"

[antaresmaelstrom]

The diamond example could lead really well into a crossover with psychology, considering that supply is (for the most part) kept artificially low by DeBeers while advertising is done to make people think the marginal utility of diamonds is really high, so that in effect they can sell diamonds in that system at very high prices.

[talos]

One of the most useful lecture learned for me today. It helps solve a lot of my questions. Thank you crash course.

[juancpgo]

Thanks CrashCourse for the 55 Utils + the knowledge value I just got for free. I can’t donate currently but I’ll help spread the word as much as I can. I admire this channel a lot and it represents a significant revolution in education.

[ramondenner]

If the gas is too high, buy ethanol, if ethanol is high buy gas. Such is life in Brazil.

[TheDajamster]

Diamonds are expensive due to monopolies & marketing campaigns.

[whirlmaster]

Love the John Green wearing Holden's cap in 4:18