Видео

Hello Blueberrymint1, Just in terms of your question; “it is so unrealistically simple and makes something complex overly simple and hence a lot of problems follow” - All models in economics are simplifications in some way, usually to help us understand a core idea, mechanism or market problem. However, the “problems “generally tend to arise when they are interpreted incorrectly or outside of the context they are intended. The idea of Cost Benefit analysis is not that everyone behaves in this exact way, performing mental auctions when evaluating every decision, but generally our decision-making has been proven to be consistent with this framework. And we can build on this basic framework by developing the model further to explore specific question such as “why do consumers buy less of most products as the cost (price) increases?” or “how do consumers decide between different size options of products e.g. small, medium and large popcorn at the cinema?” Also, when models have multiple assumptions, it can help to relax one assumption at a time to explore the specific consequences of that assumption. That way, we can pin down what really causes the outcome of the model to change, and which assumptions are not actually very restrictive at all. No economic model is perfect but they help us to understand key market forces and other issues. Hope that helps, Rob

Thanks Gabriela - Glad you found it useful! Are there any other specific topics you would like us to add to our list of future videos to cover?

Thank you destinyOlga, please let us know if there are any other topics you would like to see. We have new content coming very soon!

Hello Alfonso, Great to hear that you found the videos helpful! Please do let us know if there are other key topics you would like covering and don’t forget to like and subscribe to the channel as we will be uploading lots more new content in the next few months! Feel free to share with your fellow students too! Thanks for your question - this is a really common question I receive from students! An equilibrium in this situation essentially means that you cannot make yourself better off by changing how many units of a product you buy. Formally, you have maximised your total net benefit (TB-TC), and this occurs when you consume more of a product up until the point where MB=MC. Suppose MB=MC on the last unit that you buy, then you are indifferent between buying it and not buying it. This is because the benefit you gain from buying it, is equal to the cost you must pay for it. In this case, economists typically assume that you will buy the unit (but this specific case is quite rare in practice and more of a theoretical concept!). For the point MB=MC to be an equilibrium, you must not be able to make yourself better off by changing the amount you are buying. This is true because if you consume more, you would make yourself worse off (because MB<MC), and if you consume one unit less then this does not make you BETTER off (You are not better or worse off by reducing consumption by one unit in your specific case where MB=MC on that final unit). Therefore, consuming until MB=MC is the equilibrium, and you are indifferent on buying that last unit. Consider an example where MC=10, and MB=20 on unit 1, MB=10 on unit 2, and MB=5 on unit 3. You buy unit 1 as MB>MC. You buy unit 2 as MB=MC. You do not buy unit 3 as MB<MC. Buying 2 units is the equilibrium. Consuming one more unit (i.e. 3 units) would make you worse off and consuming one unit less (i.e. 1 unit) would not make you better off (or worse off - you are indifferent between buying 1 unit or 2 units). So then consuming 2 units is an equilibrium. In practice though, when you draw the graphs with MB (usually slopes downwards) and MC (usually horizontal) lines, the equilibrium is where they intersect. All the space before that point you have MB>MC, and after that you have MB<MC so none of these points would be an equilibrium. Therefore, you don't really find that special case where MB=MC when you draw the general graphs. Please let me know if that helps and feel free to ask more questions on this, or any other topic we are covering or you would like us to cover in the future. Good luck with your studies! Rob Happy Highlighting!

Thank you very much for your reply. Regarding the above, why when equilibrium is reached is an efficient allocation achieved? Specifically, I mean when MC and MB are analyzed in a Production Possibilities Frontier. On the other hand, can the MB curve be considered equal to the demand curve, and the MC curve equal to the supply curve?

This crazy year has got the better of us but we are getting ready to release the rest of the Supply and Demand series very soon! And plenty more to come 👍 If there are any topics you would like to see, please comment below 👇 Make sure you SUBSCRIBE to the channel to get the latest videos! Happy Highlighting!

Thanks Shubham! That is exactly what we want you to get from the videos! 😊 Check out the description to join our mailing list ☝️ Thanks for watching. Happy Highlighting Rob and Bek

Thanks😁, so pleased you found it helpful, let us know if there are any other key concepts you would like us to cover! Happy Highlighting!!!

Thank you, please let us know if there are any other topics you would like covering? We have had a short break but will be back with new content very soon. Happy Highlighting!