In the last few

videos, we’ve been talking about the

production possibilities frontier as a relatively

static thing, something that you couldn’t change

but you could move along. What I want to do in this

video is think about, maybe there are ways

to change or expand the production

possibilities frontier. And to do that let’s assume that

our little hunter-gatherer has decided to become

a strict carnivore. So he’s only focused

on rabbits now. And his whole happiness in

life is optimizing the number of rabbits he can catch

and eat in a given day. And so let’s– on

one axis let’s draw, let’s say the number of rabbits

that he can catch in a given day. Let’s say it’s 1,

2, 3, 4, 5, 6, 7– I could keep going on and on. So this right over

here is rabbits that he can catch in a

given day, rabbits in a day. But remember, he wants

to optimize this. He wants to think about how he

can increase his productivity in terms of the

number of rabbits. And he knows– we’ll

just assume that he knows how to build rabbit traps. So now we’re going to do

a production possibilities frontier, not between

rabbits and berries, but between rabbits and building

rabbit traps, so rabbit traps. So maybe he’s able

to get twigs together and he builds something. Puts the twigs together

in a little thing. It’s a little box that–

maybe he puts a little, I don’t know some type of

carrot down over there. And then if the rabbit comes

then takes the carrot then the box falls on the rabbit

or something like that. We don’t have to go into the

particulars of the actual trap. But he can also spends his

time building rabbit traps. So let’s say, 1 rabbit

trap, 2 rabbit traps, and 3 rabbit traps. And let’s say– we’re going to

hold all other things equal, ceteris parabus. So we’re not worrying

about other things. And as we’ll see, in most

introductory economics class, whenever you do a production

possibilities frontier you’re only doing it

with two dimensions. And so that’s why you

have a regular curve. You could have one with three

dimensions, where you’re doing the trade off

between three things. But then you would have to

have a three dimensional graph, and essentially the production

possibilities frontier would be a surface. But let’s just focus

on this right now. Maybe I’ll do a surface in

the future, just for fun. So these are the rabbit traps. And let’s say the production

possibilities frontier between rabbit traps and rabbits

look something like this. He could spend all his

time making rabbit traps, but in that case he

won’t get any rabbits and he’ll probably starve. And that wouldn’t

be a good scenario. Or he could spend all of

this time hunting for rabbits and he would catch, on

average, 5 rabbits per day. But that would leave him no

time to make rabbit traps. So this is our

current production possibilities– let

me just draw it. This is our current production

possibilities frontier. So I’ll call this p, production

possibilities frontier. And I’ll put a little

0 subscript there. That’s our starting point. So he can he can sit

anywhere over here, and he would have achieved

productive efficiency anywhere on this curve. But as we saw, if he just spent

all of his time doing this over here, he’ll never

get any rabbit traps. And so he won’t

be able to change the productive

possibility frontier. But what happens if

instead he decides that he does want to

build some rabbit traps? So he decreases the number

of rabbits a day to 4 and that allows him to

make 1 rabbit trap per day. So he wants to hang

out in this scenario. So every day that

goes by, on average, he’s going to make 4 rabbits. And he’s going to

build a rabbit trap. So what’s going to happen? So as we go into, maybe

into the next period, he would now have a rabbit

trap after just one day that he can use to

help catch rabbits. So that will actually change

the production possibilities frontier. So if he makes

this investment, it will actually allow him,

in a given amount of time, to actually catch more rabbits. So if he does that, the

production possibilities frontier– having a rabbit

trap won’t make him that much, won’t allow him to make

more rabbit traps in a day. So the most rabbit traps

he can make in a day is still going to be 3. But maybe now he can

catch 6 rabbits a day. So now it might look

something like that. So now he could either

stop making rabbit traps, and catch 6 a day just

with that 1 rabbit trap he has, or he could

continue that. And now actually he can

catch 5 rabbits a day and still make 1

rabbit trap a day. And maybe he decides to do that. But it could be anywhere along

this production possibilities frontier. Or he could say, hey, I’m happy

eating the 4 rabbits a day. I’m going to make 2 rabbit

traps now every day. And now after another period

he gets even more productive. And so then the production–

so let me call this one, this is after one day. Production possibilities

frontier after one day, and then after two

days, let’s say he did this scenario

right over here. Now he’s produce 2 rabbit traps. And obviously, maybe I’m

exaggerating how quickly his productivity would grow. But maybe now the new production

possibilities frontier looks something like this. He now has 2 rabbit traps. Or he has 2 more rabbit

traps, he already had 1. So now he has 3 rabbit

traps after two days. And so now if he wanted to

devote themselves purely to rabbit trapping he

can get 8 rabbits a day. Or he could do some

combination in between. And actually this curve,

it shouldn’t go up at all. I don’t want to give

you the impression that it went up and then down. It just goes kind of

straight and does something like that right over here. So this right over

here, I’ll call that the production

possibilities frontier 2. So what this hunter-gatherer

is doing in this scenario right here is, he is

making an investment. He is accumulating capital. This right over here,

this is capital. He is choosing, instead of to

consume all of his resources– so there’s two things he can do. He can either spend all of

his time in pure consumption, getting as many rabbits

as possible a day and then eating them

all, pure consumption. Or he could reduce

his consumption and then allocate

some of his resources towards and investment. So this right over here,

this is an investment. It makes him more productive. This right over

here is consumption. There’s some base

level of consumption he needs to survive. But if he invests,

then it increases his overall productive capacity. So if you viewed

him as an economy by himself, by investing

instead of consuming all of his resources,

by investing some of his resources–

and in this case, his resources are his

time and his expertise– by investing some of them

he’s able to increase his productivity. And if you viewed

him as an economy, he’s experiencing

economic growth. And so there’s multiple

types of investments. And we’ll talk about

these in multiple videos. In this case, he is doing

capital accumulation. He is building tools that

will make him more productive. Another type of

investment is essentially technological change,

technological improvement, which would actually make

his tools even better. So we could maybe draw another

production possibilities frontier between

making rabbit traps and then doing R&D on inventing

new types of rabbit traps. And so he could decide

which of those two things he wants to decide between. But what I wanted you to

just appreciate in this video is that the production

possibilities frontier can change. You can become more

productive if you do have investment in R&D

or capital accumulation. And in this case, that just

happened to be rabbit traps.

KhanAcademy is good example of business growth

Make more videos on historical events, they're very interesting. The other videos (like these) are intregeing aswell but I would prefer a historical event video ever once so often.

A 3D PPF would be absolutely amazing, please do it!

HELLO

I didnt really understand this in econ…but thanks to you, i now get it xD

@IncognitoObserver No, he's done a lot of economic videos and series. Check out the Khan Academy website.

i'm hunting wabbits

This is simply amazing.

No! Save the rabbits!

@imrichyournot i am amazing

I wish I knew about this channel before I payed money to take these classes in lecture halls that were way to large to learn anything

pyramid

Hi Mr. Khan,

It is really amazing and help me to build the solid & robust ground & basics for my economics study.

I just have a question, in your last example "make investment for rabbit traps" the PPF0 was depicted between 3 "as rabbits trap" and 5 "as Rabbits/Day". After increase the capital, the PPF1 now become also between 3 & 6!!! why still the capital is the same, I think the new PPF should be drawn between 4 & 6 instead!!!!

BR

So in Age of Empires, this is the reason why gathering food as fast as possible is so essential. You want to be able to make villagers to increase your economic production.

so is this an idea on how to get your money to work for you?

Love you

grudge*

Shame he isn't capable of building automated traps :-/.

whoever invented these concepts are so smaaart

WAIT…. YOU CANT KNOW THIS MUCH! THIS IS NOT NORMAL…. WHO ARE YOU????

Invest in the emerging markets

Kind of like a temporary Marginal Cost?:)

Because his students are commoner and a wipes? Back in the days, most of the students in the UK are farm-hands and zombies that need the professors or lords to explain it to this level.

after every 10 sec. there is a rabbit 😛

poor rabbits

Dear teacher,

I'm a student who is studying abroad now, and my first language is not English, life suddenly seems so hard for me…

I will try my best to watch your Stat and this one,

if I get high decent grades finally ~

I will donate !!!!

Unitepebbles: its called doing things for passion not for money. Also, he has a job. Also, he has broad knowledge so you saying he's stupid is kind of…well ridiculous :). Keep the negativity to urself unless ur einstein and can actually prove your statement to be valid. Rude.

After a good long while of making rabbit traps AND hunting, enough traps would be accumulated so that the hunter-gatherer could afford to spend ALL his time making traps, right? And therefore the PPF would not stretch but actually translate three units to the right each day. Well, maybe not quite three units, because broken traps must be accounted for, but after at least one trap having been made, the hunter-gatherer could make three traps a day and still get a rabbit.

If consumers spend less and save more, does this mean investment must increase?

I still don't understand this part 🙁

Great vid but I still don't understand why his PPF expands. Can someone explain to me why/how his productivity grows. It's not as if he suddenly has more employees to help him catch rabbits?

Back in 2011 Sal said he might do a production possibilities frontier with 3 possibilities for fun, anybody know where that video might be?

no sound in the video????

how come you are using the same amount of resourse which is the rabbits' traps and you increasing your rabbit's number, should not be the more you invest in traps the more you catch rabbits ????? you start with one trap, you catch four rabbits, but as you go up to 3 traps you still catching 6 and 8 rabbits!!! so let's say I have 10 traps how many rabbits I will be able to catch?

khan academy needs to publish books as well on these subjects 🤔

That was an awful example 😛 rabbit traps and rabbits out of the many other examples you could give

Khan is the Da vinci of this era lol

Good work but other topics are in 360p quality so that i cant see clear

Why we study economic growth give three reasons quickly plz?

💜 Tq student from Malaysia

Can economic growth reduce if the rabbit traps (investments) in future are reduced??