Video transcript
In the last fewvideos, we've been talking about theproduction possibilities frontier as a relativelystatic thing, something that you couldn't changebut you could move along. What I want to do in thisvideo is think about, maybe there are waysto change or expand the productionpossibilities frontier. And to do that let's assume thatour little hunter-gatherer has decided to becomea strict carnivore. So he's only focusedon rabbits now. And his whole happiness inlife is optimizing the number of rabbits he can catchand eat in a given day. And so let's-- onone axis let's draw, let's say the number of rabbitsthat 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 overhere is rabbits that he can catch in agiven day, rabbits in a day. But remember, he wantsto optimize this. He wants to think about how hecan increase his productivity in terms of thenumber of rabbits. And he knows-- we'lljust assume that he knows how to build rabbit traps. So now we're going to doa production possibilities frontier, not betweenrabbits and berries, but between rabbits and buildingrabbit traps, so rabbit traps. So maybe he's ableto get twigs together and he builds something. Puts the twigs togetherin a little thing. It's a little box that--maybe he puts a little, I don't know some type ofcarrot down over there. And then if the rabbit comesthen takes the carrot then the box falls on the rabbitor something like that. We don't have to go into theparticulars of the actual trap. But he can also spends histime building rabbit traps. So let's say, 1 rabbittrap, 2 rabbit traps, and 3 rabbit traps. And let's say-- we're going tohold all other things equal, ceteris parabus. So we're not worryingabout other things. And as we'll see, in mostintroductory economics class, whenever you do a productionpossibilities frontier you're only doing itwith two dimensions. And so that's why youhave a regular curve. You could have one with threedimensions, where you're doing the trade offbetween three things. But then you would have tohave a three dimensional graph, and essentially the productionpossibilities frontier would be a surface. But let's just focuson this right now. Maybe I'll do a surface inthe future, just for fun. So these are the rabbit traps. And let's say the productionpossibilities frontier between rabbit traps and rabbitslook something like this. He could spend all histime making rabbit traps, but in that case hewon't get any rabbits and he'll probably starve. And that wouldn'tbe a good scenario. Or he could spend all ofthis time hunting for rabbits and he would catch, onaverage, 5 rabbits per day. But that would leave him notime to make rabbit traps. So this is ourcurrent production possibilities-- letme just draw it. This is our current productionpossibilities frontier. So I'll call this p, productionpossibilities frontier. And I'll put a little0 subscript there. That's our starting point. So he can he can sitanywhere over here, and he would have achievedproductive efficiency anywhere on this curve. But as we saw, if he just spentall of his time doing this over here, he'll neverget any rabbit traps. And so he won'tbe able to change the productivepossibility frontier. But what happens ifinstead he decides that he does want tobuild some rabbit traps? So he decreases the numberof rabbits a day to 4 and that allows him tomake 1 rabbit trap per day. So he wants to hangout in this scenario. So every day thatgoes by, on average, he's going to make 4 rabbits. And he's going tobuild a rabbit trap. So what's going to happen? So as we go into, maybeinto the next period, he would now have a rabbittrap after just one day that he can use tohelp catch rabbits. So that will actually changethe production possibilities frontier. So if he makesthis investment, it will actually allow him,in a given amount of time, to actually catch more rabbits. So if he does that, theproduction possibilities frontier-- having a rabbittrap won't make him that much, won't allow him to makemore rabbit traps in a day. So the most rabbit trapshe can make in a day is still going to be 3. But maybe now he cancatch 6 rabbits a day. So now it might looksomething like that. So now he could eitherstop making rabbit traps, and catch 6 a day justwith that 1 rabbit trap he has, or he couldcontinue that. And now actually he cancatch 5 rabbits a day and still make 1rabbit trap a day. And maybe he decides to do that. But it could be anywhere alongthis production possibilities frontier. Or he could say, hey, I'm happyeating the 4 rabbits a day. I'm going to make 2 rabbittraps now every day. And now after another periodhe gets even more productive. And so then the production--so let me call this one, this is after one day. Production possibilitiesfrontier after one day, and then after twodays, let's say he did this scenarioright over here. Now he's produce 2 rabbit traps. And obviously, maybe I'mexaggerating how quickly his productivity would grow. But maybe now the new productionpossibilities frontier looks something like this. He now has 2 rabbit traps. Or he has 2 more rabbittraps, he already had 1. So now he has 3 rabbittraps after two days. And so now if he wanted todevote themselves purely to rabbit trapping hecan get 8 rabbits a day. Or he could do somecombination in between. And actually this curve,it shouldn't go up at all. I don't want to giveyou the impression that it went up and then down. It just goes kind ofstraight and does something like that right over here. So this right overhere, I'll call that the productionpossibilities frontier 2. So what this hunter-gathereris doing in this scenario right here is, he ismaking an investment. He is accumulating capital. This right over here,this is capital. He is choosing, instead of toconsume all of his resources-- so there's two things he can do. He can either spend all ofhis time in pure consumption, getting as many rabbitsas possible a day and then eating themall, pure consumption. Or he could reducehis consumption and then allocatesome of his resources towards and investment. So this right over here,this is an investment. It makes him more productive. This right overhere is consumption. There's some baselevel of consumption he needs to survive. But if he invests,then it increases his overall productive capacity. So if you viewedhim as an economy by himself, by investinginstead of consuming all of his resources,by investing some of his resources--and in this case, his resources are histime and his expertise-- by investing some of themhe's able to increase his productivity. And if you viewedhim as an economy, he's experiencingeconomic growth. And so there's multipletypes of investments. And we'll talk aboutthese in multiple videos. In this case, he is doingcapital accumulation. He is building tools thatwill make him more productive. Another type ofinvestment is essentially technological change,technological improvement, which would actually makehis tools even better. So we could maybe draw anotherproduction possibilities frontier betweenmaking rabbit traps and then doing R&D on inventingnew types of rabbit traps. And so he could decidewhich of those two things he wants to decide between. But what I wanted you tojust appreciate in this video is that the productionpossibilities frontier can change. You can become moreproductive if you do have investment in R&Dor capital accumulation. And in this case, that justhappened to be rabbit traps.
