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Invisible Hands: The Fundamentals of Economics - YouTube
Channel: Foundation for Economic Education
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hey Kevin here welcome to invisible
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hands the series that makes economics
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easy and helps you see the beauty of
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trade and cooperation with me Fiona
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we're gonna cover a lot of ground in
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these videos but before we can get to
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some of the more difficult ideas in
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economics it's super important to start
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with the fundamentals you with me yep
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where do we begin
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okay what do you think economics is all
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about the stock market no money in
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business sort of the study of animals
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that may or may not exist
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that's cryptozoology okay but what if
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you hired a foot take a picture of him
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that isn't blurry but we are getting
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closer oh I give up what's it about it's
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about people yeah
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were you just hiding under the table
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this whole time the well yes Fiona
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economics is actually the study of human
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behavior whenever people make choices
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that can be about money and business
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sure but it's also about so much more
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exciting it is just because it's a huge
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subject doesn't mean economics can't be
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easy to grasp and to help you figure all
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this out there are six fundamental
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concepts you need to understand first
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yeah
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what are they individual action scarcity
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choice trade-offs subjective value and
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incentives got it well I guess we're
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done here yeah wait wait wait wait wait
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women we we have to explain all those
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ideas and by we I mean professor alright
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the first thing to understand about
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economics is only individual people act
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and as individuals the reason we act is
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in order to satisfy our own unique
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desires and values so action is
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purposeful behavior that's right we can
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imagine a better future and we believe
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that our actions will make this future
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come true oh okay like when I'm doing my
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homework and I get hungry it means I'm
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not content with my situation anymore
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go on
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then I start imagining a better future
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one where I'm not hungry anymore and an
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astronaut and so if I can think of some
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way to get food what do you do order a
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pickle and pineapple pizza no well why
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not
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speaking of pickle and pineapple pizzas
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the fact that action is purposeful
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doesn't mean that everybody always makes
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great decisions and never makes any
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mistakes but before you can understand
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economics you have to understand the why
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of human action and pappad action and
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you have to understand that the
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fundamental unit of analysis always
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comes back to the individual even though
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statistics and averages can help us
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understand the world around us better
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groups don't make choices individuals do
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the next thing you have to know is that
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one completely inescapable fact of
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reality is scar city the city of scars
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wait Shawn I think there's a typo in the
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teleprompter must be scarcity a scar
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City okay yep that's better
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scarcity means two things one resources
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are limited and have many alternative
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uses and two people have virtually
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unlimited wants and needs so how often
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do people have to deal with scarcity all
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the time the challenge with scarcity is
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why individuals have to be careful with
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how we use the resources in our disposal
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economics is about gaining a better
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understanding of the various ways that
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deal with scarcity like production
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consumption exchange exactly if there
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was no scarcity then there wouldn't be
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any economic problems and nothing for us
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economists to study can you imagine
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the pretty much all human action
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involves coping with scarcity that
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brings us to choice the unavoidable fact
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of scarcity forces individuals to make
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choices you can't do your homework and
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go get a pizza at the exact same time
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unless your homework is to pick up a
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pizza in which case what class are you
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taking the best class ever otherwise
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you've got to decide which is more
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important to you I never thought about
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it that way before every choice you make
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comes at the expense of not being able
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to do something else yeah in economics
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these are called trade-offs every
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decision we make in life is about
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balancing various trade-offs resources
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are scarce so whenever you choose one
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course of action you're giving up the
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opportunity to do something else and
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this isn't just about money or material
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wealth it's also about my time so the
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point is there were always going to be
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limits on what you can do with resources
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you have and competing opportunities to
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choose from economics can help you
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understand how to make better choices
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and by the way no two people are ever
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going to make the same choices about the
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same resources what so that brings us to
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subjective value is your voice echoing
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yeah that always happens for some reason
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when I say subjective value been
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happening since I was a kid my mom says
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its genetic you know my uncle at one of
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them oh right
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subjective value is the recognition that
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everybody has different desires wants
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and needs the importance we place on
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them changes over time even moment to
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moment in some cases the things you
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value and how much you value those
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things depends on your goals priorities
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and personal preferences oh like how I
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might want to pickle on pineapple pizza
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when I'm hungry but somebody else might
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want a peanut butter sandwich yeah me
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but it also means that just because you
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might value eating a pizza more than
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doing your homework right now that
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doesn't mean
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you won't value doing something else
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once you're not hungry anymore
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maybe you'll even go back to doing your
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homework the point is everyone's
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preferences are constantly changing and
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value is a ranking of preferences not
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just a number you can quantify it's also
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not just about material stuff people
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value all kinds of abstract things as
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well right love friendship social status
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good grades and economics deals with all
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that stuff - absolutely it's also really
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important to understand that the value
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of a good is not just determined by the
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amount of effort time or material it
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took to make it really why not because
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it doesn't matter how much work went
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into making a pickle and pineapple pizza
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I don't want to eat it no wood in
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general the way we quantify how much
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people value something is by observing
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how much they're willing to give up in
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order to get it and remember this isn't
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just about money either you're talking
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about time again totally think about
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people who camp out in front of a store
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on Black Friday oh they might be saving
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money but they're giving up their time
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instead why do people do that because
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they value the deal they think they're
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going to get more than they value the
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time they're spending waiting in line
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you see value is subjective beauty is in
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the eye of the beholder I guess got it
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and that takes us all the way to our
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final fundamental concept incentives
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since value is subjective resources
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including your time are scarce and the
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world is filled with trade-offs making
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decisions can be tricky but one constant
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fact of human nature is that we all
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respond to incentives and Ascenta vis
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something that motivates people to
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action and that can either be positive
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or negative so just like I might get two
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pizzas if they're half off or how the
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prospect of getting a good tip motivates
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the delivery driver to get to me quickly
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the fear of me failing my classes
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encourages me to do my homework
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exactly we'll talk a lot more about how
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incentives affect people's behavior in
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some of the other videos in this series
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but all you need to know for right now
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is that incentives matter a lot man that
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was a lot to cover but let me see if I
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understand everything go for it okay
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so resources are limited we will never
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have enough time money or stuff to do
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everything we want to do at the same
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time we're all doomed to be miserable
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yeah well scarcity is a fact of nature
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it does mean we have to make some tough
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choices but the beauty of the market is
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that it makes us way better off than we
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would ever be otherwise that's true okay
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maybe we're not totally doomed but
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people still have to make choices and to
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understand why people do what they do we
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have to look at individuals yes all the
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individual people make decisions and act
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on them and they do that whenever they
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feel motivated to change their current
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situation of course it can be valuable
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to study group behavior but in the end
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every group is just a bunch of
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individual people working together
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economics is about individual action and
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incentives motivator actions and
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behavior in pretty predictable ways
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right okay so as far as economics is
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concerned action is about individual
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people deciding to do things on purpose
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in order to get something they value yup
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and those values are subjective exactly
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who I think I get it
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thank you you're welcome now I think I'm
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gonna order some pizza who wants them
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yeah I'll have some pizza but no pickle
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and pineapples on money just jelly and
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anchovies for me well taste is certainly
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subjective so what about you did this
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help you understand the fundamentals of
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economics if you have any questions and
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just want to know more leave a comment
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on this video and check out courses fee
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org for tons of additional information
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see you next time hold on
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why do you either of you want pizza you
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can't eat your puppets what do you mean
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puppets
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