Claire and Jay are visiting a competitor’s business. The competitor wants to buy Pritchett Closets, but Claire and Jay have a different idea. The new company is focused on creating smart closets that can pick outfits for the person based on the weather and their current size. They have great technology, but they don’t have the manufacturing capabilities to fulfil all their orders. Pritchett Closets, on the other hand, has the manufacturing space, but they haven’t invested much in technology. Claire proposes that they merge instead.
It is Phil’s birthday and also the day the iPad is being released. Phil is willing to spend his birthday waiting in line to be sure he gets the new iPad, but Claire offers to do it for his birthday but instead of getting there early she falls asleep on the couch. When she finally gets to the store, they are all out, and Phil ends up wishing he had handled it himself.
Pam’s ex-boyfriend is back in town and wants to get back together. Mitchel is all in favor of the reconciliation, but Cam is against it. Why is Mitchell so eager for her to move out? As long as Cam’s sister is in the apartment upstairs, they aren’t able to rent the apartment out and earn extra money. While Cam is trying to be generous for his family, Mitchell sees the missing dollar signs.
Haley is at a staff meeting. She’s worried that she hasn’t had enough good ideas lately. Her fear is that this will lead her boss to believe that she isn’t working hard on behalf of the company. Haley signals that she’s a good worker by suggesting that Gloria sell a family recipe to the company (NERP). Gloria has long held the recipe secret. The recipe is an example of private technological knowledge. The recipe is valuable to Gloria because of the family tradition. The recipe is valuable to NERP because it could give them an edge in the lifestyle industry. Will Gloria sell? (Note: Jay also makes a fantastic joke about the value of a bachelor’s degree that can be used for discussion on human capital)
Alex is practicing her college interview for Princeton in the mirror when Haley comes in to style her hair. Princeton is an Ivy League school that is very prestigious and gets a lot of applications. Princeton does not know which applicants it should let in so it screens them. Screening is an action taken by an uninformed party in a situation characterized by adverse selection. There are many things that colleges do to screen applicants. They require high school transcripts, a certain GPA, test scores and they conduct an interview. When someone is interviewed, it’s an opportunity for them to send a signal. A signal is an action taken by an informed party in a situation characterized by adverse selection. Alex wants to signal to Princeton that she’s a good candidate for admission into the university. Haley shares her thoughts about the message that Alex is actually sending.
The Dunphy’s neighbor has a new boat that they leave in the driveway. Many of the family members are impacted by the visibility of the boat. This represents spillover effects and mean that an externality is present in the market for boats. Some family members see the boat as having a positive externality. Others see the boat as having a negative externality. As there is a relatively low number of people impacted by the boat (the Dunphy’s and other nearby neighbors), Coase theorem suggests that an efficient outcome can be negotiated. But will the Dunphy’s be able to get to it? Claire is immediately interested in finding regulations that restrict how residents can store large property like a boat. Many communities, especially home owner associations (HOAs), have rules pertaining to this situation. These rules are designed to lower the transaction costs associated with these externalities by providing a standardized process for dealing with conflicts between neighbors that settles disputes, thereby increasing the likelihood that an efficient outcome is attained. However, often these processes can end up creating problems themselves. What happens, for example, if the neighbors get together and decide that it’s OK to store the boat in a visible place? If they do and the enforcement agency requires a change, it can make things worse.
Phil has plans to give Haley the perfect git for her 21st birthday – a new car. He has spent months doing research and planning without actually going in to a dealership. His work has been online and he landed an incredible deal. But Jay is convinced that he can do better. In this scene, Phil is sad because Jay made his deal fall through but Jay has a surprise. Jay did some hard core negotiating and beat that unbeatable deal…. or did he? Buying a car is different from many other markets. The price on the sticker is rarely what people pay. Instead, both buyer and seller go in to the transaction with the understanding that they will negotiate the price and features of the car.
It’s Haley’s 21st birthday. She and Claire have decided to get coordinating tattoos. Claire got hers first and now Haley is having a change of heart. In this scene, we see time inconsistency and imperfect information. Haley is concerned that her preferences will change over time so she decides against getting the tattoo. Meanwhile, Claire already regrets her tattoo because Haley won’t be getting one – but it’s too late for Claire. Tattoos do not have a return policy! If Claire had known that Haley would change her mind, she would not have gotten a tattoo (imperfect information). This clip can also be used to compare and contrast two types of games in game theory – sequential games and simultaneous games. If you decide to get a tattoo with a friend but only because you’re doing it with a friend, make sure you get them simultaneously!
Cam convinced Mitchel that he needs to be kinder so Mitch invites a messy colleague who is going through a breakup to spend the night at their place. Unfortunately, she takes him up on it. Determined to keep their beautiful, brand new, designer white sofa (their one nice thing) in mint condition, they give up their bed for her and sleep on the floor. In this clip, they wake up and discover that she has moved onto the couch. This couch is more expensive than one from Rooms to Go and so it counts more towards GDP. Owning an expensive couch is an indication of Mitch and Cam’s high standard of living. Yet, does a high standard of living mean a higher quality of life? Robert Kennedy didn’t think so:
[GDP] counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.
–RFK, Speech at University of Kansas, March 18, 1968.
Another perspective on this clip: resources are scarce. At it’s heart, economics is about how we choose to use those resources. Purchasing this couch moved Mitch and Cam on to a higher indifference curve than before they purchased it so their utility is higher than it used to be. But could they have been on an even higher one if they chose to buy a cheap couch and spend their money on something else? Traditional economics says that Mitch and Cam are rational and made the best decision. Is it possible that they could have made a mistake? What if they incorrectly estimated the cost of maintaining the couch. Could this also demonstrate time inconsistency?
It’s Thanksgiving. For the first time, Claire is leaving the cooking to Phil…. or is she? She’s not. She made a fallback turkey, just in case Phil’s doesn’t work out. This demonstrates fallback position. Economists who study the family suggest that a person will stay in a relationship as long as the in-relationship utility is higher than the fallback position. While Claire isn’t considering leaving Phil for her fallback turkey, this clip can be used to discuss fallback positions. Claire has entered into a contract with Phil in allowing him to cook the family turkey. She will remain in that contract only as long as the benefit of eating Phil’s turkey is greater than the utility of eating her own turkey.