After realizing that Auntie Alice wasn’t telling them the truth about her role in stealing Gloria’s sauce, Jay and Gloria head to Auntie Alice’s house to confront her about the situation. She initially tries to lie her way out of the situation, but eventually we learn that Auntie Alice is a cunning businesswoman who swooped in and patented Gloria’s sauce because she already knew that Gloria didn’t have a patent. Patents are intended to reward individuals and businesses who invest resources in developing new products, and they can serve as significant barriers to entry for competition. Owning a patent can create a temporary monopoly on a product, which in turn can generate lots of profits.
Luckily, Phil recognizes a lot of city codes that Auntie Alice is violating and threatens to alert the city if she doesn’t pull the patent for Gloria’s sauce.
See more: barriers to entry, imperfect competition, market power, monopolistic competition, patents, profit
Gloria realizes that a new hot sauce by Auntie Alice tastes very similar to hers, so Jay and Gloria go to the supermarket to confront the grandmother. While there, Phil tries to play tough and accidentally eats some of her volcano sauce, which is a bit too much for Phil. Hot sauces are a great example for product differentiation! They are all substitutable and differentiated by heat level, but also by different ingredients. The market for salsa is probably monopolistically competitive since price is an important factor.
A second concept covered in this clip is the role of advertising. According to Auntie Alice, she’s only the spokesperson for a larger corporation who uses her likeness as a branding strategy. The role of branding is part of why monopolistically competitive firms don’t produce at minimum average cost. The use of brands could be to signal some kind of information, but it’s not clear what signal a sweet old lady has with hot sauce. Alice hints that the company has lots of lawyers who will squash any one who challenges them, implying that the company uses this tactic to create barriers to entry. Later in the episode, we learn Auntie Alice may not be telling the whole truth!
See more: advertising, barriers to entry, brand names, branding, efficiency, imperfect competition, marketing, market power, monopolistic competition, patents, preferences, product differentiation, profit
Manny’s girlfriend Sherry is staying with the Pritchett’s for a while and she and Manny have taken up improv in the hopes of becoming an improv actor one day. Jay isn’t amused and feels like Manny should focus on trying to get a different job.
See more: labor, nonpecuniary benefits, preferences, skills, talent
Jay is shocked that Manny won’t eat pickles, so he won’t let him leave the table until he tried one. Gloria thinks Jay is being a hypocrite and forces him to try blood sausage. Then Jay decides Gloria need to try something new too: scratching the dog, Stella’s, belly. While they all seem to hate what they try at the time, we see Gloria petting Stella’s belly voluntarily and Manny surreptitiously eating a pickle at the end of the episode. This highlights the need for full information in order to know your true preferences.
See more: behavioral, full information, preferences, tastes and preferences, utility
Cam’s dad, Merle, is fighting with Cam’s mom and they are considering a divorce. While there are utility gains from separating from partners, Merle believes he can do better than his current wife because he sees Jay and Gloria as role models. Gloria, however, paints a bleak picture of Merle’s future. Does Merle really have better options waiting out there or would he maximize his expected utility by staying with his current wife?
See more: cost benefit analysis, expectations, opportunity cost, tradeoffs, utility
Gloria and Jay have been having issues with Baby Joe’s behavior, so Gloria consults a priest. Gloria seems to think the men in her family have been kissed by the devil, but the priest insists it is the families that shape who children become. This is a great clip to introduce the nature versus nurture debate and also to consider the role of omitted variable bias in determining the parents’ impact on children. Could there be some other factor that Gloria hasn’t considered?
See more: causation, correlation, nature vs. nurture, omitted variable bias
The family is headed to Disneyland, but Manny is caught up in a simulated stock market game for school. It’s near the deadline and he wants to make sure he wins the competition, but volatility in the stock market has caused his portfolio to finish below expectations. Even though they’re playing with fake money, Manny dreams of the things he could afford if only he was rich, implying there’s a level of inequality among the haves and the have nots.
See more: income, income inequality, inequality, money, personal finance, stock market, volatility, wealth
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).
See more: entrepreneurism, human capital, human capital investments, moral hazard, signaling, signals, technological knowledge
Gloria wants to sell her family’s sauce to a larger company. Jay and Gloria each use a different tactic to make the product more appealing, in essence trying to drive up the demand for the sauce. Unfortunately, they don’t coordinate their strategies in advance and Jay blows the deal.
It turns out there’s a lot of information that Gloria has hidden from Jay. She has long had a surplus of sauce that she has been keeping in storage lockers across town. Gloria has likely paid a lot of money for all of the storage. When firms normally have a surplus, it means that the price for the product is above the equilibrium price.
This scene is also a good example of adverse selection in exchange. Gloria knows that her product is no good, but they are trying to signal not only that it’s good, but also that it’s special, almost magical.
See more: adverse selection, advertising, asymmetric information, demand, double coincidence of wants, information economics, marketing, preferences, product differentiation, profit, rationality, sunk cost, supply, tastes and preferences
Its Halloween and Gloria often ties to coordinate her costume with Jay, but he usually just accepts whatever Gloria picks for him. At this point in their marriage, he’s tired of being the “ugly” sidekick while Gloria goes as some beautiful character. The two would like to coordinate their outfits so that they are both happy, but what they may not be able to match correctly. Consider this a modern version of the Battle of the Sexes game.
See more: Battle of the Sexes, choices, coordination game, game theory, interdependent utility functions, payoff matrix, preferences, utility
Jay has a great new invention that he believes will revolutionize the closet industry. He believes he’s created a sock dispenser that will rotate his socks so that he isn’t always wearing the same socks over and over. In competitive industries, product differentiation like this can lead to short term profits – especially for early adopters.
Unfortunately, Manny brings his friend over he recognizes the potential that this new sock dispenser could provide her uncle Earn, who is also in the closet industry. Earl is a major competitor (and former partner) of Jay and he now realizes that his proprietary idea may be stolen if he doesn’t act fast.
See more: competition, entrepreneurism, innovation, market power, monopolistic competition, patents, product differentiation, proprietary technological knowledge, trade names
Jay got new glasses that make him look like an old man but they work really well. So well that he realizes that Gloria’s family members in Columbia are wearing his old clothes. Notice that Gloria says that they sometimes send the clothes back. In the US, people frequently donate clothing to people in less developed countries. Many economists argue that this is counterproductive and leads to a surplus of clothing in these countries. That surplus can hurt markets and cost jobs.
See more: charity, donations, efficiency, emerging markets, gift giving, growth, interdependent utility functions, preferences, utility
After a successful trip to Vegas, Jay decides to purchase a dog butler statue as a gift for himself. He thinks everyone loves it, but Gloria detests it and tries to get rid of it. Every time she comes home, she’s reminded of the dog and it ends up scaring her. While Jay clearly receives private benefits from his purchase (and he also thinks there are social benefits), Barkley has imposed an external cost on Gloria, which Jay has clearly not considered.
The Coase Theorem would suggest that if Gloria is truly unhappy about Barkley, she could arrange some form of payment to get Jay to put him away. We learn later that the fight between them was enough for Jay to recognize that he’s imposing a cost on Gloria, and instead decides to get rid of the butler.
See more: Coase Theorem, external costs, externalities, negative externalities, preferences, utility
Manny lost Luke in a “sketchy” neighborhood. He and Phil enlist Gloria’s help to track him down. When they arrive in the neighborhood, they find that it has changed quite a bit since Gloria lived there. When searching for a girl, they have the option of visiting one of the four area cupcake stores, each specializing in a different area.
See more: gentrification, growth, imperfect competition, incentives, income inequality, market structures, monopolistic competition, preferences, product differentiation
Jay takes Joe out to the driving range and discovers that Joe is a natural. Joe’s natural skill is a form of human capital that gives him the potential to earn a large salary in the future. Human capital is often acquired through years of training, education and hard work. But sometimes, luck gives some people an edge over others. If Joe works hard and practices, he could follow the path of other young golfers with natural talent like Tiger Woods and Lexi Thompson. Jay wants to do all he can to make that happen.
See more: human capital, incentives, income inequality, labor, productivity, tournaments, wages, winner take all
Phil is desperate to sell this house. The buyer loves it but is afraid that it is haunted. Phil brings in Gloria to cleanse the house of unfriendly spirits. What they find isn’t spirits – it’s not ghost. It’s only bees! This demonstrates adverse selection and screening. Economics suggests that a market where the buyers know less than the sellers will result in adverse selection. That is, there will be more “bads” (haunted) houses on the market than “goods” (non-haunted). One way the ways that the problem of adverse selection can be reduced is through signaling. Phil (the seller) takes an action (asks Gloria to inspect the home) in order to reveal that this home is a “good” (not haunted) home.
See more: adverse selection, asymmetric information, preferences, signaling
Economists often suggests that competition improves efficiency in markets and Jay seems to agree. He fosters competition within his family to help them achieve their goals. At this moment in the episode, he appears that his motivation worked out and everyone has been successful, but later in the episode, we find out that there were some unintended consequences of his actions.
See more: competition, extrinsic rewards, incentives, intrinsic rewards, labor, motivation, perverse incentives, unintended consequences
Economists often suggests that competition improves efficiency in markets and Jay seems to agree. He fosters competition within his family to help them achieve their goals. In an earlier scene, we learn that Jay withholds praise to encourage his family, but this year they have all seemingly surpassed his expectations. But are they really achieving those goals? The truth comes out in this clip. It turns out that they’re a family of cheaters and not a family of winners. Jay’s decision to incentivize them with praise has some stark unintended consequences.
See more: cheating, competition, ethics, incentives, moral hazard, motivation, self interest, unintended consequences
Luke is baby-sitting for Gloria. She expects him to care for her son in a responsible way. When Luke posts a selfie on social media, Gloria worries that her son might be in danger. This represents the principal-agent problem. Luke is the agent and Gloria is the principal. Is he acting in her best interest? Of course not! He’s shirking. To cover up his shirking, Luke tells Gloria that he has a series of photographs of her son in dangerous situation but they’re all fake. Now, he needs a series of photoshopped pictures but doesn’t use photoshop. So, he decides to only give Manny something that he wants if he photoshops Gloria’s younger son in to dangerous situations. This represents trade through barter. Luke has a pass that Manny wants. Manny has a skill that Luke needs. They trade because they have a double coincidence of wants.
See more: barter, double coincidence of wants, exchange, labor, moral hazard, network externalities, principle agent problem, social media, trade
Manny is the first member of the family to graduate from high school despite the fact that he has an uncle who “just does orthopedic surgery.” Apparently you only need a degree to do heart and brain surgery.
See more: ability bias, education, human capital, human capital investments, signaling
Manny is about to receive an award for perfect attendance at graduation and his step dad shows up to help him celebrate that night. Before leaving, Manny and his father walk through a strong mist of cologne. Gloria notes that despite the terrible smell, she’s never seen him get a mosquito bite. The cologne imposes external benefits (no mosquito bites) also external costs (the awful smell) on the remaining members of the household.
See more: externalities, negative externalities, private benefits, social benefits, social costs
Gloria is sick and Cam tries to help around the house. Gloria’s family remedy for colds is a bit smelly and Cam accidentally uses Joe’s cape in the process. Gloria immediately recognizes this will be and issue and points out that Joe has a strict ranking set when it comes to that cape. Joe loves the cape so much more that he even places the cape above his own father. Part of utility theory requires transitivity, which is the ranking requirement of consumption.
See more: preferences, ranking, subjective value, transitivity, utility
It’s time for Jay and Gloria to exchange gifts and Jay is anxious about his gift from his wife. He struggles finding the right gift because it always seems like a competition. If the two didn’t exchange gifts then the extra psychic costs wouldn’t exist. It turns out that Gloria actually really loves Jay’s gift, but Jay really wanted that watch.
See more: gift giving, inefficiency, irrationality, psychic costs, subjective value