Right next door to where Mitch was taking trumpet lessons was a massage parlor offering massages for the exact same price as trumpet lessons. Cam believes Mitch has been practicing the trumpet for two years now, but it turns out that Mitchell has just been getting regular massages. Utility maximization assumes that when two items are the same price, consumers will chose the item with the higher utility. While Mitch originally thought he wanted to learn how to play the trumpet, he realized each additional massage generated higher levels of utility than another trumpet lesson.
See more: equimarginal principle, marginal utility, substitutes, utility, utility maximization
Cam and Mitch are having a nice breakfast with Jay, but it turns out jay only invites them to breakfast because he has to meet a club minimum in order to keep his membership. We learn that Jay also buys people gifts from the club shop so that he can help his balance and even offers to get Cam and Mitch some spa services. This incentive mechanism by the club ensures that people aren’t just joining the club for the golf perks, which have relatively low profit margins.
See more: altruism, gift giving, incentives, self interest
Cam has setup a panel that includes Alex, Haley, Manny, and Luke. His original goal was to showcase alternative options beyond college for the high school. It turns out the principal isn’t a fan of that idea, but only because he’s more interested in winning the “Golden Apple” award, which is for schools that have 60% of their class going on to college. His self-interest may push some students into a path that they aren’t meant to be on.
At the start of the scene, we learn that Cam’s not sure he believes everyone should go to college, but he isn’t sure how to proceed once he finds out that his principal is encouraging him to only talk about the benefits of college. Midway through the show, Mitch convinces Cam that if he can make it wear the principal doesn’t get the Golden Apple award, Cam may be promoted to Head Principal which comes with more perks. Cam goes along with it, and switches the theme of the panel to focus on non-college options.
See more: college, education, human capital, human capital investments, incentives, self interest, signaling, signals, skill building
Claire and Cam want to flip a house, but Phil and Mitch are against it. Phil pretends he is for it leaving Mitch to put his foot down, but eventually Mitch decides to play the good cop as well and leave Phil to put the brakes on the house. If Phil and Mitch had agreed before hand to both be against the plan (cooperate), they could have come to the best outcome, but it was in Phil’s best interest to deviate and act like he supports Claire and Cam, leave Mitchel to take the full cost of the outcome. Mitchel then decides to defect as well and they are now both supporting a project they don’t believe in. This scene represents a more common version of prisoner’s dilemma in which both Phil and Mitchell would be better off cooperating, but they each have an incentive to defect.
See more: game theory, incentives, interdependent utility functions, prisoner’s dilemma, sequential moves
The entire family is visiting Australia and has a hike planned for the day. On their way to the van, Cam and Mitch get a text from an old friend inviting them to join him on Hugh Jackman’s yacht that day. Cam and Mitch have to decide between time with their families or time with famous people. They don’t want to seem starstruck, but they also don’t want to be bitten by a snake in the name of family time.
See more: cost benefit analysis, opportunity cost, tradeoffs
This scene takes place immediately following the Supreme Court decision that legalized gay marriage. In the marriage market, a law that prevents gay marriage is essentially a quota of 0 marriages, which leads to huge amounts of deadweight loss. At this extreme, the quantity demanded exceeds the quantity supplied, which can be seen in the second portion of the scene when the Jay and Manny arrive at the course house. There is a surprisingly deep conversation about the role of economics in same-sex marriage.
See more: demand, efficiency, inefficiency, markets, quotas, role of government, supply, transaction barriers
Lily lost her first tooth and got $100 from the Tooth Fairy. Cam and Mitch are trying to convince her that the Tooth Fairy made a mistake and she should give the money back, but Lily wants to keep the money until Haley tells her this would almost certainly put her on Santa’s naughty list. Now Lily has to decide what she values more: $100 or Christmas presents.
See more: opportunity cost, rationality, tradeoffs
Lily’s lost a tooth and it’s up to Cam to play the role of the tooth fairy. Perhaps it was late at night, or maybe too much wine, but the Tooth Fairy leaves Lily $100 for her first tooth. While both are in shock, Mitch points out that the going rate must be $5 tops and that the Tooth Fairy must have made a mistake. Delta Dental tracks tooth prices through the Tooth Fairy Poll, and the market rate in the United States is about $3.70.
See More: demand, equilibrium, expectations, market price, prices, supply
Cam and Mitch have decided to get Jay and Gloria a special gift for Gloria’s impending birth. Jay and Gloria have both created a registry of gifts they would like, but Cam has decided to go “off registry” because he believes Jay and Gloria don’t really know what they want. Mitch seems concerned that they will not appreciate it.
One of the issues with gift giving is that the parties have imperfect information about what the other will value the gift at. Economists love to focus on the inefficiency of gift giving and often suggest just exchanging money.
See more: altruism, gift giving, imperfect information, irrationality, rationality
Cam is trying to eat a bit healthier and concocts a soy-based bacon alternative called facon. Phil and Claire have to deal with an emergency, so Cam is in charge of breakfast. He insists that it his facon is indistinguishable from real bacon, but Mitch and Alex are able to tell a difference. Only in competitive markets do substitutes need to be indistinguishable from each other. If companies are operating in imperfect markets, firms can differentiate their product and still be considered a substitute.
Unfortunately for Luke, he’s allergic to soy.
See more: entrepreneurism, imperfect competition, markets, product differentiation, substitutes, tastes and preferences
With Lilly in school and Cam & Mitchell unsure about adopting another baby, Mitchell thinks it’s a good time for Cam to get a job. Mitchell works with his friend Longeness to secure Cam a job at a local boutique under the guise that the shop needs someone to work and Cam just happens to be available. Cam initially accepts because it seems like a great match for his tastes and skill set, but Jeoux lets the cat out of the bag that it wasn’t a sincere offer, and Cam is offended that Mitch thinks he is too lazy to get a job.
In the Household Production model, decision makers must decide whether to supply their labor for paid employment or supply their labor at home in household production. Cam lists many of the household production items that he produces with his labor, including paying bills, grocery shopping, and maintaining the house. Each of these items produce utility for the household, which could be purchased with Cam’s income. A secondary consideration of work, beyond the household production model is nonpecuiniary benefits of work like social interaction and purpose.
See more: household production, human capital, labor force, labor-leisure tradeoff, labor supply, marginally attached, nonpecuniary benefits, search, tastes and preferences, tradeoffs, unemployment
Mitch and Cam have promised Lily that they can adopt a cat and name it Larry, but it turns out there is a lot more paperwork than they were hoping for. It turns out the cost of adopting the cat is beyond just paying for it at a shelter, but also involves forms and a site visit. Cam is quick to point out that there are a lot of cats that the shelter appears to be trying to have adopted, implying a surplus of available pets. A surplus occurs when the quantity supplied exceeds the quantity demanded at a particular price. That surplus wouldn’t exist if the adoption process was a bit easier (i.e. the price of adopting was lower).
See more: allocation, costs, demand, excess quantity, matching, prices, quantity demanded, surplus, transaction costs, wasted resources
When adopting Lilly, Mitchell only gave her his own last name and not both his and Cameron’s because he was scared Cameron would leave. As an apology he writes a story about two monkeys adopting a panda. He and Cameron think they have found a niche market with stories for gay parents, but they realize the market is already pretty saturated after a trip to the bookstore.
See more: advertising, demand, entrepreneurism, market power, monopolistic competition, product differentiation, tastes and preferences
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.
See more: altruism, cost of capital, implicit cost, opportunity cost, personal finance, rental income, tradeoffs
Cam convinced Mitchell 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 its 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?
See more: altruism, GDP, gross domestic product, luxury goods, opportunity cost, positional good, quality of life, risk, risk aversion, standard of living, tradeoffs
Cam and Mitchell own a duplex, which they would normally rent to someone so that they could earn a bit of extra income. This time around, Cam’s sister, Pam, needs a place to stay while pregnant, so Cam offers it to her rent free. This has put a bit of a strain on Cam and Mitch’s relationship because Cam’s sister has stayed longer than they planned and they need the money from the rental.
See more: cost of capital, implicit cost, interdependent utility functions, opportunity cost, personal finance, rental income, tradeoffs
Mitch is on vacation with the family and stops by the tackle shop to see an old friend. The owner of the local bait shop tells him the worms he sells are twice the price by the lake as they are in town. People who are already at the lake probably aren’t willing to drive back to town to save a few cents, so the bait shop can markup the price and exploit this arbitrage opportunity. From an elasticity standpoint, this implies that people fishing at the lake are insensitive to the price of worms, or we would say their demand for worms is inelastic.
See more: arbitrage, elasticity, inelastic, markup price, price discrimination
Mitch is working on a big case about the rights of vulnerable workers. In it, he argues that a company is preying on the lack of options available to people who are homeless and hiring them for extremely low wages. He believes that this is a violation of labor laws and tries to get the notice of the press. At the same time, Cam is stealing the spotlight as a successful high school football coach who is openly gay.
Traditional economics holds that trades which are voluntary (such as employment) are mutually beneficial. As such, some might argue that the company isn’t taking advantage of its workers since the workers benefit from the employment opportunity. Political economics suggests that you cannot ignore the power inequality between the company and the workers. When a large power imbalance is present, exploitation is possible.
A second use of this clip comes from the role of spouses in the household production model. The happiness of each individual party is important, but the other partner’s utility enters the utility function of each individual. This interdependency is important because it explains why some partners may opt for a decision that doesn’t maximize their own utility, but instead do so because it maximizes their partner’s utility.
See more: altruism, externalities, income inequality, interdependent utility functions, labor law, living wage, negative externalities, political economics, private benefits, social costs, specialization, structural unemployment
In the United States, Halloween is a popular time for Americans (young and old) to wear costumes, even in a professional setting. Clothes can serve as a signal, but also generate externalities. In discussing signaling, it’s important to identify visible markers that may underscore some “hidden” trait. Often, the clothes we wear in professional settings provides a signal of who we may be trying to portray. The court stenographer, dressed as a spider, may not have chosen the best outfit for this day in course. Had she worn this outfit during her interview, she may not have gotten the job despite her qualifications.
A secondary outcome of her decision to dress as a spider is that it imposes external costs on Mitchel in the courtroom. While trying to defend his case, the jurors are distracted by the stenographer’s appearance. The decision to dress up for Halloween was a private decision and has private costs associated with the costume, but it has imposes additional costs on Mitchell as well. These social costs likely outweigh her private benefits, resulting in a net loss to society.
See more: externalities, interviewing, labor market, negative externalities, private benefits, signaling, social costs
Lily has the tough teacher but Cam and Mitch just learned of an opening in the “nice” teacher’s class. In this scene, the two approach Ms. Plank about transferring their daughter into Ms. Sparrow’s classroom. Education is one market where consumers have little choice. Some critics argue that this creates inefficiencies in the market while others argue that education consumers may not have enough information to make optimal decisions. Critics insist that giving consumers more choice would not necessarily lead to an improvement in efficiency. This sort of problem is discussed at many levels in education – from school choice to book choice. In this scene, it was clear that the Cam and Mitch were ill-informed of even their daughter’s preferences, but assume that Lily would have done better in the other teacher’s class despite not actually knowing Ms. Plank’s ability.
See more: education, human capital, human capital investments, information economics, market failure, preferences, school choice, signaling, skill building, textbook choice, tradeoffs
Cameron gets Lilly a job as a child actor, but Mitchell is not excited about it and says no. Cameron doesn’t understand why Mitchell thinks he should have the final say in household decisions. Theoretically, decision making in the household production model tends to lean toward the spouse with greater access to resources (which Cam notes in the clip), but it doesn’t mean that partner gets to make all of the decisions. The unitary model assumes one spouse makes all the decisions as a social planner, but the bargaining model means that decisions are shared between partners.
See more: access to resources, bargaining power, household labor supply, household production, interdependent utility functions
Cam and Mitch are trying to get Lily into the best preschool they can, and preschool admissions are normally very competitive, but they think that being gay and having a minority child will give them a leg up in the admissions process. The market for daycare appears to be a monopolistically competitive environment in which firms differentiate their offerings to appeal to different parents.
See more: allocation, competition, demand, inefficiency, monopolistic competition, prices, product differentiation, rationing, signaling
Dylan’s band is in need of a drummer, and Cam steps up to fulfill that role. Both Mitch and Haley show up to support their boyfriends, but something unexpected happens after the first song. Cam is in the groove and decides to perform an impromptu drum solo. Mitch originally found his solo impressive, but it ended up going on so long that he experienced diminishing marginal returns. In the beginning, each additional batch of time added to Mitch’s utility, but it wasn’t as impressive as the first unit of time, and eventually was more embarrassing than it needed to be.
See more: diminishing marginal returns, self interest, utility
After Mitchell quit his job, Cameron went to work to support them. Both Mitchell and Cameron think their partner is happy with this role reversal, but both are miserable and want to return to their original arrangement. Neither wants to say anything to other, because they are focused on maximizing their combined utility rather than their own, but they aren’t share their disutility.
See more: added worker effect, division of labor, household labor supply, household production, interdependent utility functions, labor supply, preferences, specialization, unemployment
Cameron gets a new job at a greeting card store and loves it because he is able to buy greeting cards with the employee discount. This greatly increases his greeting card purchases, and Mitchell points out that it is not saving them money, but costing them money. The discount represents a price reduction, which causes Cam to increase the quantity of cards he purchases. This can also be seen as a form of mental accounting where Cam prioritizes the savings instead of seeing the cost of each card.
See more: demand, income effect, mental accounting, nonpecuniary benefits, prices, quantity demanded, rationality
Claire is going to meet an old friend from work, but her kids are surprised to find out that she once had a job. She describes why she chose to leave the workforce. The household production model allows for workers to determine if they would prefer to produce items for household consumption or work in the paid labor force to purchase those same item. Claire must have steep indifference curves given she quit the labor force to produce household items.
See more: comparative advantage, division of labor, household labor supply, household production labor force, labor force participation, labor supply, preferences, specialization, tradeoffs
Mitchell complains to Jay about Cam being too nice, and Jay complains to Mitchell about Gloria not liking his dog butler. In the beginning of the scene, the two complain about the actions of their partners and how it imposes a cost on them that they feel their partner is not considering. Jay loves his dog butler, but he also doesn’t want to upset his wife. Cam spends a lot of time helping people and animal, but Mitchell feels it is sometimes a burden.
Jay notes that they are both with people who are very different and that maybe that makes their relationships better. The concept of interdependent utility functions is that people maximize combined utility of a household/relationship even though that means they way not be maximizing their own individual utility functions.
See more: assortative mating, gains from trade, gains to marriage, interdependent utility functions, matching, preferences, utility
Mitchel bumps his daughter’s head on the doorframe, and he and Cam worry that something may be wrong with their daughter. They consider causal outcomes, like if he had hit her head she would cry (which she does), but then they worry about long term impacts of hitting her head. The two decide to call Claire for guidance.
Claire reassures them that everything is fine because her youngest son (Luke) was hit on the head a lot and he’s fine. Unfortunately, this correlation ends up worrying Mitchell more. While it may not necessarily be causal, the two worry that is and decide to take Lily to the hospital.
See more: causation, correlation, health care
Cam gives his mother in-law a pair of diamond earrings, but she reciprocates by giving him exercise equipment and salad drier. Cam doesn’t appear to think that the two gifts were of equal value, which shows how gift giving can be considered inefficient.
See more: deadweight loss, exchange, gift giving, inefficiency, irrationality
Cam and Mitchell are on their way to Costco for some diapers, but Mitchell is surprised that they purchase items at Costco. He questions when this started happening and Cam jokingly acts like he means to act of purchasing diapers. Cam implies that the new baby has caused an increase in their demand for diapers. It turns out that Mitchell really likes Costco!
See more: demand, elasticity, necessities, preferences, quantity demanded
When Mitchell realizes how cheap items at CostCo are, he suggests getting enough for the next two years. When he realizes how many diapers that is, he thinks about getting a shed to store them all. When people face steep discounts on prices, they respond by buying more (law of demand), but how much more they decide to buy is based on the elasticity of demand. In this case, Mitchel appears to be a very price sensitive buyer even though the items are really necessities.
See more: complements, demand, elasticity, income effect, prices, quantity demanded
Mitch and Cam have a house guest who made breakfast using the expensive caviar that they had been saving for a special occasion. While enjoying their wonderful meal, they realize that there are all sorts of things that they have never used because they were waiting for the perfect time. This demonstrates choice paralysis. Cam and Mitch have seemingly endless choices for when to consume these special things but they never actually do. Choice paralysis says that we have a difficult time making a choice when there are too many options. As a result, we cannot chose and end up with a sub-par outcome.
See more: choice paralysis, choices, framing, positional goods, preferences, utility, utility maximization
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
Mitchell grew up on a farm wanting to be part of a lake family. He laments that anyone can visit the lake, but only wealthy families can sleep on a lake, implying that lake life if a luxury good. Now that he and Mitch have a bit more income, they get to experience the allure of sleeping on a boat.
Mitch, on the other hand, has discovered they own the same lamps that are on their boat and he isn’t too happy that they are “boat people.” Mitch likes the lamps a bit less after the discovery, but Cam likes them more. He sees the lamps as a display of wealth.
See more: demand, luxury goods, normal goods, positional good, subjective value, tastes and preferences
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
Jay spends some time in the sauna au naturale, but Mitchell doesn’t appreciate the eyefull. Their awkward exchanges have been impacting other guests at the spa as well. Jay clearly gets private benefits from entering the sauna the way he has, and he doesn’t seem to care too much for the external costs he has imposed on his son. The Coase Theorem would suggest that the two should be able to come to some agreement.
See more: Coase theorem, externalities, negative externalities, private benefits, social costs
In order to get some alone time from their partners, Mitchell and Jay decide to head to the desert, but they didn’t think they’d run into each other at the same spa. In the middle of reading the same book, Mitchell comes across a shocking detail and spoils part of the book for Jay who is sitting across the pool. The gasp provides two examples of economic content. First, Mitchell’s gasp imposes and external cost on Jay because they are reading the same book and Mitchell has ruined the surprise of what happens later in the book. The second is a form of asymmetric information. Mitchell has knowledge about something that will happen in the book later that Jay doesn’t know yet. The power won’t last long as Jay just needs to read a bit more to gain that insight.
See more: asymmetric information, externalities, negative externalities, private benefits, social costs
The Dolphins are on a winning streak and Cam keeps doing his pre-game superstitious activities in the belief that this is why his team keeps winning. Realizing he hasn’t been the most supportive spouse, Mitch decides to go to the game, but that’s against the weekly tradition and all of a sudden the team’s fortunes turn. It may be hard to convince Cam, but correlation doesn’t imply causation.
See more: causation, correlation, gamblers fallacy, sports
Cam and Mitch went on vacation to celebrate their Honeymoon and brought back “gifts” to the family. Mitchell claims to have gotten sick because he wore socks on the beach, but his virus spread to the entire family. Each member goes through the pain they endured because Mitch didn’t quarantine himself. Only later in the episode do they find out that Mitch wasn’t even patient zero.
See more: externalities, gift giving, health care, negative externalities, private benefits, social costs, substitutes
Cam and Mitch have been married 3 months, but it seems like their honeymoon will never end. Cam continues to give Mitchell flowers even though he clearly doesn’t enjoy them as much as he used to. He may have loved the first bouquet, but eventually he may start to hate them.
See more: diminishing marginal returns, gift giving, inefficiency, preferences, rationality, utility