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 fulfill 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.
See more: acquisitions, industrial organization, mergers, proprietary technological knowledge, technological change, technological knowledge, technology
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 him. Instead of getting there early, she ends up falling 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.
See more: costs, demand, early adopters, gift giving, innovation, nonpecuniary benefits, preferences, tastes and preferences, technological change, technology
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
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
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.
See more: adverse selection, asymmetric information, college, human capital, human capital investments, imperfect information, interviewing, signaling, signals
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.
See more: Coase theorem, externalities, negative externalities, positive externalities, private benefits, private costs, property rights, regulation, social benefits, social costs, spillover effects, transaction costs
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.
See more: bargaining power, economic signals, gift giving, imperfect competition, negotiations, prices, self interest
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!
See more: behavioral, game theory, imperfect competition, intrinsic rewards, preferences, sequential moves, tastes and preferences, time inconsistency
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
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.
See more: fallback position, interdependent utility functions, marriage, risk, risk aversion, trust
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
After receiving a nomination to a major closet expo, Jay receives a phone call who expects to be full of congratulatory remarks. He instead finds the dial tone from a fax machine that has misdialed the number the intended. Jay, who isn’t the most technologically savvy member of the family, wonders why anyone might still be using a fax machine.
See more: demand, growth, innovation, technological change
There’s a lot going on in this clip. The main focus is on Claire and Jay. Pritchett Closets (which Jay founded and Claire runs) has been selected to participate in the Expo Internationale du Closet! Both Claire and Jay are over the moon excited. But why? Participating in this event exposes them to an international market. They can expect a big increase in demand for their product. The second focus is on Manny. Manny has moved out but found that there are certain things about living at home that he really misses. This is something that a lot of people discover when they move out. These early lessons in personal finance can be tough!
See more: demand, expectations, international trade, personal finance, trade
After a fight about decision making between Phil and Claire regarding Phil’s opportunity to manager a magic shop early in their marriage, Claire surprises Phil by buying the magic shop he originally wanted. One of the things that jumps out to Claire initially is that the previous owner sold her the shop for a very low price, which she now wonders why he was willing to do that. The economic concept of asymmetric information relates to knowledge that one party has in a transaction that the other does not possess. The concept of information asymmetry was the basis for the 2001 Nobel Prize to George Akerlof, Michael Spence, and Joseph Stiglitz.
Second to the information asymmetry, this clip serves as a basis for the discussion on entrepreneurship and competition in markets. While some businesses are started to serve the needs of an area, others are started as passion projects. The ability to owners of businesses to buy and sell their property is a critical requirement of competitive markets.
See more: asymmetric information, competition, entrepreneurism, free entry
Claire and Phil go to a magic shop and talk business with the legendary Mister Ekshun. The magician laments that he can’t be at the shop everyday because he’s booking “road jobs” which we should infer have a higher payoff than the shop’s profits. Phil is curious about how a magic trick works, but they need to make sure Claire (a non-magic person) isn’t able to hear the trick. Phil learns that he had an opportunity to become a magician on a cruise ship earlier in life, but Claire had never told him about the call because of how busy their lives had been. One of the issues in determining the impact of an event is the lack of a good counterfactual to compare decisions to.
See more: counterfactual, licensing, occupational licenses, opportunity cost, physical capital, proprietary technological knowledge, scarcity, substitution effect, technological knowledge
Haley auditions for work on a cruise ship. She didn’t get the job but why? Is it because she’s not in the right sorority or was it because she wasn’t as skilled as the others auditioning. If she was equally skilled and not selected because of some other characteristics (like not being in a sorority) then she would have been discriminated against.
See more: discrimination, human capital, interviewing, skills, talent
Luke hires Haley to work for him at the golf club. Sometimes, her service is a little off putting but she is still his best worker and brings in good tips. She’s going through the process so that she can save up and move out of her parent’s home.
See more: incentives, labor market, savings, training
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
Haley works for a lifestyle company with a history of selling dodgy products. The latest one is stickers that improve people’s moods. Haley’s boss wants them tested, but can’t use animals so she uses the next best thing – her assistants.
This clip demonstrates the importance of labor law and regulations. Without enforceable regulations, some employers might require workers to complete dangerous tasks. Even with regulations, this still happens. Haley’s boss may know about the danger of the product and the importance of regulation, but perhaps doesn’t care?
See more: entrepreneurism, incentives, labor law, product differentiation, rationality, regulation, safety, testing
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
Luke thinks he’s ready for college and meets with a community college admissions officer. He asks all the important questions like “how hard is it?” and gets some tough but realistic answers. The admissions officers tells him that after years of hard work, he’ll graduate and be qualified for an entry level job and steadily get promoted until, around age 45, he can expect a 3 bedroom house. Luke compares his current situation with this potential future and decides that maybe college isn’t right for him. But that may not be the correct counterfactual for his decision. The items that he considers free (meals, cable, and laundry) are just being paid for by his parents.
See more: college, cost benefit analysis, counterfactual, human capital, human capital investments, psychic costs, skill building
The Dunphy girls both have new boyfriends, but they are opposite of their traditional matches, and Phil and Claire would like to get to know them better. Haley’s dating an astrophysics professors and Alex is dating a firefighter. Astrophysics professors require years of high level education, while firefighters don’t require a college degree, but are skilled and well trained in their speciality.
The debate at dinner (and even among economists) is who has the most human capital? Human capital is the intangible assets that each member has, but since each work in different fields, their assets are not directly comparable. In the middle of lunch, Claire and Phil are also trying to determine who’s the smarter one between the two of them, and Arvin (Haley’s boyfriend) is upset because his theory has been debunked. Luke stirs up the drama with trivia questions, even referencing another popular clip to teach economics.
See more: education, externalities, human capital, innovation, negative externalities, private benefits, skill building, social costs, training
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
Andy currently works as Jay and Gloria’s “manny” (a male nanny), but he’s interested in changing jobs. He’s been spending a lot of time with Haley, which initially makes Phil and Claire suspicious of a budding romance. In this scene, Andy approaches Phil because he wants to become a real estate agent. He knows that he’s going to need to acquire more human capital before he’s able to do that so he asks to work as Phil’s new assistant.
In this scene, we watch Andy interview for this job. It turns out that Haley and Andy have been spending time together practicing their interview skills. Interviewing is like other productive activities and requires a special set of skills that we can get by practice. The better someone is at interviewing, the shorter the amount of time is that they will be among the frictionally unemployed (unemployment that results because it takes time to match the right worker to the right job). Phil makes Andy prove his dedication to becoming an assistant and highlights one of the crucial elements of job markets: the matching process. Firms don’t hire just any workers, but instead want to identify workers that will make a good “match” with their firm.
See more: frictional unemployment, interviewing, human capital, labor market, job search, matching, 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
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
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
Phil is trying to sell the house next door to a couple. In order to make the house as desirable as possible, he wants to put his family’s best foot forward. He wants the buyers to want to live beside his family. So, he has the kids outside gardening. This demonstrates adverse selection, signaling and the importance of spillover effects/positive externalities. Good, helpful neighbors are desirable and can increase a property’s value, especially if they take good care of their yard. Thus, there are positive externalities associated with landscaping. To discuss signaling and adverse selection, consider that someone is less likely to move if the neighbors are good than if they are bad. So, it’s entirely reasonable to consider the housing market as being characterized by adverse selection. Phil is doing all he can to signal that he and his family are good neighbors in order to get the couple to buy the house and to pay a high price for it. But are they good neighbors?
At the end of the scene, you’ll see the other possible new neighbors. It’s clear which family each of the Dunphys would prefer to live nextdoor.
See more: adverse selection, externalities, housing markets, negative externalities, positive externalities, preferences, private benefits, private costs, self interest, signaling, social benefits, social costs, spillover benefits, tradeoffs
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
Mitch and Cam needed a wedding videographer and Phil knows just the person to help. At an early stage in his life, Phil helped a friend with an infomercial he was filming and decided to reach out to the friend to pay him back as a wedding videographer. The concept of barter stems from the notion of double coincidence of wants. The videographer wanted someone to stand in for the infomercial and Phil wanted a favor down the line. Bartering is tough because the items at stake may not be able to be paid immediately or the exchange may be complicated. Traditionally, money is exchanged in the process, but Phil and his friend opted for a favor.
See more: barter, double coincidence of wants, exchange, services, trade
Haley, Phil and Luke are participating in a psychology study. Luke has convinced Phil that they should push the big red button that says “DO NOT PUSH” but Haley stops them. She says one in a million college drop outs go on to become Steve Jobs. The other 99 thousand don’t (her math is a little off). She recently dropped out of college and is having a crisis. This demonstrates several economic concepts including the importance of human capital and time inconsistency. Human capital comes from going to college but Phil reminds her that there are other sources of human capital. Time inconsistency occurs when you regret a decision in the past.
See more: behavioral, counterfactual, education, entrepreneurism, human capital, sunk cost, time inconsistency
Alex is graduating from high school soon so Phil, Claire and the kids are visiting Cal Tech. Claire thinks Cal Tech is the perfect place for Alex but she’ll find out soon that she and Alex have different preferences. College is one of the ways that we build human capital. As we learn more things, we become more productive and our labor is more valuable. Alex is already really bright and loves academics so college is a good fit to set her up for doing impressive things in the future.
Claire wants a great school that’s close. Alex wants a great school that’s far away. We also learn that Cal Tech has 5 Nobel Laureates on staff, suggesting that Cal Tech itself has a lot of human capital, making it a highly productive college.
Alex learns why Cal Tech might be a better choice for her than an East Coast school. What is more important: the quality of the program or proximity to home? Choices are tough and everything has a cost. Here’s Alex’s current dilemma: stay close to home and attend the best program in the country OR go to a college on the east coast with a weaker program.
See more: cost benefit analysis, incentives, human capital, nonpecuniary benefits, opportunity cost, preferences, self interest, school choice, signaling, skill building, tradeoffs, utility
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
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
Claire is feeling under the weather but has too much to do. Phil offers to help her out with her errands and pick up some slack until she feels better. One of the gains of partnerships is that if one person goes down, the other can pick up the slack.
See more: gains from trade, gains to marriage, risk pooling, risk sharing, utility
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
Phil is trying to sell the family’s station wagon, but it has some issues that he knows would lower the value of the car. Phil words the advertisement in a way to make the car seem unique instead of defective. Akerlof famously questioned the existence of used markets in his famous Market for Lemons paper.
See more: asymmetric information, lemon, market failure, market for lemons, marketing
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
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
When Phil had a health scare, Claire gets dressed up for the hot firemen who are coming for him. She admits this to Phil before his procedure and he reminds her of it upon waking. After Claire apologizes, Phil says he will be fine with time even though he is fine with it now. Phil believes Claires guilt will grow over time giving him more bargaining power in the future.
See more: bargaining power, markets, prices, reciprocity, trade, value
When Claire and Phil cancel Christmas after finding what looks like a cigarette burn in the sofa, Alex suggests she and her siblings all confess so that their parents will reinstate Christmas and go easy on them for protecting their siblings. Unfortunately there is an incentive to cheat, but Luke isn’t smart enough and ends up confessing to something he didn’t do.
See more: cooperation, game theory, incentives, prisoner’s dilemma, sequential moves, simultaneous moves
The Dunphy’s call Phil’s parents in the sweaters they were given as gifts. The call goes awry when Claire sees what looks like a cigarette burn in the sofa. In her anger she calls the sweaters ugly while still on the phone with Phil’s dad. One of the issues with gift giving is that the receivers wouldn’t purchase the items they receive for the same price that the buyers paid for the item. On top of the inefficiency from an exchange point of view, there are psychic costs associated with acting like you enjoy the gift as well.
See more: altruism, gift giving, irrationality, preferences, rationality
Phil surprises Claire with a new bracelet for their anniversary and Claire reciprocates with coupons for 5 free hugs, which Phil points out are usually free already. Claire is proud of her gift because Phil never wants anything, but Phil can list off many things he would like. Gift giving can be inefficient if it’s the two givers aren’t fully aware of the others’ preferences.
See more: coupons, exchange, gift giving, inefficiency, irrationality, medium of exchange, preferences, store of value, unit of account, wants
Luke was supposed to keep a journal all summer, but when school starts again in the Fall, he realizes he only did one day. At the start of the summer, Luke’s focus on the present imposed large negative externalities on him when it’s time to turn in the work later in the summer. People who highly value present consumption are said to have high discount rates because they don’t care about future outcomes as much. This hyperbolic discounting can result in some inconsistencies when Luke looks back and realizes how much trouble he’s about to be in.
See more: discounting, irrationality, negative externalities, present oriented, procrastination, time inconsistency
When the kids are back in school, it means that Phil and Claire go into production mode to make sure everyone is out of the house on time. In this one-on-one aside, Phil is under the impression that both he and Claire get up at 7 in the morning to start taking care of the kids. Claire informs him that she actually starts her day as a stay at home mom at 6 in the morning. Because Claire has a comparative advantage in getting the kids ready for school in the morning, Phil gets an extra hour of sleep. In the household model of labor supply, partners often divide the tasks based on specialization, not necessarily on equitable terms.
See more: comparative advantage, division of labor, household production, household labor supply, interdependent utility functions, labor supply, specialization
In an earlier scene, Mitchell bumps his daughters head on a doorframe, but then begins to worry that he may not be ready to have a child. Mitch sees how much Lily likes Cam and how good of a caretaker he is and begins to worry that he is a worse parent, but Cam reassures him that they are both great parents because they complement each other. Their decision to specialize in particular tasks allows them to complete more work together and both recognize they wouldn’t accomplish nearly as much if each had to go it alone.
See more: comparative advantage, complements, division of labor, household production, household labor supply, interdependent utility functions, labor supply, specialization