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
Claire surprises Phil by purchasing the magic shop of his dreams. The previous owner sold it for very cheap, but then Claire starts to wonder if the magician had information she was unaware of. Despite the concern, this is a unique opportunity for Phil to become an entrepreneur.
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.
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 told by the local bait shop owner that worms are twice the price by the lake as they are in town. This is probably because people who are already at the lake aren’t willing to drive back to save a few cents, so the dock can markup the price. This implies that people at the lake are insensitive to the price, or 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. Her boss wants them tested but can’t use animals. So, she uses the next best thing – her assistants. But first, she has some really important questions to ask. This clip demonstrates the importance of labor law and regulations. Without regulations that are enforced, some employers might require workers to complete dangerous tasks. Even with regulations, this still happens. How does this clip show that Haley’s boss knows about the danger and about the regulations but doesn’t care?
See more: entrepreneurism, incentives, labor law, product differentiation, rationality, regulation, safety, testing
Gloria and Jay are looking to sell her family’s sauce to a larger company. They each use a different tactic to make the product more appealing. In doing this, they’re trying to increase the demand for the sauce. Unfortunately, they don’t coordinate their strategies in advance and Jay blows the deal. In fact, 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. What do sellers usually do when they have a surplus? Are Gloria’s past actions consistent with traditional economic principles of rationality? Consider sunk cost and marginal costs.
(Note: this scene is an example of adverse selection. 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 magic.)
See more: adverse selection, advertising, asymmetric information, demand, information economics, marketing, preferences, product differentiation, profit, rationality, sunk cost, supply, tastes and preferences
Luke has decided that 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 is that the correct counterfactual that he should use for this decision?
See more: college, cost benefit analysis, counterfactual, human capital, human capital investments, psychic costs, skill building
The Dunphy girls both have new boyfriends. Phil and Claire have them over for lunch to get to know them better. Haley’s new boyfriend is an astrophysicist. Alex’s new boyfriend is a firefighter. Astrophysicists require years of high level education. Fire fighters are skilled and well trained but the training they go through doesn’t take quite as long. Who has the most human capital? (Meanwhile, Claire and Phil are trying to determine whether or not Claire is smarter than Phil, Haley’s boyfriend is upset because his theory has been debunked, and Like is stirring the pot with trivia questions. He even references another popular clip in 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. However, 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, is the company truly taking advantage of its workers or do they 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. Which is more in line with Mitch’s perspective? Traditional economics or political economics? Would the people who are homeless be helped by increasing the wage? How would that impact structural unemployment?
See more: altruism, externalities, income inequality, labor law, living wage, negative externalities, political economics, private benefits, social costs, specialization, structural unemployment
Andy is Jay and Gloria’s new “manny” (a male nanny). He’s also been hanging out a lot with Haley, which makes Phil and Claire suspect a budding romance. In this scene, Andy approaches Phil because he wants to becoming 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. We also find out why Haley and Andy have been spending so much time together – they are practicing interview skills. Interviewing is like everything else 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 s/he will be among the frictionally unemployed (unemployment that results because it takes time to match the right worker to the right job).
See more: frictional unemployment, interviewing, labor market, unemployment
It’s Halloween and Americans love to wear costumes. Sometimes, they wear costumes to work. This scene underscores the importance of professional dress. The way that we dress is a signal to the world about who we are. Is the stenographer sending the right signal to the court by wearing a spider costume? Do you suppose she would have gotten the job if she dressed like this for the interview? Her choice of attire also casts a negative externality in court as Mitchell and the jury aren’t able to concentrate as well. These social costs are likely outweighing her private benefits.
See more: externalities, interviewing, labor market, negative externalities, private benefits, signaling, social costs
It’s Halloween. Jay and Gloria usually coordinate their costumes. Use this scenario to setup a payoff matrix for picking costumes. Gloria and Jay are the players. What choices would you like to give Gloria? What choices would you like to give Jay? What are the payoffs for each possible outcome? What’s the most likely outcome given your matrix? There isn’t a single correct answer. Just have fun with it and discuss.
See more: choices, 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, they approach Ms. Plank about transferring Lily into Ms. Sparrow’s classroom. Education is one of the markets where consumers have little choice. Some argue that this creates inefficiencies in the market. Others argue that education consumers may not have enough information to make optimal decisions so 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.
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 by the house and to pay a high price for it. But are they good neighbors? (At the end of this clip, you’ll see the other possible new neighbors. Which new family would each of the Dunphys prefer to live beside? Why?)
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. It’s a sock dispenser. In competitive industries, product differentiation can lead to short term profits – especially for early adopters. Why is Jay concerned that his son, Manny, has a new friend who has seen this idea?
See more: competition, entrepreneurism, innovation, monopolistic competition, trade names
Phil helped a friend make an infomercial and then his friend served as the videographer for Mitchel and Cam’s wedding. This is an example of a double coincidence of needs and allowed for barter.
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, human capital, opportunity cost, preferences, 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 he thinks he gets the final say in household decisions.
See more: access to resources, bargaining power, household labor supply
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. Phil words the advertisement in a way to make the car seem unique instead of defective.
See more: asymmetric information, lemon, market failure, market for lemons, marketing
Cameron fills in as the drummer in Dylan’s band, and after their first song, performs an impromptu drum solo. Mitchell originally found him impressive, but his drum solo went on so long that he experienced diminishing marginal returns.
See more: diminishing marginal returns, 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.
See more: added worker effect, division of labor, 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.
See more: demand, income effect, nonpecuniary benefits, prices, quantity demanded
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.
See more: comparative advantage, division of labor, 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. Jay notes that they are both with people who are very different and that maybe that makes their relationships better.
See more: assortative mating, gains from trade, gains to marriage, matching, preferences, utility
Jay bought a bog butler in a casino gift shop and thinks that 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 loves it, he’s perhaps not taking into account the cost it has on others in the family.
See more: 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 her 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: game theory, incentives, prisoner’s dilemma
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.
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, he realizes he only did one day. Luke’s focus on the present (at the beginning of the summer) imposes large negative externalities on his back when it’s time to turn in the work later in the summer.
See more: discounting, irrationality, negative externalities, present oriented, procrastination, time inconsistency
Phil thinks both he and Claire get up at 7am to start taking care of the kids, but Claire informs him that she actually starts her day as a stay at home mom at 6am. Because Claire has a comparative advantage in getting the kids ready for school in the morning, Phil gets an extra hour of sleep.
See more: comparative advantage, division of labor, specialization
Mitchell is worried that he is a worse parent than Cam, but Cam assures 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, specialization
Alex chooses the cello to play in the orchestra because she thinks cellos are in demand in university orchestras. Claire and Phil had recommended she play the violin so that she wouldn’t have to carry around so much, but Alex thinks she’s made the right choice.
See more: choices, demand, expectations, supply, tradeoffs
After bumping Lily’s head on the doorframe, Mitchel calls his sister for reassurance. Claire lets Mitchell know it’s fine because her youngest son was hit on the head a lot and he’s fine, but that correlation ends up worrying Mitchell more.
See more: causation, correlation, health care
Cam gives his mother in-law a pair of diamond earrings, but she reciprocated 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
Mitchell doesn’t understand why they buy their diapers at Costco, but Cam jokes that they’ve been doing it since they had a baby. The implication is that the baby has caused an increase in their demand for diapers. It turns out that Mitchel 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
Phil decides to steal (what he believes to be) Luke’s bike to teach him a lesson, but then he loses it because he didn’t lock it up while trying to help a neighbor back into her house. Phil returns to the bike shop, but can’t get a break because he didn’t buy the insurance before.
See more: insurance, risk aversion, unintended consequences
Cam is talking to a lady at Lily’s play class about movies to make small talk, and they have very different opinions on how talented Meryl Streep is. Cam loved her performance in Sophie’s Choice and has a hard time thinking about having to choose between Lily and Mitchell. While each person has their own subjective preferences when it comes to entertainers, nearly everyone faces the same struggle of having to decide between saving family members.
See more: choices, preferences, ranking, subjective value, tradeoffs, transitivity
Claire is trying to get the kids downstairs for breakfast and is shouting across the house. Hailey doesn’t understand why Claire won’t just text them, but Claire refuses. Improvements in technology should make everyday life more efficient, but Claire wants to stick with tradition.
See more: efficiency, technological change
Claire has a creative (and often illegal…) way to dispose of Phil’s possessions that she does not like.
See more: subjective value, tastes and preferences
Alex has landed a dream internship but it’s really high stakes and stressful. Meanwhile, Phil has a tough choice to make in a board game. Every time we choose to do something, we are also choosing NOT to do something else. Does Alex really want the internship? What is its opportunity cost? Also, what should Phil do?
See more: choices, human capital, opportunity cost, preferences, risk aversion, scarcity, tradeoffs
Haley is interviewing for a job and it isn’t going well. The labor market is often characterized by adverse selection – there are more candidates who are not suited for a particular job than who are well suited and it’s tough to tell them apart. Screening is an action taken by an interviewer to determine whether or not a candidate will be a good fit. Signaling is action taken by the candidate in order to demonstrate that s/he is a good fit. What examples of signaling and screening are in this scene?
See more: adverse selection, interviewing, labor, product differentiation, screening, signaling, signals
Claire tried to make friends with the owner of Closets, Closets, Closets, Closets (CCCC) but Jay convinced her that the friendship was just a ruse to steal information about the business. In retaliation, Claire and Jay decide to “poach” CCCC’s most valuable employee, Lazlo. While trying to recruit him to their closet business, they learn that the friendship was genuine. But now, they really can’t trust each other and both businesses will be hurt.
See more: competition, cooperation, duopoly, game theory, labor, oligopoly, preferences, Prisoner’s dilemma, tit-for-tat strategy