The House That Stolen Sauce Built

After realizing that Auntie Alice wasn’t telling them the truth about her role in stealing Gloria’s sauce, Jay and Gloria head to Auntie Alice’s house to confront her about the situation. She initially tries to lie her way out of the situation, but eventually we learn that Auntie Alice is a cunning businesswoman who swooped in and patented Gloria’s sauce because she already knew that Gloria didn’t have a patent. Patents are intended to reward individuals and businesses who invest resources in developing new products, and they can serve as significant barriers to entry for competition. Owning a patent can create a temporary monopoly on a product, which in turn can generate lots of profits.

Luckily, Phil recognizes a lot of city codes that Auntie Alice is violating and threatens to alert the city if she doesn’t pull the patent for Gloria’s sauce.

See more: barriers to entry, imperfect competition, market power, monopolistic competition, patents, profit

Marketing the Sauce

Gloria realizes that a new hot sauce by Auntie Alice tastes very similar to hers, so Jay and Gloria go to the supermarket to confront the grandmother. While there, Phil tries to play tough and accidentally eats some of her volcano sauce, which is a bit too much for Phil. Hot sauces are a great example for product differentiation! They are all substitutable and differentiated by heat level, but also by different ingredients. The market for salsa is probably monopolistically competitive since price is an important factor.

A second concept covered in this clip is the role of advertising. According to Auntie Alice, she’s only the spokesperson for a larger corporation who uses her likeness as a branding strategy. The role of branding is part of why monopolistically competitive firms don’t produce at minimum average cost. The use of brands could be to signal some kind of information, but it’s not clear what signal a sweet old lady has with hot sauce. Alice hints that the company has lots of lawyers who will squash any one who challenges them, implying that the company uses this tactic to create barriers to entry. Later in the episode, we learn Auntie Alice may not be telling the whole truth!

See more: advertising, barriers to entry, brand names, branding, efficiency, imperfect competition, marketing, market power, monopolistic competition, patents, preferences, product differentiation, profit

Massages or Trumpet Lessons

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

Bagpipes at a Wedding

It’s time for the wedding, but Haley and Dylan weren’t expecting this many people, nor were they expecting music. Alex’s boyfriend plays the bagpipes and he has “science” that proves bagpipes are necessary for a good wedding. His mom’s first marriage didn’t have any bagpipes and they got divorced. Her second wedding did have bagpipes and they’ve still been married after 6 months. Unfortunately, this is a weak correlation at best, and most definitely not causal.

See more: causation, correlation

Club Minimum

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

Dangerous Advice

Alex is unsure of what she should do with her life and she’s avoiding her mom. Jay picks up on the situation and tries to provide some guidance. Alex has been dreaming of becoming a scientist her whole life, but lately she’s dreamed up becoming a singer. She can’t have both and recognizes that to pick a path requires giving up the other option. We’ve seen this indecision with Alex when she was trying to decide whether to spend her summer interning or relaxing. Jay hints that he used to be a daredevil, but he gave it up to become an entrepreneur.

See more: counterfactual, entrepreneurism, opportunity cost, sunk cost, tradeoffs

The One

Haley is in a bind and can’t decide who she should spend her life with. Should she stick with Arvin, the successful scientist who has his life together, or should she go with Dylan, her high school boyfriend who is full of fun? Every decision we make, whether we realize it’s economics or not, has tradeoffs. There’s only so much time in our lives and we must make decisions. One of the difficult parts of “matching” is finding the right rate to minimize conflict and maximizing our happiness. Happiness, in this case, is known as interdependent. Her happiness will eventually be a function of her own utility, but also her spouse’s utility.

See more: assortative mating, interdependent utility functions, matching, opportunity costs, tradeoffs

Workplace Fun

Jay and Claire partner up with a local design company to expand their operations. Pritchett’s closet has a lot of space to manufacture, but the design company has new ideas that are revolutionizing the closet industry. They believe this merger is mutually beneficial given each others’ strengths and weaknesses.

It turns out that the design company spends a lot of time on non-pecuniary benefits for its employees to make the company a “cool” place to work, but they lose a lot of money. Jay wants to go back to a more traditional workplace that focuses on production and not fun. The concept of efficiency wages means that firms pay above equilibrium wages in order to motivate and incentivize workers to perform better. Jay doesn’t agree with this management style, and we learn later that the design company wanted to merge because they needed more discipline in their finances.

See More: comparative advantage, compensation, costs, efficiency wages, labor, mergers, nonpecuniary benefits, production, worklife balance

Christmas Time the Whole Time

Cam’s dad, Merle, is fighting with Cam’s mom and they are considering a divorce. While there are utility gains from separating from partners, Merle believes he can do better than his current wife because he sees Jay and Gloria as role models. Gloria, however, paints a bleak picture of Merle’s future. Does Merle really have better options waiting out there or would he maximize his expected utility by staying with his current wife?

See more: cost benefit analysis, expectations, opportunity cost, tradeoffs, utility

Hiking vs Hugh

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

Fiberoptic vs Natural Trees

Manny puts up a fiberoptic Christmas tree because it is better for the environment, but Jay thinks it is ugly and does not want it in his house. This clip highlights both positive externalities of fiberoptic trees (environmental benefits) and negative externalities of the tree (Jay’s psychic costs). Jay decides instead that he and Manny should go out and cut down a tree for reasons of tradition.

Jay and Manny tried cutting down their own Christmas tree for hours, but it is not budging and keeps ruining their tools. Jay has finally had enough and says Pritchetts know when to give up. All their previous effort represent a sunk cost, and it would take too much effort relative to the reward of a half burned tree to keep going.

See more: behavioral, negative externalities, positive externalities, private benefits, private costs, social benefits, sunk cost, technological change

Gay Marriage is Finally Legal

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

What Would Santa Do?

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

Stay-at-Home Mom

It is career day at Luke’s school, and the teacher asks Claire to speak about her job as a stay at home mom. She points out that she actually has a lot of different jobs as a stay-at-home-mom. The household production model assumes that agents decide between working at paid work or working at home and producing things that they could have bought with income. Both yield some level of utility, but some partners will specialize in household production depending on the relative wages of the other partner.

One of the downsides of specializing in household labor is that people lose specific and general human capital associated with market work. While Claire would like to go back to work, it is hard to find a job after you have been out of the labor force for 15 years, mainly because everyone who didn’t drop out would have continued learning new skills. In labor economics, this is known as The Mommy Track.

See more: household labor supply, household production, human capital depreciation, job search, labor force, labor force participation, labor market, skills, tradeoffs, unemployment

The Price of a Tooth

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

Facon — Soy Bacon

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

Street Strider Embarrassment

Phil wants to ride his street strider, but his whole family thinks it is very uncool. Luke points out that he has friends on the street that might see, and Claire not so subtly threatens to leave him if he rides it suggesting she is not getting any joy from him enjoying his street strider and in fact it is harming their relationship. While Phil derives private benefits from the StreetStrider (like living healthier), he is also imposing social costs on his family. Given that his impact is relatively localized, the Coase Theorem would suggest that the Dunphy family can come to an agreement about whether Phil can keep his bike.

See more: Coase Theorem, externalities, external costs, negative externalities, private benefits, social costs

Haggling for an Ash Tray

Luke and Manny’s class is having a yard sale to benefit UNICEF, but Jay hates when people haggle. Even though the ash tray is marked at 50 cents, he is unwilling to accept a lower payment from a man who clearly can afford the full ticket price. The man, on the other hand, believes the original price is too high and tries to extract some consumer surplus. Exchange needs to be mutually beneficial in order to occur, but sometimes that doesn’t happen.

See more: consumer surplus, exchange, negotiation, prices, producer surplus, reservation price, transactions, willingness to buy, willingness to sell

Decreasing Returns from Halloween Makeup

Claire’s favorite holiday is Halloween, but last year she may have went a little overboard to the point that the homeowners association forbid the Dunphey’s from doing particular things this Halloween. Claire’s goal is each Halloween is to produce a scary experience for trick-or-treaters visiting, but even Phil thinks she may have gone too far investing in professional grade makeup. He suggests that she could be twice as scary without wearing any makeup at all.

Another way to view this clip is through the impact of private benefits and social costs. Claire spends a lot of money each year on Halloween decorations, but her private benefits may not exceed the social costs imposed on neighbors (at least according to the HOA). The social costs of her decisions include someone wetting themselves and someone having a heart attack. While Claire may factor these into her investment decision, the HOA determined that the social costs outweigh the social benefits and has opted for a command-and-control approach to Halloween decorations at the Dunphy house.

See more: command and control, decreasing returns, diminishing marginal returns, government regulation, marginal utility, negative externalities, negative returns, role of government, utility

The King of Coasters (Kind Of)

Luke is finally tall enough to go on the rollercoasters and Disneyland, but Phil may be at the age where he can’t handle that pressure. The self-proclaimed “King of Rollercoasters” visibly diminishes as Luke seems to be unfazed by the G-force. While each ride adds a bit of additional joy to Phil’s overall utility, the marginal cost is clearly increasing as he continues to ride each ride. It’s not long before Phil’s marginal cost outweighs the marginal benefit of one more ride.

See more: decreasing returns, diminishing marginal returns, increasing marginal cost, marginal utility, marginal benefit, marginal cost, negative returns, utility, utility maximization

Phil’s Seminar

As part of his new job as partner in his own real estate firm, Phil has decided to put on a seminar for new homebuyers. As he’s telling the camera crew what he will be covering during the seminar, he realizes people in the audience could just write down all of his suggestions and then they wouldn’t need his firm anymore. He obviously had not thought this all the way through before setting up the seminar. Unlike physical property, ideas and processes explained in public are often available for anyone to use. Without property rights, Phil’s knowledge has essentially entered the public domain. Companies use intellectual property to maintain market power and extract economic rent from consumers. This market power comes in the form of a barrier to entry.

See more: barriers to entry, industrial organization, intellectual property, market power, patents, property rights

Adopting a Cat

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

Limitations of a Lifetime Supply

Phil went on a gameshow in his early 20s and won a lifetime supply of dual blade razors, which was cutting edge razor technology at the time. Now it is not uncommon to find razors with 3, 4, or 5 blades. It’s hard for people, even economists, to predict advancements in future technologies, which makes comparisons of goods across long time periods more challenging.

A second concept that can be taught through this clip is the concept of the endowment effect. Phil is very disappointed to see that his “lifetime supply” has run out because he infers that it shouldn’t ever end. Many “lifetime” products are actually a fixed number of items spread out over a fixed time period.

See more: behavioral, endowment effect, growth, technological change

Phil Buys an Alpaca

Phil has to decide whether to leave his own firm and start his own with two old co-workers, but he only has a limited amount of time to decide. He remembers that he is not good under pressure by recalling a time that he bought an alpaca because it was the last one and he panicked. Sometimes people may not make rational decisions because of bounded rationality, whereby they have to make a judgement in a hurry and don’t have time to fully weight all of the costs and benefits. Phil appears to fall victim to this fairly regularly, as evidenced by his decision to buy an alpaca once.

See more: bounded rationality, choices, cost benefit analysis, irrationality, rationality, tradeoffs

Expiring Spa Certificate

Phil finds gift certificates to a spa that he and Claire had won in a charity auction in a drawer, but they expire that day. He wants Claire to use them because otherwise their money just goes to charity, but Claire doesn’t know how she will find the time to be able to go. Phil is falling victim to the sunk cost fallacy, while Claire is thinking in terms of the additional costs and benefits of using the certificates before they expire.

See more: altruism, irrationality, opportunity cost, rationality, sunk cost, tradeoffs

Writing a Children’s Book — Coco & Miko

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

Closets Chose Jay

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

The iPad

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

The Upstairs Unit (Part 2)

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

The Neighbor’s Boat

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

Unbeatable Deal

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

One Nice Thing

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

The Unit Upstairs

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

A Magic Shop for Phil

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

Mister Ekshun’s Illusionatorium

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

Expensive Worms

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

Untested Stickers

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

The Sauce Maven

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

It’s All About Dignity

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

A Spider in the Courtroom

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

Ms. Crank

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

Tankless Job

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

Sock it to Me

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

Miracle Gloves

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

Preferences and Tradeoffs for Cal Tech

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

Lily Gets a Job

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

Preschool Admissions

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

Cameron’s Moment

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

Greeting Card Jackpot

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

Opposite’s Attract

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