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
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
Jay takes Joe out to the driving range and discovers that Joe is a natural. Joe’s natural skill is a form of human capital that gives him the potential to earn a large salary in the future. Human capital is often acquired through years of training, education and hard work. But sometimes, luck gives some people an edge over others. If Joe works hard and practices, he could follow the path of other young golfers with natural talent like Tiger Woods and Lexi Thompson. Jay wants to do all he can to make that happen.
See more: human capital, incentives, income inequality, labor, productivity, tournaments, wages, winner take all
While at work, Haley meets a leisure lover searching for a new husband who will die soon. The woman offers Haley a position as her personal assistant that includes getting paid for leisurely activities. Luke tries to convince Haley to stick with work because it’s better for her future, but she chooses the life of leisure.
See more: employment, labor, leisure, nonpecuniary benefits, tradeoffs, wages
Luke is baby-sitting for Gloria. She expects him to care for her son in a responsible way. When Luke posts a selfie on social media, Gloria worries that her son might be in danger. This represents the principal-agent problem. Luke is the agent and Gloria is the principal. Is he acting in her best interest? Of course not! He’s shirking. To cover up his shirking, Luke tells Gloria that he has a series of photographs of her son in dangerous situation but they’re all fake. Now, he needs a series of photoshopped pictures but doesn’t use photoshop. So, he decides to only give Manny something that he wants if he photoshops Gloria’s younger son in to dangerous situations. This represents trade through barter. Luke has a pass that Manny wants. Manny has a skill that Luke needs. They trade because they have a double coincidence of wants.
See more: barter, double coincidence of wants, exchange, labor, moral hazard, network externalities, principle agent problem, social media, trade
Phil and Jay operate a parking lot together and hired a talkative woman to operate the booth (thanks to a coin flip!). Her chattiness causes a car behind Jay to drive away, which means the two don’t earn $8 from that one additional car.
See more: marginal analysis, marginal profit, marginal revenue