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 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
Alex is hyper-aware of her future path into college and she knows playing an instrument will help her land in a prestigious college. Her parents had recommended she play the violin since it wasn’t as heavy, but Alex believes cellos are in demand in university orchestras, which should help her admission application. Part of the role of playing an instrument or sport (notice Alex’s lacrosse stick) is not necessarily that they are correlated with better students, but rather they serve as signal that students can maintain a rigorous academic load while also balancing extracurriculars.
See more: choices, college, demand, expectations, signaling, supply, tradeoffs
Mitchel bumps his daughter’s head on the doorframe, and he and Cam worry that something may be wrong with their daughter. They consider causal outcomes, like if he had hit her head she would cry (which she does), but then they worry about long term impacts of hitting her head. The two decide to call Claire for guidance.
Claire reassures them that everything is fine because her youngest son (Luke) was hit on the head a lot and he’s fine. Unfortunately, this correlation ends up worrying Mitchell more. While it may not necessarily be causal, the two worry that is and decide to take Lily to the hospital.
See more: causation, correlation, health care
Cam and Mitchell are on their way to Costco for some diapers, but Mitchell is surprised that they purchase items at Costco. He questions when this started happening and Cam jokingly acts like he means to act of purchasing diapers. Cam implies that the new baby has caused an increase in their demand for diapers. It turns out that Mitchell really likes Costco!
See more: demand, elasticity, necessities, preferences, quantity demanded
When Mitchell realizes how cheap items at CostCo are, he suggests getting enough for the next two years. When he realizes how many diapers that is, he thinks about getting a shed to store them all. When people face steep discounts on prices, they respond by buying more (law of demand), but how much more they decide to buy is based on the elasticity of demand. In this case, Mitchel appears to be a very price sensitive buyer even though the items are really necessities.
See more: complements, demand, elasticity, income effect, prices, quantity demanded
Phil decides to steal (what he believes to be) Luke’s bike to teach him a lesson about leaving his property lying around town unsupervised. In the process of helping a neighbor who locked herself out of her house, Phil loses the bike because he didn’t lock it before walking away. Phil returns to the bike shop in the hopes of explaining his situation and getting another bike for Luke, but the employee won’t give him a new bike because Phil didn’t buy the insurance before. Phil believed that insurance was for “suckers” but risk averse people may prefer the added cost in exchange for peace of mind.
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. The first concept in the opening scene covers subjective preferences of individuals. Cam believes Meryl Streep is the best actress, implying he’s able to rank performers, a necessary condition of utility theory.
The ending scene ties back with the movie, Sophie’s Choice, where Streep must chose between her child or her spouse. Cam weighs the same issues and realizes he would struggle having to decide between saving family members. While most tradeoffs are not as serious, each decision we make includes opportunity costs, which must be considered in the decision making process.
See more: choices, preferences, ranking, opportunity cost, subjective value, tradeoffs, transitivity, utility
Phil has a pair of slippers that Claire isn’t too fond of. While they bring private benefits to Phil in the form of comfort and easy jokes, it imposes a cost on Claire. Under the Coase Theorem, we’d suspect that Claire could pay Phil to stop wearing them or Phil could pay Claire to let him keep wearing them, but Claire has instead opted for a creative (and often illegal…) way to dispose of Phil’s possessions that she does not like.
See more: external costs, externalities, negative externalities, subjective value, tastes and preferences
Alex has worked hard her entire life preparing for the perfect future, even learning how to play cello while playing lacrosse. She’s landed her dream internship, but it’s a very high stakes position and an extremely stressful environment.
While this decision troubles Alex, Phil steps into play a board game that Alex was just about to win. Alex has set Phil into a position to all but guarantee victory, but Phil decides to do something unexpected. While Phil uses this as a metaphor for Alex’s internship, it also represents the role of opportunity costs in our everyday decisions.
Every time we choose to do something, we are also choosing NOT to do something else. SO if Alex takes the internship, she’s giving up a relaxing summer that could be a much needed break for her. On the other hand, if she takes the summer offer, she may be missing out of an internship that could greatly influence her future career.
See more: choices, human capital, opportunity cost, preferences, risk aversion, scarcity, tradeoffs
Mitch and Cam have a house guest who made breakfast using the expensive caviar that they had been saving for a special occasion. While enjoying their wonderful meal, they realize that there are all sorts of things that they have never used because they were waiting for the perfect time. This demonstrates choice paralysis. Cam and Mitch have seemingly endless choices for when to consume these special things but they never actually do. Choice paralysis says that we have a difficult time making a choice when there are too many options. As a result, we cannot chose and end up with a sub-par outcome.
See more: choice paralysis, choices, framing, positional goods, preferences, utility, utility maximization
Manny lost Luke in a “sketchy” neighborhood. He and Phil enlist Gloria’s help to track him down. When they arrive in the neighborhood, they find that it has changed quite a bit since Gloria lived there. When searching for a girl, they have the option of visiting one of the four area cupcake stores, each specializing in a different area.
See more: gentrification, growth, imperfect competition, incentives, income inequality, market structures, monopolistic competition, preferences, product differentiation
Homes and yards that are improperly maintained decrease the property value of neighbors. This is a negative externality. To prevent this from happening, many modern neighborhoods have an HOA. The HOA decides what changes homeowners are allowed to make to their property and act as a non-market solution to externalities. They only allow changes that either do not impact the property value of other homes (no externalities) or that increase the property value of other homes (a positive externality). In this clip, Claire attends her HOA’s meeting. She submitted a proposal to build a “she shed” in her backyard that was denied. She believes this was not appropriate because the shed won’t be visible from the street and will not impact neighbor property values. What she doesn’t know is that her son, Luke, intercepted the request and responded with a fake denial so the HOA doesn’t understand why she is so belligerent. Phil shows up to warn her but is a little late…
See more: Coase theorem, collective action, government regulation, negative externalities, non-market solutions, permits, regulation, role of government
Jay and Claire discover that Alex and Luke have started a business selling used shoes online. Jay praises Luke for taking the initiative to build a business from nothing. Claire praises Alex for making the business successful. An argument ensues that makes it clear that this is personal for Jay and Claire. Jay built a closet business but retired a few years ago and let Claire take over. Under Claire’s leadership, the company becomes even more successful and receives international acclaim. They fight over who deserves credit for the success and honors that the business currently has. The reality is that both are responsible. They both demonstrate entrepreneurialism and each played a different and equally important role in building the business. Entrepreneurs start and grow businesses. But can they admit this to each other?
See more: entrepreneurism, human capital, labor, management
Luke discovers that used women’s shoes command a higher price when he sells to people with very specific tastes. He and Alex join forces to supply goods to this niche market. By differentiating their product from just reselling shoes, the two can earn big profits.
See more: demand, monopolistic competition, outputs, product differentiation, profit, revenue, subjective value, supply, tastes and preferences
There are two concepts shown in this clip that can be used based on the portion of the course. First, Haley weighs two different career options and must consider the costs of each. Haley meets a woman who is interested in searching for a new husband who will die soon so that she can take their inheritance. The woman essentially offers to hire Haley as her personal assistant, but she’ll get to do leisurely activities. Luke tries to convince Haley to stick with the golf course because it provides a better future for her. Selecting one jobs means she can’t enjoy the benefits of the other.
The second concept covers the notion of labor-leisure tradeoffs. In the standard Income Leisure Tradeoff model, consumers are given a choice of determining their distribution of time based on the available number of hours in a day. Haley considers similar options here in terms of one job, with Luke, that requires a more work, but higher income while the other job provides more leisure activities. In this section, it helps students to realize that leisure has value similar to income and decisions makers are willing to give up income in exchange for leisure.
See more: employment, income leisure tradeoff, indifference curves, labor, leisure, nonpecuniary benefits, preferences, tradeoffs, wages
Economists often suggests that competition improves efficiency in markets and Jay seems to agree. He fosters competition within his family to help them achieve their goals. At this moment in the episode, he appears that his motivation worked out and everyone has been successful, but later in the episode, we find out that there were some unintended consequences of his actions.
See more: competition, extrinsic rewards, incentives, intrinsic rewards, labor, motivation, perverse incentives, unintended consequences
Mitchell grew up on a farm wanting to be part of a lake family. He laments that anyone can visit the lake, but only wealthy families can sleep on a lake, implying that lake life if a luxury good. Now that he and Mitch have a bit more income, they get to experience the allure of sleeping on a boat.
Mitch, on the other hand, has discovered they own the same lamps that are on their boat and he isn’t too happy that they are “boat people.” Mitch likes the lamps a bit less after the discovery, but Cam likes them more. He sees the lamps as a display of wealth.
See more: demand, luxury goods, normal goods, positional good, subjective value, tastes and preferences
Phil goes into the wild to live like the famous Robinson Crusoe. In doing so, he provides a fantastic example of the factors of productivity. Productivity (Phil’s ability to survive in the wild) is determined by his human capital, technological knowledge, physical capital and natural resources. He has natural resources in abundance – fish, sticks, blueberries, honey and fresh water. He has some good technological knowledge because he knows how to build a fire. It’s not clear that he has the experience (human capital) to successfully build the fire. But, having lost his physical capital (fancy camping gear), it’s not clear whether or not he will be able to survive.
See more: factors of production, human capital, natural resources, physical capital, Robinson Crusoe, technological knowledge
Cam is desperate to win the football game and be a winner. He overhears the opposing team’s coach plans for the next play. Does he act on this insider information? Yes. Using insider information in buying and selling financial securities is illegal because it gives someone an unfair advantage. Similarly, many would consider Cam’s actions cheating. In fact, Cam feels really guilty about it but Mitch encourages him to keep up the facade because winning is also important to him. The decision making process involves weighing the costs (his morals) versus the benefits (winning).
See more: cost benefit analysis, ethics, insider trading, morals, self interest
Manny is about to receive an award for perfect attendance at graduation and his step dad shows up to help him celebrate that night. Before leaving, Manny and his father walk through a strong mist of cologne. Gloria notes that despite the terrible smell, she’s never seen him get a mosquito bite. The cologne imposes external benefits (no mosquito bites) also external costs (the awful smell) on the remaining members of the household.
See more: externalities, negative externalities, private benefits, social benefits, social costs
Gloria is sick and Cam tries to help around the house. Gloria’s family remedy for colds is a bit smelly and Cam accidentally uses Joe’s cape in the process. Gloria immediately recognizes this will be and issue and points out that Joe has a strict ranking set when it comes to that cape. Joe loves the cape so much more that he even places the cape above his own father. Part of utility theory requires transitivity, which is the ranking requirement of consumption.
See more: preferences, ranking, subjective value, transitivity, utility
Jay spends some time in the sauna au naturale, but Mitchell doesn’t appreciate the eyefull. Their awkward exchanges have been impacting other guests at the spa as well. Jay clearly gets private benefits from entering the sauna the way he has, and he doesn’t seem to care too much for the external costs he has imposed on his son. The Coase Theorem would suggest that the two should be able to come to some agreement.
See more: Coase theorem, externalities, negative externalities, private benefits, social costs
In order to get some alone time from their partners, Mitchell and Jay decide to head to the desert, but they didn’t think they’d run into each other at the same spa. In the middle of reading the same book, Mitchell comes across a shocking detail and spoils part of the book for Jay who is sitting across the pool. The gasp provides two examples of economic content. First, Mitchell’s gasp imposes and external cost on Jay because they are reading the same book and Mitchell has ruined the surprise of what happens later in the book. The second is a form of asymmetric information. Mitchell has knowledge about something that will happen in the book later that Jay doesn’t know yet. The power won’t last long as Jay just needs to read a bit more to gain that insight.
See more: asymmetric information, externalities, negative externalities, private benefits, social costs
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. This simple clip is a good introduction to the concept of marginal revenue in that each car to the parking lot represents “another $8” to the firm.
See more: marginal analysis, marginal profit, marginal revenue
Phil and Jay are stuck in a dispute about which of the two job candidates to hire as their newest parking lot attendant. The two candidates have vastly different personalities, but Jay and Phil believe their preferred candidate’s personality is best for the job. Instead of considering the costs and benefits are hiring each worker, they opt to flip a coin with their two heads on it. While marginal analysis focuses on “one more” of an item, either-or-decision making typically involves weighing costs and benefits to determine which would have the highest economic profit.
See more: cost benefit analysis, decision making, either-or-decisions, labor
Phil has decided that decisions that can’t come to a resolution should be solved by flipping a coin. Phil has gotten one of those special coins for disputes between him and Claire. The two have been arguing for an hour about whether to be cremated and after being unable to land on a decision, Phil opts to flip the coin. As a final dispute, the two flip the coin to determine how they should spend their retirement account. Unfortunately for the kids, the coin decides that they spend it on a beach condo. Typical either-or-decision making involves a careful consideration of costs and benefits, but interdependent decision making may not be so easy.
See more: cost benefit analysis, decision making, either-or-decisions interdependent utility functions, tradeoffs
On their way to Phil’s father’s wedding, Phil asks his family to dress like 1920 gangsters, but it seems like they are the only guests there in costume. Phil is notorious for embarrassing his family and each member relates a time Phil did something that made him happy, but imposed social costs on others. It’s clear that Phil’s decision to focus on his private costs and benefits are not taking into the account the social cost he is imposing on his family members.
See more: externalities, negative externalities, private benefits, private costs, social costs
Rainer proposes to Haley at dinner, but then the weather turns outside and he’s unsure if he made the right decision. In his back-and-forth about whether this was the right move, he brings up the fact that he’s already messed up one marriage. He notes that messing up one marriage is okay, but if you mess up two marriages then it sends a signal that he’s the problem in the relationship and it will lead to losing a potential sponsorship.
See more: causation, correlation, error, forecasting, signaling, statistics, Type II error
The Dolphins are on a winning streak and Cam keeps doing his pre-game superstitious activities in the belief that this is why his team keeps winning. Realizing he hasn’t been the most supportive spouse, Mitch decides to go to the game, but that’s against the weekly tradition and all of a sudden the team’s fortunes turn. It may be hard to convince Cam, but correlation doesn’t imply causation.
See more: causation, correlation, gamblers fallacy, sports
The Dunphys are having their house fumigated so they have to squeeze into a small hotel room. At first it seems like a fun opportunity to bond, but it turns out that there are a lot of comforts of home (like space) that the Dunphys really miss. Alex tries to practice her cello, Claire and Haley can’t get the wifi to work, the neighboring dogs bark all night, and a train runs through town around night time. Luke tries to set off a cologne bomb and ends up stinking up the whole room. Each member is doing some activity for their own personal gain, but end of imposing external costs on all of those around them.
See more: externalities, negative externalities, private benefits, private costs, social costs
Cam and Mitch went on vacation to celebrate their Honeymoon and brought back “gifts” to the family. Mitchell claims to have gotten sick because he wore socks on the beach, but his virus spread to the entire family. Each member goes through the pain they endured because Mitch didn’t quarantine himself. Only later in the episode do they find out that Mitch wasn’t even patient zero.
See more: externalities, gift giving, health care, negative externalities, private benefits, social costs, substitutes
The Dunphys normally have a lot of in-fighting, but this summer things have been going smoothly for 4/5ths of the family. Alex is away building houses for the less fortunate, but as soon as she returns everything takes a turn for the worse. Phil and Claire wonder is Alex is actually the root cause of all the tension. While she was away building houses, and even momentarily when she steps out, things start to look better. While these events may be correlated with Alex’s presence in the house, she certainly can’t be the cause of the tension, or could she?
Phil also makes a comment toward the end of the scene that they had so many great days in a row, that it was bound to end eventually. This mindset is popularly known as the gambler’s fallacy, which states that frequent events in one time period will happen less often in the next period. The alternative viewpoint is the hot hand fallacy, which assumes a pattern of events will continue at a higher rate given the occurrence of previous patterns.
See more: causation, correlation, hot hand fallacy, gamblers fallacy
Cam and Mitch have been married 3 months, but it seems like their honeymoon will never end. Cam continues to give Mitchell flowers even though he clearly doesn’t enjoy them as much as he used to. He may have loved the first bouquet, but eventually he may start to hate them.
See more: diminishing marginal returns, gift giving, inefficiency, preferences, rationality, utility