It’s Phil’s 50th birthday and Jay decides to try and sneak a gift to Phill that Cam had given him before. What Jay doesn’t realize is that Cam had inscribed the front cover and as Phil begins to red the inscription, Cam recognizes it is the same book that he gave Jay before. Giving gifts can be seen as wasteful if the giver doesn’t fully know the recipients preferences and willingness to pay. The entire family tends to give each other gifts that the others don’t always want, but this time Jay didn’t even take the time to open the book in the first place.
See more: deadweight loss, exchange, gift giving, inefficiency, irrationality, self interest, subjective value
Luke and Manny’s class is having a yard sale to benefit UNICEF, but Jay hates when people haggle. In this scene, some guy had gone into Jay’s house, and then tries to buy his toaster. He’s not sure of the quality of the toaster and isn’t willing to commit to purchasing the toaster unless Jay can prove that it works. In markets with asymmetric information, one party of the transaction has more information about the quality of the product compared to the other party. This makes the market for used goods unique from new goods. It turns out, though, that the toaster was never for sale.
See more: asymmetric information, exchange, insurance, market for lemons, used goods, willingness to buy, willingness to sell
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
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
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
Cam gives his mother in-law a pair of diamond earrings, but she reciprocates 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
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
Cam and Mitch went on vacation to celebrate their Honeymoon and brought back gifts to the family. For Jay, they brought a cheesy golfing frog statue, but also with an illness. Jay views the frog statue so poorly that considers it possible the illness is a better gift. Economists like to discuss irrationality of gift giving because we often spend money on gifts for people at a higher value than they would spend on themselves. A second concept at play in the clip is that Cam & Mitch’s trip to Mexico added additional costs on the family through the spread of an illness. Had Mitchell known he would have gotten the family sick, he may not have left.
See more: exchange, externalities, gift giving, inefficiency, irrationality, negative externalities, subjective value