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.
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.
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.
The Dunphy girls both have new boyfriends, but they are opposite of their traditional matches, and Phil and Claire would like to get to know them better. Haley’s dating an astrophysics professors and Alex is dating a firefighter. Astrophysics professors require years of high level education, while firefighters don’t require a college degree, but are skilled and well trained in their speciality.
The debate at dinner (and even among economists) is who has the most human capital? Human capital is the intangible assets that each member has, but since each work in different fields, their assets are not directly comparable. In the middle of lunch, Claire and Phil are also trying to determine who’s the smarter one between the two of them, and Arvin (Haley’s boyfriend) is upset because his theory has been debunked. Luke stirs up the drama with trivia questions, even referencing another popular clip to teach economics.
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.
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.
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.
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.
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.
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.
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.
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.
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.