Asymmetric information is a condition in which one party to a transaction has information that isn’t known to the other side of the party. This can disrupt the market for used goods because the buyer may not know the full extent of what they’re purchasing. In this Volkswagen ad, the father and son duo are unaware of the older lady’s past experiences with the cars. This is a great segue to Akerlof’s Market for Lemons, which is based on the the used car market.
“America” compares life in America versus life in Puerto Rico. While the men favor the lifestyle of their homeland, the women prefer the mainland. This is a fun introduction to a discussion on mobility and migration in a labor economics or even to discuss standards of living and preferences in a macroeconomics course.
Assessment idea: Have students list things things they would miss if they were asked to move to another country.
Looking for more: Do you want to see more economics in Broadway shows? Check out BroadwayEconomics.com
Thanks to Mark Sammons from the University of Arizona for sending this clip in!
Chance the Rapper is grew up in Chicago, which is nicknamed “The Second City.” In honor of his hometown, Chance the Rapper (along with Kyle Mooney) shares some of his other favorite second-best items, which he considers better than the first. This is a fun introduction to substitutes, or even monopolistic competition and product differentiation. This could be used in an upper-level class to discuss ordinal preferences or transitivity.
People will go to great lengths to get “free” wifi even though they may not realize the cost associated with the decision. In this commercial for Qwest Communication, they try to offer wifi where people actually want to go.
Charles and Gina have been secretly hooking up for a while, but now their parents have decided to start dating and it’s freaking the two of them out. Charles rushes to the office to show Gina a gift that his dad is planning to give Gina’s mom. At first the two are scared of the repercussions to their lives if their parents start dating, but quickly realize that the planned gift is much worse for their parents than for them. Gina also goes through her process of unwrapping gifts before the actual reveal because she doesn’t want to get surprised in photos. Her risk aversion results in lots of time spent to avoid embarrassment.
This clips includes a few different economics concepts rolled in to one. The overarching theme is that of consumer choice where Homer appears to experience diminishing returns while trying to eat a 16 pound steak. He’s competing against a previous eating contest winner, who dies at the end from eating too much steak.
In the middle of the clip, Marge asks Dr. Hibbert if that much steak is healthy and Dr. Hibbert exhibits a bit of the principle-agent problem where his interests now align with eating competitions because he owns a portion of the restaurant. The good doctor tells her not to worry because they have a new heimlich machine, which decreases their need to focus on choking hazards.
The crew of Apollo 13 is stuck in orbit around the moon and the NASA crew on the ground is trying to figure out how to get the astronauts home alive. Faced with only the tools in space and a limited time window, the engineers must use every available item at their disposal to maximize the amount of time before reentry to Earth’s atmosphere. This clip is a nice introduction to the idea of consumer choice, budget constraints, and utility maximization. All resources must be used in the model and there is no value to saving anything. The goal is to earn as much utility as possible given the budget constraint. The same issue faced the NASA engineers: they had to use all available resources, there was no benefit to saving items for next time, and they had to maximize the time/oxygen/energy for the astronauts.
Glenn wanted to see Saw because he thought it was about carpentry, but he quickly realized it was a horror movie. He wasn’t having a good time and even threw up in his lap, but his wife didn’t want to leave because they paid for the ticket and it was date night. Glenn and his wife should have left if they weren’t enjoying their movie since the tickets were non-refundable, but like many people, Glenn and his wife fell for the sunk cost fallacy.
Jeremy and John are seasoned wedding crashers and they are out looking for weddings to get easy dates, open bars, and nice meals. This example of free-riding works well because none of them pay the cost of attendance and they even come up with creative tricks to not have to pay for the cash bars.
Pat Dixon describes how he loves the fifth beer because it makes him look good, which are good qualities for a day drinker. This clip can be used to teach about diminishing marginal utility and increasing marginal cost. For Dixon, the 5th beer is the optimal beer.