When companies engage in rent seeking behavior, they are engaging in behavior that is intended to increase their wealth without a subsequent increase in productivity. The USDA has given the agriculture industry power in shaping US food policy, but it has resulted in policies that have increased the industry’s profit without necessarily improving public health.
Have you ever stepped foot in a grocery store and been immediately overwhelmed by all the choices you have about everything from chips to sodas? The paradox of choice is that we often believe having multiple options makes it easier to find the product we really want, but it turns out that having a lot of options makes it harder to figure out exactly which one we want and often leaves us unhappy with our choice.
In the late 1800s and early 1900s, there was no real oversight on meat packing and procession. When Upton Sinclair wrote The Jungle, it brought national attention to the unsanitary conditions at meat packing facilities. Today, the labels are intended to serve as a signal that meat has been processed correctly. It’s an attempt to correct for information asymmetry in which the food processor knows how the food was handled, but the final consumer is unaware.
Adam is contemplating whether it makes sense for him to star in a new series about the role of the government while it’s produced by former US President, Barack Obama. When Adam gets up, he notices the President doing his own taxes and is surprised he doesn’t just hire an accountant to do it. While Obama claims he enjoys it, he doesn’t appear to be very good at it. Typically, people can benefit from trading services and specializing in things they are good at relative to other people. The opportunity cost of the President doing his own taxes is likely really high compared to an accountant.
Larry David is adamant about the unwritten rule of appetizer allotment. In this scene, Richard Lewis is also eating “too much” of the hummus that they have ordered to share. The “unwritten rule” is that the dish should be split evenly among the diners, but there is a strong personal incentive to eat more than your share. In a sense, this is similar to the tragedy of the commons. While it’s in the best interest of the group to split the resource fairly, some people may try to take advantage of the situation.
Thanks to Alex Marsella for the clip recommendation!
It’s the night before Christmas and the elves are hard at work producing toys for Santa to deliver on Christmas. The North Pole is an engaging illustration of an economy and a good foundation for reviewing nominal and real GDP. The elves in Santa’s workshop illustrated assembly-line efficiency and tangible outputs based on the number of toys produced. Elves produce a wide range of toys including rocking horses, building blocks, and dolls. The assembly line scene can be used as a reminder about the difference between intermediate goods (such as the doll’s clothing) and the final good (the entire doll) and which items are counted toward GDP.
Thanks to Mandy Mandzik for the clip recommendation. Check out her working paper, All I Want for Christmas is an A on My Econ Final: A Holiday-Themed Review Class, for more Christmas-themed economics examples. The appendix includes hypothetical values for these products so that students can practice calculating real and nominal GDP.
Abed is running the fryer in the cafeteria and is in charge of the most popular item on the menu: chicken fingers. The school’s Spanish teacher wants those tenders and trades Abed for a box of tenders. The exchange? A 10% bump in his study group’s grades. Exchanges can be achieved through a barter system when someone has something that the other one values. This double coincidence of wants is required for a successful exchange.
Chicken fingers at the school cafeteria are a hot commodity! People are racing to the cafeteria to get them and demand is high, but they often run out before everyone can be served. If prices were higher then fewer people would want chicken fingers and there may be enough for everyone to get some, but instead, a shortage ensues. The original fry cook skims some of the tenders to give to select people, an example of inefficient allocation.
A group of close friends decides to take over the operation (like in a mafia movie) so that they can determine the allocation of this scarce resource. This group begins skimming the fingers as well and reselling them to others in the school at higher prices so that they can profit from the shortage.
Thanks to Sarah Corrigan for the clip recommendation!
Ciri is in the middle of training while Geralt repairs his armor. She struggles with her technique and becomes frustrated that she isn’t executing as she expects. Geralt calls it for the day and notes that any more training will just suffer from diminishing returns. The implication is that she can keep training, but that each additional amount of time allocated toward training would yield smaller gains to her ability. Ciri would be better off focusing on rest instead.
Thanks to @EconWoodrow for the find!
The Baudelaire orphans have been sent to the Lucky Smells Lumbermill and are being forced to work on the production floor. After a grueling morning of “log day,” the workers are given an entire five minutes for lunch, but the Baudelaire’s come to find that lunch consists of gum. Frustrated, they wonder if they can use their wages to buy something else, but it turns out that the Lucky Smells Lumbermill pays their workers in coupons rather than actual currency. The coupons don’t have any value since the workers don’t have any money to go out and buy things anyway. The workers also don’t have power to leave or demand better conditions because Lucky Smells is the only place to work in town.
When a single firm controls the labor market in a region, they are said to have monopsony power in the market. Monopsonies can pay workers below competitive wages because workers are unable to find alternative employment opportunities. In this case, the Lucky Smells Lumbermill pays them almost nothing since the coupons can’t really be redeemed anywhere.