Negative externalities are activities that generate costs that accrue to people not directly involved in those activities. These effects are generally unattended. From the pipe smoker’s point of view, the noise generated by the rowdy boys was an external cost.
DirecTV – Don’t Get Body Slammed by a Lowland Gorilla
In this DIRECTV commercial, a series of misfortunes unfolds, starting with the simple decision to have cable TV. Feeling down, you don’t get out of bed, leading to your job at the zoo being taken over by an unqualified replacement. This replacement leaves the door to the gorilla cage open, allowing the gorilla to escape and eventually find and attack you at home.
The commercial gives you a funny way of watching an “if this, then this” situation. A seemingly simple change in monetary policy can have far-reaching and unexpected consequences. Indirect and sometimes delayed effects of policy decisions can have a much broader impact on the economy than what we might first expect.
Thanks to Brian O’Roark for the clip suggestion!
SiriusXM — Gizmos
In this clip, we see that a succession of technological advancements has changed the way Kevin Hart listens to his satellite radio provider (SiriusXM.) When satellite radio was first introduced, it was considered revolutionary. Listeners could tune into their favorite radio stations anywhere their car could go. People were no longer limited to radio stations from their geographic location. One drawback of the service was that the technology was tied to a specific physical location – the car.
Kevin Hart clearly thinks this is still the case as he is seen sitting in his car listening to SiriusXM. LL Cool J shows him he can now stream on his laptop and thus he can leave his car and continue listening to his favorite station! Eventually, he’s told that he can listen on his cell phone and even stream his station through his Alexa speaker. His mind is blown! Technological advancement has made all of this development possible. We now have greater flexibility about where we can listen to satellite radio.
Thanks to Erin Yetter for the clip submission and commentary.
Turkish Airways — Flying Everywhere
This Turkish Airways ad shows the value of network externalities to a market. A network effect occurs when the value of a product or service depends on the number of users. Network effects are typically positive, such that the more people using the product, the more valuable the product becomes. Airlines are an example of network effects, as the ad points out, because the more places they fly, the more valuable the flights are to the people purchasing the tickets.
Zelle — Birthday Gifts
From an economic perspective, giving the wrong gift makes society poorer. If you spend money on chocolates and give it to someone who happens to think it is worth less (due to an allergy!), you’ve lost value. Whenever you receive an outfit that is the wrong size or style, a candy you won’t eat, or something that is worth less to you than what the gift giver spent on it, an economic inefficiency has occurred. Thus, from an economic perspective, the most efficient gift is always cash. The person will maximize their own utility by spending (or saving) the money according to their preferences.
Submission and description from Erin Yetter!
T-Mobile — Ariana or Maps?
The driver of the car faces scarcity (limited data). The driver is forced into a decision between streaming music and using maps with her data. At the end of the commercial she chooses maps, leaving Arianna as her opportunity cost.
Thanks to Brian Devitt for the clip and description!
Le Trèfle Paper — Emma
The digital revolution can replace a lot of items that traditional paper was used for, liking color pages, sticky notes, books, or puzzles, but it can’t replace toilet paper. Substitute goods are at the discretion of the consumers with some items being “perfect substitutes” and others being some gradient of substitutes. Digital toilet paper isn’t a very good substitute for the real stuff.
Thanks to Dr. Michele Pickett for the clip!
Could Have Had a V8
One of the classic commercials of the 1970s came from V8 (they have updated ones as well!). Unknowing consumers of snacks and sodas realize mid bite/drink that they could have had a V8 instead of their other choice. The concept of opportunity costs is that by consuming an item, you give up the opportunity to consumer something else. A rational individual will pick the item with the highest level of utility, but sometimes we aren’t fully aware of all the alternatives. The individuals in this commercial only realize when it’s too late.
The clip was described in Joel Waldfogel’s book, Scroogenomics: Why you shouldn’t buy presents for the holidays. Dr. Waldfogel also appears in an Adam Ruin’s Everything episode on the inefficiencies of gift giving.
Goldfish Pinball Commercial
The dark orange goldfish excitedly explains to his light orange friend that he has invented a new board game. He goes over the extremely complex rules to the game and this conversation ensues:
Dark orange fish: Let’s play!
Light orange fish: What do I have to lose?
Dark orange fish: Just the next three days!
This would be a great intro clip to show for opportunity cost / implicit costs. Learning all of the very intricate rules and playing this game will be extremely costly for the light orange fish in terms of the time he has to give up to participate. What else could he do with his time instead?
Thanks to Erin Yetter (Twitter) for the clip and description!
LetGo — Lawnmower as Money
In this Super Bowl ad, a bar patron tries to pay for a round of drinks with a lawn mower, but this has apparently been an issue before as the bar has a sign that lawn mowers aren’t accepted. This clip is a good, quick introduction to the role of money in an economy and why bartering would be hard to accomplish.
Thanks to Brittany Pifer for the video