Economics: Period 1 Essential Question: Why are incentives important to the study of economics?

 An incentive is something that motivates a person to take a particular course of action.  Costs and benefits influence our behavior, thus acting as an incentive. ▪ Remember the choices we are forced to make because of scarcity? ▪ What influences you to make a particular choice?

 People respond to incentives in generally predictable ways  Economists want to understand why people do what they do, they (economists) start looking for incentives.  “Most economics can be summarized in four words…People respond to incentives”

 Incentives can be positive or negative:  Positive Example: ▪ Teachers use grades as a positive incentive to encourage students to complete their assignments  Negative Example: ▪ Governments use negative incentives, such as, fines and jail time to discourage people from breaking laws

 Economic –  Charging a “sin tax” of $3 a pack is a strong economic incentive against buying cigarettes  Social –  Banning cigarettes in bars and restaurants is a social incentive  Moral –  When the government claims terrorists raise money by selling cigarettes on the black market, that acts as moral incentive

Directions:  Watch the video clip ▪ Newman/Postal Service Newman/Postal Service  After the video clip:  Briefly describe the clip you watched ▪ What was going on? Etc.  Describe the example of incentive used in this clip ▪ Was it a positive or negative incentive? ▪ What type of incentive was it? Economic, Social, or Moral ▪ Briefly describe the incentive.

1. What is an incentive? 1. Give an example of a positive and negative incentive (do not use the examples in your notes). 1. Which type of incentive is more effective? Explain why.