Incentives/Self-Interest

Economics
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Incentives/Self-Interest

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  1. Incentives/Self-interest

    Slide 1 - Incentives/Self-interest

    • By: Valerie casados & Candice Whitlock
  2. Incentives

    Slide 2 - Incentives

    • Definition- cost or benefit that motivates a decision or action by consumers, businesses, or other participants in the economy.
    • Incentives are often added to items to increase our influence in buying them.
    • There are positive economic incentives and negative economic incentives.
    • Positive economic incentives reward people financially for making certain choices and behaving in a certain way.
    • Negative economic incentives punish people financially for making certain choices and behaving in a certain way.
  3. How Incentives Work In the Economy

    Slide 3 - How Incentives Work In the Economy

    • Both positive and negative incentives affect people choices and behavior.
    • People reviews or rewards and penalties are different for everyone because people have different values. Therefore, an incentive can influence different individuals in different ways.
    • Responses to incentives are predictable because people usually pursue their self-interest.
    • Changes in incentives cause people to change their behavior in predictable ways.
    • Acting as consumers, producers, workers, savers, investors, and citizens, people respond to incentives in order to allocate their scarce resources in ways that provide the highest possible returns to them.
  4. Self interest

    Slide 4 - Self interest

    • Definition- one’s personal interest or advantage, especially when pursued without regard for others.
    • Self interest economic, allocating the resources available to you in a way that will benefit you.
    • Example: purchasing college textbooks so you can pass a class.
    • Game theory has always had trouble accounting for players with no rational self-interest, and nuclear deterrence is no exception.
    • In free-markets regimes, self interest is treated as hardwire.
  5. Scenario

    Slide 5 - Scenario

    • So why does the baker choose to bake?
    • The answer is self interest.
    • The baker wants to earn enough money to feed his/hers family and buy the things he or she wants and the most effective way he or she has found to do that is to bake bread for you.
    • In fact his bread has to be good and service friendly enough that you are willing to give your money freely for his bread.
    • The baker while serving his self interest has produced a good that is valuable to you .