EPF2a. Incentives

Role of Producers & Consumers

in a Market Economy

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WHAT IS AN INCENTIVE?

Essential question:

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Incentives

• Definition: something that makes a person try or work hard or harder

• Incentives influence people’s behavior

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HOW DO INCENTIVES INFLUENCE BEHAVIOR?

Essential question:

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Incentives influence behavior by:

• A positive incentive is a reward or other inticement that ENCOURAGES a behavior– Ex. prizes, wages

• A negative incentive is a penalty that DISCOURAGES behavior– Ex. library fine, parking ticket

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HOW DO CONSUMERS, PRODUCERS, WORKERS, SAVERS, INVESTORS & CITIZENS RESPOND TO INCENTIVES?

Essential question:

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Value and/or lower price is an incentive for consumer

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Profit is an incentive for producers

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Pay and benefits are incentives to workers

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Interest earned is an incentive for savers

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Capital gain is an incentive for investors (ex. buying at $10 & selling at $15 = a $5 capital gain)

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Citizens have an incentive to vote for politicians who share their views

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Interest groups have an incentive to seek to influence politicians to vote in ways that benefit their group.