ECON 2010 Lecture Notes - Lecture 4: Opportunity Cost, Comparative Advantage
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ECON 2010 Full Course Notes
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People respond predictably to changes in incentives. Because most people are seeking opportunities to make themselves better off, they respond to changes in incentives. If you can observe changes in incentives facing people, there is a good chance you can predict the resulting changes in their behavior. That is, people are expected to be reacting to the many ongoing changes in expected marginal benefits and expected marginal costs. Changes in incentives cause people to change in predictable ways. If a company gave commission to workers then the workers would want to work harder in order to earn more money. (definition) positive incentive are those that either increase benefits or reduce costs and thus result in an increased level of the related activity or behavior. (definition) negative incentives either reduce benefits or increase costs, resulting in a decreased level of the related activity or behavior. Human behavior is influenced in predictable ways by changes in economic incentives.
