What Motivates Economic Choices?

Incentives are rewards or penalties that influence the decisions people make. They can be financial, like prices and wages, or non-monetary, like praise or extra vacation days.

Types of Incentives

• Positive Incentives: Encourage action (e.g., discounts, bonuses).
• Negative Incentives: Discourage action (e.g., fines, penalties).

Incentives in Action

People respond to incentives in predictable ways. If gas prices rise, people might drive less or buy more fuel-efficient cars. If a store has a sale, shoppers are more likely to buy.

Why Understanding Incentives Matters

Recognizing and designing effective incentives can help businesses grow, governments create better policies, and individuals make smarter choices.