3. INCENTIVES
The Big Idea
• Positive and negative incentives:
– grades
• Direct and indirect incentives:
– Unintended consequences
(Born on the First of July)
• Incentives and innovation
• Incentives are everywhere
4. The Seven Secrets:
Life is About Trade-Offs
• Examples of trade-offs:
– College versus working, or a little of
both
– Cleaner environment or more production
8. The Seven Secrets:
Markets Generally Work Well…..
• The market economy:
– eBay, craigslist, stock market,
supermarkets
– The role of prices
• Adam Smith, the Father of Economic
Thought
– It is not from the benevolence of the butcher,
the brewer, or the baker, that we expect our dinner,
but from their regard to their own interest.
– Wealth of Nations, 1776
9. The Seven Secrets:
…But Markets Sometimes
Need a Hand
• Market failure
– Poorly defined property rights
– Externalities
– Public goods
– Market power
10. The Seven Secrets:
Our Decisions Have Consequences
Now and in the Future
• Consumption and capital goods.
• The business cycle
11. The Seven Secrets:
There are No Free Lunches
• “Free” is a four-letter word!
– Who is paying?
Notas del editor
Coming to lecture is a little like going to a football game. It is so much better to watch football with 110,000 people. A lecture hall is that way too! Things are more fun and interesting when everyone is participating!