choice, opportunity cost, and incentives
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Choice, opportunity Cost, and Incentives. Guiding Questions. How is economics the study of choice? How do economists make choices? How do incentives influence our behavior? Discussion… How did we answer our warm-up? . Free pizza!. - PowerPoint PPT PresentationTRANSCRIPT
CHOICE, OPPORTUNITY COST, AND INCENTIVES
GUIDING QUESTIONS How is economics the study of choice? How do economists make choices? How do incentives influence our behavior?
Discussion… How did we answer our warm-up?
FREE PIZZA! Mr. Garcia puts up a poster announcing the
whole school gets free pizza for lunch next Friday. You, ever the wise economist, are completely frustrated that he would say such a thing and march down tohis office. You demand hetake down thesign immediately.
Why…?
OPPORTUNITY COST
OPPORTUNITY COST = The next best alternative to the one that was
chosen.
IMPORTANT! Opportunity cost is NOT multiple
alternatives put together.
OPPORTUNITY COST Read the directions on your homework and
fill out the chart right now (only the chart for now… do the rest as homework)
Your chart represents a small portion of the choices you actually make in a 24 hour period
For each choice you made about how you spent your time, you had: Options Costs and benefits Opportunity cost
OPPORTUNITY COST – THINKINGLIKE AN ECONOMIST Analyze one of the choices you made in your
log What was your choice? What were your options? (What could you have
done instead?) What was your opportunity cost? Costs and benefits of choice v. the opportunity
cost? Did you make the best decision? Why was it the
best decision?
“FREE” PIZZA..? So, the next time somebody offers you some
free, delicious pizza, what will you tell them…?
Cage the Elephantunderstands opportunity cost…
SO… HOW DO WE FIGURE OUT WHAT THE BEST (RATIONAL) CHOICE IS? First, a quick recap… What is “utility”?
Synonyms?
There are always trade-offs in every choice you make
A rational choice is one that maximizes your benefits (your utility) and lowers your costs
Don’t forget about your opportunity cost!
HOW DO WE MEASURE COSTS AND BENEFITS?
Incentives!!
PEOPLE RESPOND TO INCENTIVES Incentives are actions or rewards that
encourage people to act. When incentives change, people’s behavior
changes in predictable ways.
Incentives can be positive or negative Positive = benefits you hope to get Negative = costs you hope to avoid
A SHORT GAME… Volunteers? (4 total)
The Rules of the Game (Round 1) You may fish for 20 seconds For each fish you catch in the first 10 seconds
you get one piece of candy For each fish you catch in the last 10 seconds
you get two pieces of candy
ROUND 1 What happened?
ROUND 2… THE RULES CHANGE You have been granted part of the pond for
private use. You are only allowed to fish in your part of the pond.
You may fish for 20 seconds. For each fish you catch in the first 10
seconds you receive one piece of candy For each fish you catch in the second 10
seconds you receive two pieces of candy
ROUND 2 What happened this time?
Why?
UNINTENDED CONSEQUENCES Sometimes incentives create unintended
consequences…
Can seatbelts actually cause more accidents? “Three lessons for a better cycling future,”
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1119262/
CAN INCENTIVES SAVE THE RHINO? – THE PROBLEM
Growing demand for rhino horn in Asia & Middle East
Hunting and harvesting rhino horn is illegal in African countries because rhinos are critically endangered Some countries have a “kill
on sight” policy for poachers Poachers can earn
$40,000+ for each rhino horn
Poachers kill more than 2 rhinos per day
Sometimes rhino protectors help poachers for part of profits
“CAN ECONOMICS SAVE THE BLACK RHINO?” Your task is to use the idea of incentives to
create a plan that changes the incentives for people’s behavior and saves the rhino. How will you change the costs and benefits for poachers?
Listen to the NPR report from May 15, 2013 In your notes, write down any info that
sounds important You’ll discuss in groups after the first part of
the report (stop at 1:50). Be prepared to share!
“CAN ECONOMICS SAVE THE BLACK RHINO?” Discussion
Listen to the rest of the report. What are the 2 solutions people propose to
change the incentives for poaching? Write them down in your notes.
An update…
TO SUM UP… Every choice has a cost, even if it’s only the
opportunity cost There ain’t no such thing as a free lunch People respond to incentives When incentives change, people’s behavior
changes in predictable ways
Vocab: TANSTAAFL Opportunity cost Incentives
Trade offs Utility
TICKET OUT THE DOOR “How is economics the study of choice?” Go back to the answer you wrote at the
beginning of the class. Review it and correct any misconceptions you
may have written. Add further explanation, using specific vocab
we talked about in class and examples to help clarify.
You MUST add more information to your earlier answer to make it more in depth and complete.