Costs vs. Benefits Incentives Unintended Effects

 Economists believe people are rational and make choices based on costs vs. benefits  Have you used cost/benefit analysis today in making a decision? Try to think of one and share it.

 Sometimes it is helpful to analyze choices based on marginal costs and benefits rather than total costs and benefits  Taco example  The relevant choice from an economics perspective is the one at the margin  Marginal means additional

 Incentives are things that cause people to act in a certain way  Parents may offer kids $20 for every “A” … this is an incentive to work hard and earn “A’s”  Give an example of an incentive that affected your behavior

 A boy breaks a store-front window  Economically, is this good or bad? Think about it, then share ideas with a partner.  To understand the real economic impact, you must consider “what would have been,” not just “what is.”

 People made decisions on the belief that benefits will outweigh costs  Sometimes, they are wrong! When this happens, the decision will have unintended effects.  What are some examples from your lives?  Minimum wage example

 Economists care about both individual businesses and the overall economy  The study of small economic units is called microeconomics. (We’ll study these concepts in Unit III.)  The study of large economic systems is called macroeconomics (Unit IV)