Macro -- Opportunity Costs
Opportunity Cost
the cost of something is what you give up to get it
The opportunity cost of something is...
the value of your next best alternative
When do incentives work?
-Low/High prices incentivize/disincentivize buyers -High/Low prices incentivize/disincentivize sellers EX: sick pay leads to more absences
Economic Value =
MB - MC
When don't incentives work? (part 3)
when people are addicted EX: Paying cigarette smokers to quit works well in the short run, but poorly in the long run
When don't incentives work? (part 1)
when they are poorly designed/aligned: (incentives are still "working," just not how we want) EX: Incentivizing researchers per article makes them churn out poorly cited papers
When don't incentives work? (part 2)
when they crowd out internal motivation EX: Students who were paid a small amount collected less money for charity than volunteers
