4 Key Ideas of Economic Models

Core Assumptions of Economic Choice in Models

Relative Prices

Performance-Based Pay

A city government is concerned about the high volume of single-occupancy vehicles causing traffic congestion during morning rush hour. They want to implement a new policy to encourage commuters to change their behavior. Which of the following policies most clearly demonstrates the use of an economic incentive to alter the costs and benefits of a commuter's choice?

Analyzing an Employee Incentive Program

Match each scenario with the most accurate description of the economic incentive at play.

Analyzing Policy Incentives

For something to be considered an economic incentive, it must involve a direct monetary payment or a financial penalty.

Identifying and Explaining an Economic Incentive

A software company introduces a new policy to boost developer productivity. The policy offers a significant monthly cash bonus to the developer who writes the most lines of code. Based on the principles of how incentives influence behavior, what is the most likely outcome of this policy?

Evaluating Competing Incentive Policies

A university wants to encourage students to use reusable coffee cups instead of disposable ones. They introduce a policy where students receive a 25-cent discount on their coffee purchase if they bring their own cup. Arrange the following steps in the logical order that describes how this incentive influences a student's decision-making process.

By altering the perceived costs and benefits associated with a particular choice, a(n) ________ serves to influence the decisions an individual makes.