Incentives, Trade Offs and Opportunity Costs

Your Name: ______

Making Economic Decisions:

Directions: To complete this handout, watch the video clips found on my website from the movie “Freakonomics”. You do not need to write in complete sentences, but answer in enough detail that you show understanding. PART A) Incentives

Definition: a thing that motivates or encourages one to do something

1. What incentive did the economist in the video use to potty train his daughter? ______

2. What incentives do YOU have to come to school? ______

3. What incentives do YOU have to learn in school? ______

4. After watching the “bribing for grades” experiment, list 3 problems with using financial incentives to bring up these kids’ grades:

PART B) Trade offs

Definition: the alternative you face if you or society decides to do one thing over another

5. What happened to the crime rate beginning in the mid 1990’s? ______

6. What are some explanations that have been given for some of this change?

7. According to economist Steven Levitt, what explanation does he say accounts for at least 50% of the drop in crime? ______

8. Explain how this Supreme Court decision could have had this effect on society:

9. Economics deals with tradeoffs. List 2 trade-offs for society by the choice to legalize abortion.

10. List 2 trade-offs for society by the choice to keep abortion illegal. PART C) Opportunity Costs

Definition: the cost of the next best use of your time, outcome or money when you choose to do one thing over another. Remember: “opportunity cost, is opportunity lost”.

11. Before watching the video, write down YOUR opportunity cost of being in this class for an hour and 25 minutes today:

12. If you choose to go to Chargrill for lunch today, and you spend $8 on food, what is the opportunity cost to you?

13. What do YOU think…Does the name of a child affect their chances of success? Why or why not?

14. After watching the video: In the “resume study” in Boston and Chicago, what results did they find out about resumes with “black sounding names” in the labor market?

15. If a father really wants to name his child, “Tyrone”, because this was his loyal, hardworking grandfather’s name, but chooses NOT to, thinking it will have negative effects for them later in life, what is the opportunity cost to this decision?

______Summarize Your Knowledge:

Using the 3 vocab terms you learned in this activity, explain how you solve the decision below, telling your story using all 3 words in a way that show understanding.

Decision: Your friends are all skipping 4th period to go see Barack Obama speak in Chapel Hill. You know you won’t get permission from teachers or parents to do this, so you have to make a rational decision. You also have a test in 4th period. Explain what you do. Remember to use the vocab words!

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