Overview
This lecture introduces economics, emphasizing the role of incentives and how understanding economic principles impacts decision-making in many areas of life.
The Power of Economics
- Economics shapes how we understand the world and the decisions people make.
- Studying economics helps explain everyday phenomena, from customer service quality to environmental protection laws.
Key Concept: Incentives
- Incentives are rewards or penalties that influence people's choices and behavior.
- Good incentives can dramatically change outcomes, as seen in historical examples.
Historical Example: Prisoner Transport to Australia
- British captains were originally paid per prisoner taken on board, not per prisoner delivered alive.
- High mortality rates continued despite public outrage and regulations promoting humane treatment.
- Changing the incentive—paying captains for prisoners who arrived alive—increased survival rates to 99%.
Why Study Economics?
- Economics is the study of human action and decision-making under conditions of scarcity.
- Learning economics helps with personal decisions like career choice, parenting, and educational investments.
- Economics provides insight into broader societal issues and helps retrain your thinking.
Key Terms & Definitions
- Incentive — A factor that motivates individuals to act in a certain way.
- Scarcity — The condition of limited resources and unlimited wants, requiring choices.
Action Items / Next Steps
- Reflect on examples where incentives have shaped your own or others’ choices.
- Prepare to study the basics of economic decision-making and human behavior.