Economics Is Everywhere 3

Course Name:  Economics, Social Studies

Unit Title:          Getting Started with Economics: Economics Is Everywhere!

Lesson Title:      Lesson 3: PEOPLE RESPOND PREDICTABLY TO INCENTIVES

Grade Level:     4-8

Duration:            50 minute session each for Lesson

Standards:         This lesson incorporates Voluntary National Content Standards in Economics and Michigan Content Standards and Benchmarks for Economics.  See listing of National Standards and Benchmarks at end of lesson.

Social Studies, Economics Key Words and Concepts:  barter, benefits, capital resources, choice, consumer, corporation, cost, distribution, economics, economic wants, entrepreneur, exports, goods, human resources, imports, incentives, individual ownership, interdependence, interest, investing, market economy, market, money, natural resources, opportunity cost, partnership, price, productive resources, productivity, producer, profit, savings, scarcity, services, specialization, supply and demand, surplus, taxes, trade, trade-off.

Purpose: 

These introductory economics lessons will introduce students to the “economic way of thinking” by examining the first three of the Six Core Economic Principles, otherwise known as The Handy Dandy Guide, or HDG, in three sessions of approximately 50 minutes each.  One Economic Principle and a round of EconAround Bingo will be featured in each session.  The Core Economic Principles will be directly related to 40 essential economic vocabulary words and concepts.   The learner will be introduced to the principles with examples from everyday life and learn how to use the appropriate economic vocabulary to explain these economic principles at work in their world.

Objectives: 

The learner will:

• Define and explain the Six Core Economic Principles
• Analyze everyday life and current events to explain how economic principles can be applied
• Define basic economic vocabulary terms and concepts and apply them correctly in explaining economic principles

Day Three:  Principle # 3, People Respond Predictably to Incentives, and EconAround Bingo Round 3

Materials:

• One 3 ft. stick (yardstick will work fine)
• 4 ft. of string
• one whole, long, fresh carrot
• Teacher Prep:  Using string, tie carrot to the stick.
• Overhead transparency of the Six Core Economic Principles
• Overhead transparency of EconAround  Bingo Vocabulary List
• Teacher copy only of EconAround Bingo Game Sequence sheet
• EconAround Bingo game cards from deck
• All previously used EconAround Bingo game sheets from Round 1.  Students may trade these amongst themselves, modify their “old” bingo sheet by erasing and replacing words in the boxes, or develop a totally new bingo sheet.
• EconAround Bingo Vocabulary List. Students should use their same highlighted  vocabulary list used in Round 1 of the game.
• The Six Core Economic Principles mini-poster.  Students should retrieve copy given to them in Round 1 and keep on their table surface with their  EconAround Bingo Vocabulary List, EconAround Bingo game sheet, and any EconAround Bingo game cards they receive.
• Bingo tokens, 10 per student
• Highlighters, one per student or share
• Pencil
• 5 “desirable items”, such as candy bar, granola bar, juice, pocket calculator, marker or highlighter, colorful pencil, folder, stickers, etc.)

Instructional Procedure:

Anticipatory Set:

1. Hold the stick with carrot attached and, with some flair for the dramatic, drag the carrot slowly across the front of the classroom.  Ask the class what they think you are doing. Gather some responses. Next, ask students what the expression “dragging a carrot” in front of somebody means in everyday life? (Answers should gravitate toward expecting to get something good or positive for doing something.) Tell students that “dragging a carrot” in front of somebody is what we call a positive incentive at work in their lives. It is a benefit that can influence the choices people make. Ask students for examples of positive incentives from their own experiences. (Examples could include many things including earning an allowance, good grades, recognition, getting a good job, wages, awards, candy, free time, etc.)

1. Next, ask students what other kinds of incentives operate in the world besides positive incentives?  (Hopefully students will see that not everything is always positive.) Introduce a negative incentive, as one which is designed to persuade us not to do something for fear of punishment or of receiving little or no reward. It is a cost for us to consider as we choose our behavior. Ask students for examples from everyday life where negative incentives are used to influence our behavior.  (Examples could be losing recess, being “grounded”, traffic tickets, punishments like jail or fines, bad publicity, losing free time, staying after school, poor grades, etc.)
2. Ask students why they think people respond predictably to both positive and negative incentives.  Discuss why people do what they do and reveal what motivates people generally.  (Answers will certainly vary, but may suggest that people act out of their own self interest and want to avoid punishment and generally try to get more for themselves when possible to advance their own self interest.)  Ask students what incentives are at work at this very moment in the classroom and whether they are positive or negative.(Answers could include earning a good grade of some kind, prizes, etc. for positive incentives. Negative incentives could include bad report card, detention, etc.)

1. Ask students to get out their Econ Around Vocabulary Lists and Six Core Economics Principles mini poster and arrange on their desk.  Tell them to mark a number “3” next to all words that you will be discussing relating to Principle #3.

1. Introduce Principle #3: People Respond to Incentives in Predictable Ways  Show Principle #3, using the Six Core Economic Principles overhead transparency and read it aloud to the students, including the subtext.  Tell students that incentives are the benefits or costs that influence the choices people make. Draw careful attention to the graphic on the poster of the boy reaching out for the carrot.  The carrot symbolically represents a benefit that the boy is reaching toward. Tell students that “responding predictably” to incentives means that most of the time you can predict what people will do by the kinds of incentives placed in front of them.

1. 3 Examples of Incentives: For instance, if you do your homework and are positively rewarded for it in some way, are you more or less likely to be doing your homework? (a positive incentive should mean doing homework more regularly since it brings a benefit to you)  If tough enforcement of speeding laws (big costs like fines) occur, what would you predict would happen to behavior of drivers? (a negative incentive like a big fine is a cost that will influence most people to not speed so much)  If helping someone else makes you feel good about yourself, what would you predict might happen?  (this is a benefit to you and will probably influence your behavior to do more of the same)

1. Tell students that Principle #3 is a real key to being able to understand economic behavior in people.  One very powerful incentive for people is money, of course, because it can be exchanged for many things for which we have economic wants.  Money is a tremendous benefit most of the time.  But, money isn’t everything. Many people do things for others that involve no material reward.  They are still probably looking out for their own self interest when they do this. Helping others could further their own self-interest by helping them feel better about themselves or gain satisfaction or peace of mind.

1. People who can spot incentives in school, at work, or anywhere in life have an advantage over others who cannot spot them in being able to possibly understand why a person or group is doing what they are doing.  Understanding what might be motivating someone’s behavior could help a person see what is causing a problem or to see what is causing good things to happen.  This is an example of learning the “economic way of thinking”.  Incentives play a big part and are one of the most important of the Six Core Economic Principles.

1. Before announcing that you will be playing Round 3 of EconAround Bingo, ask students to review the key words from the EconAround Vocabulary List that would be related to Principle #3, People Respond to Incentives in Predictable Ways.  Ask students to explain how or why the particular economics vocabulary word is related to the principle.  (Any reasonable response that connects a vocabulary word with a person’s behavior being influenced by a benefit or cost should be accepted and positively reinforced Answers may include words like economic wants, choice, benefit, cost, incentives, profit, entrepreneur, money, price, trade, taxes, consumer, producer, savings, interest, etc.)
2. EconAround Bingo: Round 3.  Tell students that in playing Round 3, you would like to see if the class can reduce the time it takes to play even further.  Remind them of times for Rounds 1 and 2 and set a goal to reduce it further with the help of the class.

1. Distribute the completed EconAround Bingo sheets, vocabulary lists, and 6 Core Economic Principles mini-posters from the previous rounds to their original creators.  Allow a minute for anyone to trade Bingo sheets with someone else if they wish before play begins and while Bingo tokens are distributed.  Remind students that Principle #5 is at work whenever anyone voluntarily trades.  People don’t usually trade voluntarily with each other unless they both expect to benefit!  Voluntary trade creates wealth for both parties to the trade.

1. Play Round 3 and be sure to time the length of this round to see how it compares to Rounds 1 and 2. The game should be proceeding much more smoothly at this point.  Save all bingo sheets, vocabulary lists, and mini-posters for later use as needed.

1. Debrief of Round 3  Refer again to the overhead transparency of The Six Core Economic Principles as you discuss what students have learned today.

• Compare Rounds 1,2, and 3.  What progress or problems can be reported?
• What ideas, if any, from Principle #3, could have helped Round 3 go faster or better?
• Discuss some other incentives at work here at school or in your personal life.  Do people respond predictably toward the incentives?  If yes, why?  If no, why not?

Assessment:

• Write a paragraph about a positive incentive in your life and why it works for you.  Use at least three other economics vocabulary words appropriately in your response.
• In a journal entry, describe a situation where a positive or negative incentive would improve our school or community.  Defend your choice with your own best thinking of why it would work.
•  Use any one of the economic mysteries in The Great Economic Mysteries Book, A Guide to Teaching Economic Reasoning, Grades 4-8.  National Council on Economic Education Publication, $21.95 less possible discount.  Seventeen mysteries to choose from, all involving incentives, plus other Core Economic Principles (also known as the Handy Dandy Guide, HDG),  Students analyze and solve interesting “economic mysteries” from everyday life.  Any of these would work well as an assessment for Principles 1, 2, and 3.

Michigan Social Studies Content Standards/Benchmarks Addressed in Lesson 3:

All three lessons in this unit incorporate the following National Voluntary Economic Standards:

National Voluntary Economic Standards  include benchmarks learned by the end of Grade 8. This lesson also addresses many end of Grade 4 benchmarks for each Standard  that are not listed below.

Standard 1: Productive resources are limited. Therefore, people cannot have all the goods and services they want; as a result, they must choose some things and give up others.

At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that:1. Scarcity is the condition of not being able to have all of the goods and services that one wants. It exists because human wants for goods and services exceed the quantity of goods and services that can be produced using all available resources.2. Like individuals, governments and societies experience scarcity because human wants exceed what can be made from all available resources  3. Choices involve trading off the expected value of one opportunity against the expected value of its best alternative.4. The choices people make have both present and future consequences.5. The evaluation of choices and opportunity costs is subjective; such evaluations differ across individuals and societies.

Standard 2: Effective decision making requires comparing the additional costs of alternatives with the additional benefits. Most choices involve doing a little more or a little less of something; few choices are all-or-nothing decisions.

Grade 8 Benchmarks .At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that:1. To determine the best level of consumption of a product, people must compare the additional benefits with the additional costs of consuming a little more or a little less.

Standard 3: Different methods can be used to allocate goods and services. People, acting individually or collectively through government, must choose which methods to use to allocate different kinds of goods and services.

Grade 8 Benchmarks: 1. Scarcity requires the use of some distribution method, whether the method is selected explicitly or not.2.There are essential differences between a market economy, in which allocations result from individuals making decisions as buyers and sellers, and a command economy, in which resources are allocated according to central authority.3. People in all economies must answer three basic questions: What goods and services will be produced? How will these goods and services be produced? Who will consume them?

Standard 4: People respond predictably to positive and negative incentives.

Grade 8 Benchmarks: 1. Responses to incentives are predictable because people usually pursue their self-interest.1. Explain why they would be willing to shovel snow when temperatures are below freezing, mow lawns when their friends are going to a movie, or baby-sit on a weekend evening instead of going with friends to a dance.2. Changes in incentives cause people to change their behavior in predictable ways.2. Predict how students' study habits will change if the grading system changes from letter grades to pass/fail to no grades.3. Incentives can be monetary or non-monetary.

Lessons created by:

John Noling, Educator Associate

Michigan Council on Economic Education

Muskegon, Michigan