Econ Test 2 Essay 3

  1. Material Incentives and example
    • tanagible rewards for good behavior ad tangible penalties for bad behavior
    • ex. In a market economy, good workers get higher wages, giving them the ability to buy more consumer goods.  Bad workers are paid less and maybe fired.  This could motivate the bad workers to become good ones
  2. Moral Incentives and example
    • intangible rewards and benalties
    • ex. Your boss praises you or you are made the "employee of the month."
    • ex. Your boss criticizes you, or gives you a bad assignment
  3. Other incentive info
    • both types have an impact on human behavior
    • both are found in all societies
  4. Explain why central planning had incentive problems
    • not enough material incentives
    • ideological reasons: belief that people are good/want to cooperate and people didn't need material incentives to work hard or well.  belief that peopel should be equal
    • practical reason: communist countries were poor and wanted to use their resources for development, not high salaries and consumer goods
  5. Why didn't employees work hard, from a material perspective?
    • hard to fire: socialist economies tried to protect workers
    • wage compression: starting wages and max wages were similar
    • lack of consumer goods: even if one had more money, there was nother to buy
Card Set
Econ Test 2 Essay 3
Econ Test 2 Essay 3