Ten Key Elements of Economics

The Insider
Spring 2005

By James Gwartney, Richard L. Stroup, and Dwight R. Lee

1. INCENTIVES MATTER.

All of economics rests on one simple principle: that incentives matter. Altering incentive, the costs and benefits of making specific decisions, alters people’s behavior

Understanding incentives is an extremely powerful tool for understanding why people do the things they do because the impact of incentives can be seen on almost every level, from simple family decision making to securities and international trade.

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This essay was published as part of the Heritage Foundation’s Insider

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