Fundamentals of Economics. Доловова Н.Н - 17 стр.

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9. Are Jack and Anne against advertising of any kind?
10. What do you think about advertising?
Fill in the gaps using the words given
(additional costs, marginal, minuscule, profits, rational, exceeds, additional benefits,
worthwhile, average)
1. Economists call these _____ changes.
2. To make this decision, he needs to know the _____ that an extra year in school
would offer and the _____ that he would incur.
3. By comparing these marginal benefits and marginal costs, he can evaluate
whether the extra year is _____.
4. In this case, the _____ cost of each seat is $100,000/200, which is $500.
5. Yet the airline can raise its _____ by thinking at the margin.
6. If the plane has empty seats, the cost of adding one more passenger is _____.
7. A _____ decision maker takes an action if and only if the marginal benefit of
the action _____ the marginal cost.
LESSON 4
Principle #4: People Respond to Incentives
Because people make decisions by comparing costs and benefits, their behavior
may change when the costs or benefits change. That is, people respond to incentives.
When the price of an apple rises, for instance, people decide to eat more pears and
fewer apples, because the cost of buying an apple is higher. At the same time, apple
orchards decide to hire more workers and harvest more apples, because the benefit of
selling an apple is also higher.
The central role of incentives in determining behavior is important for those
designing public policy. Public policies often alter the costs or benefits of private
actions. When policymakers fail to consider how behavior might change as a result,
their policies can have effects that they did not intend.
As an example of such unintended effects, consider public policy toward seat
belts and auto safety. In the 1950s few cars had seat belts. Today all cars do, and the
reason for the change is public policy. In the late 1960s, Ralph Nader's book Unsafe
at Any Speed generated much public concern over auto safety. Congress responded
with legislation requiring car companies to make various safety features, including
seat belts, standard equipment on all new cars.
How does a seat belt law affect auto safety? The direct effect is obvious. With
seat belts in all cars, more people wear seat belts, and the probability of surviving a

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