In this episode, we’re going to learn about one of the most important concepts in economics: incentives. Incentives are what motivate us to make certain choices and to behave a certain way. They come in many different forms and are used in a variety of ways in the economy, including to encourage “good” behavior and discourage “bad” behavior. We’ll start with a short video clip from the popular 2005 book Freakonomics, in which Steven Levitt and Stephen Dubner apply economic theories to all sorts of seemingly unrelated sociocultural phenomena.
Freeconomics: Making Millions by Giving It Away
There is a growing trend in the business world towards companies offering products and services free of charge to customers. This is known as freeconomics and has become particularly evident on the internet where firms like Google have been able to offer products such as GMail for free to consumers. It is a model that has been shown to be extremely profitable but at the same time risks driving traditional businesses such as newspapers and music into the ground.
For small business owners who are on tight budgets and managing their cash flow it can seem tempting to take advantage of the vast amount of free content available online. However, taking this approach to business decisions can be a costly mistake. It is akin to trying to solve your own tax or legal problem without the benefit of a professional advisor, and will likely end up costing you more in the long run.
