Incentives matter

Learning Objectives: Understand and apply the “Economic Way of Thinking”. Derive demand curves.
Lecture handout: Incentives matter*

Conventional wisdom believes that seatbelts save lives. But economic wisdom asks how they affect the benefits and costs of being in an accident. The lecture content on seatbelts comes from a great book called “Risk“, by UCL’s John Adams. And here is the New York Times article claiming that “Bicycle Helmets Put You At Risk”.

We learnt that incentives matter. This podcast provides a thought provoking example:

The lecture looks at how coordination might take place without centralised control. This clip of San Francisco in 1906 demonstrates a spontaneous order:


And here’s a video on the concept of “shared space” and what happens when traffic lights are removed:

Here’s an example of how Starbucks creates value for me:

Apply these concepts yourself, with this exercise on: Value Creation. This concept is closely related to “Jobs to be done”, but here’s my review  of ‘Competing Against Luck‘. Here’s my bleaker application of value to Apple’s iPhone innovation:

For a more traditional, textbook treatment for demand curves, see here:


A great application of consumer surplus is here:

Can you think of something that delivers a lot of consumer surplus for you? What’s the most consumer surplus you’ve ever received?


(Based on this tweet).

These resources form part of my Managerial Economics course map. You can watch the full YouTube playlist here. This page ties into Chapter 1 of ‘Economics: A Complete Guide for Business‘.
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