The document discusses various economic concepts related to decision making and its consequences. It covers topics like carrots and sticks approach, maximizing utility, self interest vs group interest, mutual self interest, tragedy of the commons, unequal knowledge, adverse selection, moral hazard, opportunity cost, paradox of thrift, income effect, externalities, and pollution taxes. It aims to explain how individuals, businesses and societies make choices with limited resources and how those choices impact different aspects of life.

2. INDEX
• INTRODUCTION
• CARROTS AND STICKS
• GETTING MORE FOR YOUR MONEY
• SELF INTEREST VS GROUP INTEREST
• MUTUAL SELF- INTEREST
• OVERUSE
• UNDERUSE
• UNEQUAL KNOWLEDGE
• THE COST OF UNEQUAL KNOWLEDGE
• RISK VS INFORMATION
• INFORMATION VS RISK
• THE ROAD NOT TAKEN
• WHY SAVING IS BAD
• INCOME DRIVERS BEHAVIOUR
• RISING PRICES CAN BOOST DEMAND
• DECISION HAVE CONSEQUENCES
• THE POLLUTER MUST PAY
• TRADING EMISSIONS
PRESENTERS:- SMRITI YADAV
NILAM MODI
AARTI PRAJAPATI
SONU PRAJAPATI

3. CHOICES AND CONSEQUENCES
 Economicsisthestudy ofhowindividuals, business andsocietiesmake
choiceswhenfacedwith limitedresources.
 Thesechoiceshaveconsequencesthat impactvarious aspectsofour
lives,includingproduction ,consumption, distribution ofgoods and
services.
 Understandingthesechoicesand theiroutcomesiscrucialforanalyzing
economicsbehaviorandmaking informeddecision.
OPPORTUNITY
COST
ENVIRONM-
ENTAL
SUSTAINA-
BILITY
MARKET
ECONOMIES
SHORT AND
LONG TERM
GOVERNMENT
POLICIES
DECISION
MAKING
NEEDS
AND
WANTS

4. CARROTS AND STICKS
 TheCarrotAndStickapproach alsoknownas
“incentivesandpunishment,”isa motivational strategy
usedto encouragedesiredbehaviour anddiscourage
unwanted behaviour.
1) CARROT(INCENTIVES):Thecarrotrefersto apositives
incentivesorrewardofferedtoindividual for
achievingspecificgoals ordesiredbehaviour.Itcanbe
anythingthatmotivates peoplesuchas promotions.
2) STICKS(PUNISHMENT):Thestickrefersthenegative
consequencesorpunishmentthat maybeimposed if
someonefailsto meetexpectations.Thisincludes
penalties,fines.

5. GETTINGMOREFOR YOUR MONEY
TheMAXIMIZINGUTILITYisaconceptrelatedto
makingwiseandefficient choicestogetthemost
valueorsatisfactionsoutoftheresources available
Thisconceptfocuses on seekingwaystomaximise
thevalueobtainedfromthemoneyspent.
EXAMPLE:-Buyingproductsduringsales,using
couponsorloyaltyprograms,comparing pricesfrom
different sellersormakingbulkpurchasestosaveon
unitcostsareallwaystogetmorevaluefor your
money.

6. SELFINTEREST VS GROUP INTEREST
SELFINTERESTAND GROUPINTERESTistheconceptthat
representtwo differentperspectiveswhenmaking
decisions,particularly inthecontextofsocialsituations.
ThePRISONER’SDILEMMAisasituation inwhichtwo
individuals faceachoicesto cooperateorbetray each
other.Eachpersondecideswhethertoactintheirself
interestorin thegroup interest
ThisDilemmaillustrates thetensionsbetweenself
interestand groupinterestanddemonstrateshow
rational decisionmaking canleadto alessfavourable
outcomeswhereeveryoneact intheirownselfinterest

7. MUTUAL SELF- INTEREST
The “STAG HUNT’’ is a modelin gametheory in which
cooperation leadsto the best collective result. Two
Hunters go looking for food. If they act alone, they could
eachcatch a rabbit.
But if they work together , they may get the far greater
prize of a stag to share, but they sacrifice the chance of a
rabbit. The Hunter should cooperate because the best
outcome for eachindividual is also the best collective
outcome.
For example:-both buyers andsellershave mutual self
interest in completing transaction. Buyers want the
product or services . They arepurchasing and sellingto
make profit from it. Through this mutual self self, a
transaction occurs benefitting.

8. OVERUSE
The “ Tragedyof the commons” is an important idea
in economic and environmentalstudies that highlights
the potential negativeconsequences.
It hasbeen applied to various realworld scenarios ,
such asfisheries management, water resources
managementandenvironmentalconservation.
For example:-A common landwhere thereare no
restrictions or cost , eachfarmers hasan incentive to
grazeas many sheep asthey can. If too many farmers
do that , then the landwill become depletedfor
everyone .Instead thefarmers should cooperate and
use in sustainable way.

9. UNDERUSE
TheTragedyof the Anti-commonsdeals
withthe inefficientuse of resourcesdueto
excessive fragmentationof property rights.
For Example:- Television programme might
be released withoutits originalsoundtrap
because too manyrights,deals haveto struck.
As a result, the resourcemay remain
underused,underdeveloped,orinaccessible,
eventhough it could be more productiveor
beneficialif managedmorecooperatively.

10. UNEQUALKNOWLEDGE
Asymmetric information, also known as unequal
knowledge, is a situationin whichone party in a
transaction possessesmore information compared
to the other party involved.
Thisinformation asymmetry can lead to
imbalancesin economic and social interactions.
 Common example of asymmetric information
include:
1)Job interviews:Candidatesmay exaggerate their
skillsand qualifications,and employers may not
have full information about an applicant'strue
abilities,leading to potential mismatchesbetween
job requirements and candidatecapabilities.
I’M THERE
FOR YOUR
HELP SIR
!!!
I WANT TO
PURCHASE
A CAR…..

11. THE COST OF UNEQUAL
KNOWLEDGE
The cost of unequal knowledge, also known as
the "lemon market" problem, refers to the
negativeeconomic consequencesthat arise when
there is asymmetric information in a market.
The term "lemon" in thiscontext refers to a low-
quality or defectiveproduct. Because buyers
cannot easilydiscern the quality of the goods,
they become reluctant to pay a premium price,
fearing they might end up with a "lemon" rather
than a higher-qualityproduct.
The lemon market problem can occur in various
industriesand markets, such as used cars, real
estate, healthinsurance

12. RISK VS INFORMATION
Adverseselectionis a situationarises when
one party in a transactionhas a better
understandingof the risksinvolved than the
other party.
Adverseselectionis a criticalconcept in the
insuranceindustry.
Life Insurance: People who engagein high-
risk activitiesor have health conditions that
increasemortality risk may be more inclinedto
buy life insuranceto financiallyprotect their
loved ones. Thissituationcan lead to the insurer
covering a higher proportion of riskierlives,
resultingin higherpayouts and potentially
higherpremiums.
Insurer’s Intended Risk
Buyer A’s risk
Buyer B’s risk
Buyer C ’s risk
Low
risk
buyers
High
risk
buyers

13. INFORMATION VS RISK
Moralhazardreferstothetendencyof
individualstoaltertheirbehaviorina
waythatincreasesriskaftertheyhave
acquiredinsurancecoverage.
Thisarisesfromthefactthatonce
individualsareinsured,theymayfeel
lessfinanciallyresponsibleforthe
consequencesof theiractions,leading
themtotakemorerisksoractless
cautiously.
MORAL HAZARDS
SELLER’S RISK BUYER’S RISK
SELLER’S RISK BUYER’S RISK
Seller’s risk is increased if the
buyer changes the behaviour
after the agreement is made
The term of the agreement have
balance of risk and reward for
both parties

14. THE ROAD NOT TAKEN
 TheOpportunity Costof a choice is
the value of the best alternativeforgone
where, givenlimited resources, a
choice needsto be madebetween
several mutually
exclusive alternatives.
 It isimportantas it helps us in choosing
the best option amongthe options that
we have.It helps us in maximizing
profitsby usingevery resource
efficiently.

15. WHY SAVING IS BAD
 Theparadoxofthriftoccurswhenalarge
percentageofthepopulationsavesmoreand
consumesless.
 Whenconsumersstartsavingmore,
consumptionlevelsfall,andasaresult,the
totaloutputof aneconomydiminishes.
 Thisconsumerbehavioriswitnessedduring
arecession—consumers savemoreto
preparethemselvesfortheworst.The
decreaseinconsumerspendingfurther
triggersareductioninproduction.
Consumer saving
Labour
HEALTHY
Goods and services
Wages and dividend
Reduced consumer spending
Less employment
Fewer goods and services
Reduced wage and spending
DYSFUNCTIONAL

16. INCOME DRIVES BEHAVIOUR
TheIncomeeffectrefersto thechangeina consumer's
purchasingbehaviordue toa changeintheirrealincome
whilekeepingpricesconstant.
IncomeEffect:Highereducation andskillacquisition can
increaseanindividual's earningpotential, whichaffects
theirpurchasingpower andthequantity ofgoods theycan
buyatagivenpricelevel.
Substitution Effect:ifsomeonereceivesapay raise,they
mightchooseto buyhigher-pricedgoods (substituting
cheaperalternatives) duetotheincreasedpurchasing
power.

17. RISING PRICESCAN BOOST
DEMAND
Lawofdemandstatesthatotherthingsremain
constantthereisaninverserelationbetween price
ofaproductanditsquantitydemanded.
Giffen GoodsaretheexceptiontotheLawof
Demand.
Theterm“Giffen goods”derivesitsnamefromthe
economistSirRobertGiffen in1890.
Giffen goodsarethenonluxuryproductfor which
demandincreasesandvice-versa thusdefying
standardLawofDemand.

18. DECISION HAVE
CONSEQUENCES
Externalitiesoccurswhenproduction and
consumptionresultsin costorbenefitforanunrelated
thirdparty
it isaspecifictype ofconsequencethat arisewhen
theactions ofoneparty haveunintendedeffectsonthird
parties whoarenotdirectlyinvolvedinthedecision.
Forinstance,pollution emitted byafactory canharm
thehealthofnearbyresidentsandnegativelyimpactthe
environment,eventhough thoseaffectedhavenocontrol
overthefactory'soperations.
A new car manufacturing
plant is built which provide
over 500 new jobs for local
people in the local area
This new found wealth in the
area created huge demand
for the local business who
enjoy high profits
This factory emits a huge
amount of toxic gases . The
increased pollution result in
the local area suffering from
the permanent haze.

19. THEPOLLUTER MUSTPAY
Theprincipleof"apollutermustpay"isatthecore
ofPigoviantaxes,alsoknownascorrectiveor
negativeexternalitytaxes.
Thistaxesaredesignedtoaddressnegative
externalities,suchaspollutionorotherharmfulside
effects ofeconomicactivities.
Byimposingtaxesonpollutingactivities,itcreatea
financialincentiveforpolluterstoreducetheir
emissions oradoptcleanertechnologies.
TAXES
SUBSIDIES
STATE
INTERVENTION

20. ALLOCATED
EMISSION
TRADINGEMISSIONS
Tradingemissions andcarbonpricingare
strategiesaimedataddressingclimatechangeby
puttingapriceoncarbonemissions andencouraging
industriestoreducetheirgreenhouse gasemissions.
Underschemes,governmentsetamaximumlevel
ofemission fromeachproducer.Ifafactoryemits
more,thentheymustbuycreditsforeachextraunit
ofpollution
Thefactorythatemitslessthanitsallowancecan
sellitsunusedcredits.
Carbon
Trading
Scheme

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