Economic incentives are the additional rewards or penalties people receive from engaging in more or less of a particular activity. Understanding rewards and penalties helps people to make the choices they need to make in order to achieve their goals. Rewards (like money and praise) usually leads to people doing more of something; penalties (like being punished or being taxed) usually leads people to do less of something.

Often, businesses try to encourage people to buy more of their products by offering rewards such as prizes (like the toys in McDonald's Happy Meals). These are positive incentives. Sometimes our government trys to keep people from doing things such as smoking by taxing cigarettes . These are negative incentives.award

Today we are going to start imaginary businesses. You will need to decide what kind of business you want to start, what employment positions you will need to fill, and what kind of incentives you will have for employees. So let's get started!


Through a class discussion and using the interactive Flash Activity titled "Inventive Incentive Business Plan", you will differentiate between positive and negative incentives as well as develop positive and negative employee incentives for an imaginary business. In doing this, you will be able to identify incentives used to encourage you in your home and school.


You will be working with your class to identify ways in which you are given "incentives" to do work. Then you will work on the activity below, building a business and planning how to encourage workers with incentives.lawnmower

  • What are some of your responsibilities at home?
  • In what ways do your parents ensure that you are performing your responsibilities?
  • Of these incentives, which ones rewards you for performing your responsibilities? These rewards are known as "positive incentives."
  • Of these incentives, which ones penalize you for not performing your responsibilities? These are known as "negative incentives."

Now complete the interactive Flash activity titled "Inventive Incentive Business Plan." In this activity, you will be asked a series of simple questions concerning the formation of an imaginary business. You will also be asked to develop incentives. When the you have answered all of the questions, a "business plan chart" will appear. You will then determine if the incentives you suggested are positive or negative and will "color code" each of the incentives.

Count the number of "green" and "red" cards in your own individual imaginary business plan. Discuss the following questions with your class:

  1. Why is it better to have more "green" than "red" incentives in you business plan?
  2. How might this help your business to succeed?
  3. How might it be different to be motivated by negative incentives than by positive incentives?


studentAs a conclusion, define positive and negative incentives and identify positive and negative incentives in your classroom. Are there any positive and negative incentives related to:

  • Homework?
  • Behavior?
  • Class participation?
  • Grades or progress reports?


Swap printouts of business plans with other pairs of students to solicit comments on which incentives would be most effective and which would not. Write your name and responses on the back of the business plan.


  • For older students or those ready for a challenge: See guidelines for, a more sophisticated business plan at the Small Business Association's Business Plan Tutorial .
  • Visit My Own Business website to receive expert advice from people who started up their own businesses. This site allows you to receive face to face viewing with the experts through the use of success stories. Identify two positive reasons why the person started the business and why they remain in it.