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Grade 3-5

Inventive Incentive

Updated: January 14 2021,

There are many ways in which people are rewarded or penalized for doing, or not doing, their work. These are known as “incentives.”


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 tries to awardkeep people from doing things such as smoking by taxing cigarettes . These are negative incentives.

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!

Learning Objectives

  • Differentiate between positive and negative incentives.
  • Develop positive and negative employee incentives for an imaginary business.

Resource List



Students will be working as a whole class to identify ways in which students are given “incentives” to do work. The students work on the activity below, building a business and planning how to encourage workers with incentives.

Teachers should introduce the concept of positive and negative incentives with the class as a whole-group by asking: lawnmower

  • What are some of your responsibilities at home? [Answers may include such responses as “taking out the trash,” “cleaning my room,” “setting the table,” “feeding my pet.”]
  • In what ways do your parents ensure that you are performing your responsibilities? [Answers may include such responses as “I get an allowance,” “I am allowed to go somewhere special,” “I get grounded if I don’t do my chores,” etc.]
  • Of these incentives, which one 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.”

Generate a list of the incentives on chart-paper. After the students have brainstormed about 15 different incentives, have them circle the rewards or “positive incentives” in green and circle the penalties or “negative incentives” in red.

Have the students count the number of “green” and “red” cards in their own individual imaginary business plan. Discuss the following questions:

  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?

Learning Advice

To address the needs of the youngest students, teachers should provide detailed examples of incentives which demonstrate that “people respond to incentives in predictable ways.” To make incentives relevant to students’ personal lives, teachers can have students share ways in which they have been influenced by both positive and negative incentives.


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

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

Extension Activity

  • For older students or those ready for a challenge: See guidelines for, a more sophisticated business plan at the https://www.sba.gov/business-guide . When students use this tutorial, they should be prepared to work in groups of three to develop joint ventures.
  • Teachers should consider inviting parents to assist small groups of students to develop small businesses in the classroom.
  • Visit My Own Business website to receive expert advice from people who started up their own businesses. This site allows the students to receive face to face viewing with the experts through the use of success stories. Have students identify two positive reasons why the person started the business and why they remain in it.


After all students have completed the interactive activity, have pairs of students swap printouts of business plans with other pairs of students to solicit comments on which incentives would be most effective and which would not. Students should write their names and responses on the back of the business plan. Teachers can then review the plans and comments to determine understanding of the content.