Incentives Incentives are the rewards or consequences that influence how people make decisions and behave. Economic systems, businesses, and governments all create incentives that encourage certain actions and discourage others. Many economists argue that understanding incentives is essential for understanding real-world outcomes.
Trade-Off A trade-off is the idea that choosing one option usually means giving up something else. Because resources like time, money, and labor are limited, individuals, businesses, and governments must constantly make decisions between competing priorities. Economists often emphasize that there are no perfect solutions — only different costs and benefits.