Lesson 15 Student Handout Answer Key 3

52.1999
INCENTIVE CASE STUDY

Your spouse and two kids (ages 10 and 6) have just purchased a thickly
wooded ten acre parcel of land to build a house. One day, as you were
clearing some brush, you came across a strange looking tree with two big
eyes. Oh my gosh, a real live Ticket Oak. After introducing yourself, the
tree tells you it could produce up to two hundred tickets for any
upcoming event/show. It will take the tree two months to grow the
tickets and it requires a special blend of fertilizer (corn feed, sarsaparilla root, and 16
gallons of Monster Energy drink) every 5 days.

Is there an incentive to maintain the tree? Why?

Yes. The tree may provide you fruit (tickets) that can be used in a variety of ways.

What can you do with any tickets that you grow? Provide multiple options.

Use them yourself. Sell them to others. Discard them (garbage). Give them away

After growing a few tickets for your family and friends, you decide to see if you can make a
go at opening a business to sell tickets. You have had some successes and some failures.
Remember that time you grew a bunch of Ylvis tickets after their one
hit wonder, “The Fox”? Couldn’t give those away by the time the show
rolled around. Then finally, you land a big contract with Kmart to buy
200 tickets every month for the Detroit Lions. You spend all your
resources to grow the Lions tickets to fulfill the contract. All was great
until week six when, you guessed it, a 0-6 start. Kmart decided it
would not pay for the last two months of the season. Since you already
started the growing process, you could not change tickets and now that
the Lions are 2-8, you cannot get rid of the 200 tickets, and still have another month left on
the contract that for which you have already planned.

Does Kmart have an obligation to pay you for the tickets?

Yes. They signed a contract saying they would buy 200 tickets every month.

What role does the government have in enforcing the contract?

The government (judicial system) should make Kmart pay for the tickets
Article 1 says that companies should be allowed to enter into contracts.

What would happen if the government did NOT enforce contracts like this?

Companies would be hesitant to engage in contracts for future production. This could
limit production, investment, and ultimately would also impact jobs and the economy.

Berrien RESA 1 Economics in Marketing Education II