Final answer:
Monetary incentives involve financial rewards, whereas non-monetary incentives include intangible benefits. Changes in incentives can lead to changes in behavior; for example, offering bonuses can increase productivity. Consumer choices are impacted by income, prices, and preferences, as illustrated by the substitution effect and the income effect.
Step-by-step explanation:
The difference between monetary incentives and non-monetary incentives is quite straightforward. Monetary incentives involve tangible financial rewards like bonuses, salary increases, or commissions. Non-monetary incentives, on the other hand, include intangible rewards such as recognition, flexible working hours, job security, or professional development opportunities.
Changes in incentives can significantly influence behavior. For example, if an employer offers a bonus for completing a project ahead of schedule, employees may work harder and be more focused to meet this goal. Similarly, if non-monetary benefits like additional vacation days are offered for high performance, employees may be motivated to improve their work results. However, it's important to note that depending on personal values and preferences, the same incentive might not be equally motivating for everyone.
In economic terms, consumer choices are affected by income, prices, and preferences. The substitution effect occurs when consumers replace a more expensive item with a less expensive alternative as prices change, while the income effect explains how changes in purchasing power due to income changes can affect the quantity of goods purchased.