ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In market based economies, prices send signals that act as incentives to buyers and sellers, changing their behavior – that is, the amount of a good or service they are willing to purchase or to offer for sale.

Detailed explanation-2: -In the real world, consumers, producers, workers, savers, investors, and citizens respond to incentives every day in order to allocate their scarce resources and receive the highest possible benefits.

Detailed explanation-3: -Monetary incentives have two kinds of effects: the standard direct price effect, which makes the incentivized behavior more attractive, and an indirect psychological effect. In some cases, the psychological effect works in an opposite direction to the price effect and can crowd out the incentivized behavior.

Detailed explanation-4: -Incentives can be monetary or non-monetary. Acting as consumers, producers, workers, savers, investors, and citizens, people respond to incentives in order to allocate their scarce resources in ways that provide the highest possible returns to them.

Detailed explanation-5: -Economic Incentives – Material gain/loss (doing what’s best for us) Social Incentives – Reputation gain/loss (being seen to do the right thing) Moral Incentives – Conscience gain/loss (doing/not doing the ‘right’ thing) 15-Jun-2014