Incentives

An incentive is a cost or benefit that motivates a decision or action by consumers, businesses, or other participants in the economy. Some incentives are explicitly created by government policies to achieve a desired end or they can just be part of the wacky world we call economics. The most noted incentive in the study of economics is that provided by prices. When prices are higher buyers have the "incentive" to buy less and sellers have the "incentive" to sell more. Price incentives play a fundamental role in the. When prices are higher buyers have the "incentive" to buy less and sellers have the "incentive" to sell more. Price incentives play a fundamental role in the allocation. When prices are higher buyers have the "incentive" to buy less and sellers have the "incentive" to sell more.

Examples:

1.    If I complete exemplary work I will receive a good grade. My incentive to complete exemplary work is to receive a good grade.

2.     If the employee works hard, then a customer will give him a better tip. The employee’s incentive to work hard is in hopes that the customer will give him a better tip.

3.     If the customer is looking for a comfortable shoe, then he will base his purchase on quality. The customer’s incentive for buying a quality shoe is that the shoe will be comfortable.