We as people have a tendency to respond to incentives. Incentivee gives rise to actions which could be either positive or negative. This is why these incentives play a major role in the study of economics.
For example : Let us assume you are a manager leading a project and you notice that employees under you are not working upto the level, even after consistent verbal warnings the work level did not increase, and then you decide to introduce a cash award and certificate for the employees who work the best and achieve targets on time and you will notice that everyone would start competing to work better. This is how people respond to incentives. Incentives always drives us to act. That is why it plays an important role in understanding how market works.
For example : Let us assume there is an increase in the price of coffee, as a result as the consumer of coffee this price increase will make us shift towards other compliments like tea and consume less of coffee, whereas the sellers will start to produce more. So over here price as incentive has different impacts on buyers and sellers.
Hence, the influence of price (as an incentive) on the behaviour of consumer and seller is important to understand the market economy and resource allocation as we see how people respond to incentives in a different way.
For example : Let us assume you are a manager leading a project and you notice that employees under you are not working upto the level, even after consistent verbal warnings the work level did not increase, and then you decide to introduce a cash award and certificate for the employees who work the best and achieve targets on time and you will notice that everyone would start competing to work better. This is how people respond to incentives. Incentives always drives us to act. That is why it plays an important role in understanding how market works.
For example : Let us assume there is an increase in the price of coffee, as a result as the consumer of coffee this price increase will make us shift towards other compliments like tea and consume less of coffee, whereas the sellers will start to produce more. So over here price as incentive has different impacts on buyers and sellers.
Hence, the influence of price (as an incentive) on the behaviour of consumer and seller is important to understand the market economy and resource allocation as we see how people respond to incentives in a different way.
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