People Respond to Incentives
This
is obviously true, that an Incentive is something that induces a person to
respond to money. Rational people always make decision by comparing cost and
benefits, they respond to incentive. Even all the economist are supporting this
statement, they also say that the people who don’t respond to incentives are
commentary. For analyzing market behavior Incentive plays a major role, that is
when the price of a product goes high customers start buying the product in
less quantity and at the same time manufactures start to increase their
production.
For Example: Think the price of onion is 10 Rupees per
kilogram and the sale in market is 1000 kg/day next day if price increase by 5
Rupees that is 15 per Kilogram then there will be a shortage in total sales
that is 800 kg/day. As a result of price increase, Manufactures start to
increase their production. This prove that People respond to incentives. Where
manufactures trying to make more incentive by production and customers trying
to make more incentive by switching to alternate product or decreasing the
quantity of purchase.
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