Answer to Question #191341 in Microeconomics for aniket

Question

When policymakers make policies that change the costs and benefits that people face, they can alter behaviors. Explain with the relevant principle that you have studied. 

Answer 1

People reacting to incentives is a policy that allows reasonable people to make choices by weighing costs and benefits. This is a counter-proposal to benefits. Incentives can never be overlooked by policymakers: Many proposals modify people's costs or advantages, causing them to change their actions. The impact of price on customer and producer behavior is critical in determining how a market economy allocates scarce resources. A higher selling price, for example, provides an incentive for consumers to purchase less while also providing an incentive for sellers to produce more. Therefore, the policy changes the cost and benefits that people face resulting to alteration of their behavior.