What is meant by the term incentives, and why are they important? ...

[JGIBBSON]

What is meant by the term incentives, and why are they important?
 
  What will be an ideal response?

Question 2

The purpose of an effluent fee imposed on a firm is
 
  A) to increase output of its product by increasing the resources allocated to production.
  B) to increase output of its product by reducing the resources allocated to production.
  C) to reduce output by increasing production costs thereby reducing resources used.
  D) none of the above

[mistyjohnson]

Answer to Question 1

Incentives are rewards for engaging in particular activities. Much of human behavior can be explained in terms of incentives. For example, grades in school are an incentive, as are paychecks for work. Incentives are important because rational human beings seeking to promote their own welfare will respond to incentives in predictable ways.

Answer to Question 2

C