An economic principle is that people respond to incentives. Identify the incenti

Question

An economic principle is that people respond to incentives. Identify the incentives and discuss the possible outcomes in each of the following situations.

a) The City of Winnipeg decides to set a rather high regulated parking fee in downtown in order to reduce traffic congestion.

b) A very popular hip-hop singer asks his managers to set concert prices very low such that everybody can afford them.

c) A provincial government subsidizes tuition fees for all students who get admitted to college for the whole period of studies.

Explanation / Answer

People respond to incentive implies that the decision is based on the incentive or price attached to each choice.

a) High fee is the negative incentive here. The incentive is to save money by not visiting the park.

b) Low concert prices are incentive to people who would attend the concert. The utility achieved from attending concert would be graeter than utility lost by paying concert ticket.

c) Low fee would be the incentive for more number of students who take admission in the college.

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