Incentives affect people's behavior

All the economic theory is based on the assumption that the changeincentives affect human behavior is predictable manner.We choose the way of action, which promises us more benefits and fewercosts.This is - the fundamental principle of economic theory, but it operates inother spheres of life. Incentives affect our behavior almost everywhere,whether commercial activities, housekeeping, orpolitical decisions. For example, in politics, people tend toto support those candidates and measures that promise them personalbenefits, and to fight those that might cause them personal injury.When applied to a market economy, this postulate means that consumersbuy more products when the price drops and less when it grows;manufacturers, by contrast, delivers more of the goods when the price for itgrowing and less - when it falls. As a result, both buyers andvendors react to stimulus - the market price, that their actionsbalancing supply and demand. If buyers want to purchase goodsmore than going to give sellers, the price for it is inevitablegrows. The higher price reduces consumption and promotesproduction, thus balancing supply and demand. In contrast,If consumers do not want to buy the available quantity of goodsaccumulating inventories at manufacturers are putting pressure on its price. Inturn, lower prices stimulate consumption and inhibitsproduction of the goods until such time as demand is not balancedproposal. (Of course, this process does not happen in the blink of an eye:It takes time, so that buyers and manufacturers to fullyrespond to changes in price.) The importance of incentives can be graphically illustrated by the growthgasoline prices in the 70s and the response to a buyers and sellers. OnAs prices rose, consumers are gradually abandonedtravel, without which you can do, united for jointjourneys to work, and eventually switched to small-displacement cars.At the same time oil producers intensified their exploration of newdeposits, increased volumes of drilling new wells, and the old - for the sakeincrease production - began to use water injection technology. Back to Top80s, these joint actions of consumers and producers of steelexert downward pressure on the price of crude oil.Incentives affect human behavior, regardless of the formeconomic organization of society - socialist, capitalistor whatever. For example, the glass factories of the former Soviet Unionat one time held accountable for the tonnage produced sheet glass.Not surprisingly, most factories drove a float glassthickness, that through him it was hard to watch. When the rules encouragechanged and were encouraged in the area of ​​the produced glass companybegan to produce it so thin that it is easy to beat.Some argue that economic analysis explains the actions onlyselfish, greedy materialists. This is a mistake - an economic analysishas a much broader scope. And selfish and altruistic ratherrush in the pool than in the whirlpools of Niagara to rescue a drowningthe child. And they are both likely will give the poor cast-offs, rather than its outputdress.