Explain the potential costs of high-powered incentives by considering the case of providing incentives to police officers. Would it be a good idea to pay higher wages to police officers if they make more arrests?
What will be an ideal response?
On the face of it, providing incentives to police officers to make more arrests sounds like a good idea. Motivated by higher wages, police officers are likely to work harder and to increase the number of arrests they make. However, since they earn higher wages simply based on the number of arrests they make, it is entirely possible that a good number of these arrests may not be warranted and would have been made only to earn higher wages.
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A firm increases its price from $8 to $10 and sees demand for the product fall by 25%. What would the price elasticity of demand be for this product?
a. 0.75 b. 1 c. - 1 d. -1.25 e. 1.25
A utility function is a mathematical function that assigns values to consumption bundles to represent the:
A. consumer's income. B. consumer's preferences. C. marginal rate of substitution. D. prices of the goods in the consumption bundle.