Based on the lesson 'People Respond to Incentives,' in what way are individuals and economies similar?

• A. Both adjust their behavior in response to changes in incentives.
• B. Both always maximize profits regardless of circumstances.
• C. Both operate independently of market forces.
• D. Both ignore external factors when making decisions.

Answer: (A)

Verified step by step guidance

1. Understand the concept of incentives in microeconomics: incentives are factors that motivate individuals or entities to behave in certain ways.
2. Recognize that individuals respond to incentives by changing their behavior to achieve better outcomes, such as higher utility or profit.
3. Apply this idea to economies, which are collections of individuals and firms; economies as a whole also adjust based on changes in incentives, such as prices, taxes, or regulations.
4. Compare the options given and identify that the similarity between individuals and economies is their responsiveness to incentives, rather than always maximizing profits, operating independently of market forces, or ignoring external factors.
5. Conclude that the correct understanding is that both individuals and economies adjust their behavior in response to changes in incentives.