Which of the following statements best captures the core economic concept of incentives?

• A. Individuals are more likely to change their behavior when the costs or benefits of an action change.
• B. Markets always allocate resources efficiently without any external influence.
• C. Economic growth is determined solely by technological progress.
• D. Scarcity means that resources are limited and choices must be made.

Answer: (A)

Verified step by step guidance

1. Understand the concept of incentives in economics: Incentives are factors that motivate individuals to perform an action or change their behavior based on the expected costs or benefits.
2. Analyze each statement by relating it to the idea of incentives: For example, consider whether the statement involves how changes in costs or benefits influence behavior.
3. Evaluate the first statement: 'Individuals are more likely to change their behavior when the costs or benefits of an action change.' This directly reflects the principle of incentives, as it highlights behavior change in response to changing costs or benefits.
4. Review the other statements to see if they capture incentives: 'Markets always allocate resources efficiently' relates to market efficiency, not incentives; 'Economic growth is determined solely by technological progress' focuses on growth factors; 'Scarcity means resources are limited and choices must be made' explains scarcity, not incentives.
5. Conclude that the statement best capturing incentives is the one emphasizing behavior change due to changing costs or benefits, as incentives are all about how individuals respond to such changes.