Which of the following is most likely to increase as the intensity of incentives increases?

• A. Market equilibrium price
• B. The law of diminishing returns
• C. Fixed costs of production
• D. Effort exerted by individuals

Answer: (D)

Verified step by step guidance

1. Understand the concept of incentives in microeconomics: Incentives are factors that motivate individuals to perform an action or behave in a certain way, often by offering rewards or penalties.
2. Analyze how increasing the intensity of incentives affects individual behavior: When incentives become stronger, individuals are generally motivated to exert more effort to achieve the desired outcome or reward.
3. Consider the options given: Market equilibrium price, the law of diminishing returns, fixed costs of production, and effort exerted by individuals.
4. Evaluate each option in relation to incentives: Market equilibrium price depends on supply and demand, not directly on incentives intensity; the law of diminishing returns is a production concept unrelated to incentives; fixed costs are constant and do not change with incentives; effort exerted by individuals is directly influenced by the strength of incentives.
5. Conclude that the most likely variable to increase with the intensity of incentives is the effort exerted by individuals, as stronger incentives encourage greater effort.