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

• A. Both always make decisions that maximize social welfare.
• B. Both operate independently of market forces.
• C. Both adjust their behavior in response to changes in incentives.
• D. Both ignore external factors when making choices.

Answer: (C)

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 adjusting their choices to maximize their own benefits or utility.
3. Extend this idea to economies, which are collections of individuals and firms; economies as a whole also respond to changes in incentives through shifts in production, consumption, and resource allocation.
4. Analyze the given options and identify that the similarity between individuals and economies lies in their responsiveness to incentives, rather than always maximizing social welfare or ignoring external factors.
5. Conclude that the correct statement is that both individuals and economies adjust their behavior in response to changes in incentives.