Which of the following demonstrates how people respond to incentives to make themselves better off?

• A. A business owner keeps prices the same despite increased demand.
• B. A student studies harder after learning that top grades will earn a scholarship.
• C. A consumer ignores a sale and continues buying the same product at full price.
• D. A worker refuses a higher-paying job because it requires more effort.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of incentives in microeconomics. Incentives are factors that motivate individuals to make decisions that improve their well-being or utility.
2. Step 2: Analyze each option to see if the behavior changes in response to an incentive that makes the person better off. For example, does the person take an action that increases their benefit or utility when offered a reward or penalty?
3. Step 3: For the option 'A student studies harder after learning that top grades will earn a scholarship,' identify the incentive (scholarship) and the response (studying harder), which shows a positive reaction to an incentive to improve their outcome.
4. Step 4: Contrast this with other options where individuals do not change their behavior despite potential incentives, such as ignoring a sale or refusing a higher-paying job due to extra effort, which do not demonstrate responding to incentives to improve well-being.
5. Step 5: Conclude that the correct example of responding to incentives is the student studying harder because the incentive (scholarship) motivates a behavior that aims to make the student better off.