Use an Example to Describe How Strong Incentive Schemes May

question 21

Essay

Use an example to describe how strong incentive schemes may lead to undesirable outcomes when the gap between "what you pay for" and "what you want" is significant.

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Definitions:

Substitutes

Products or services that can replace each other, where an increase in the price of one leads to an increase in demand for the other.

Elastic Demand

Elastic Demand occurs when the quantity demanded of a product changes significantly as its price changes.

Luxury Items

Goods and services that are considered non-essential but desirable, often characterized by their high quality, exclusivity, and high price.

Necessities

Basic needs or essential goods and services required for individuals to maintain a minimum standard of living, such as food, shelter, and healthcare.