Economic Systems


Responding to Incentives

Consumers will be led to purchase or not purchase a product based on the incentives that the products provide. For example, if the price of a product was lowered the consumer would be led to purchase the product with the incentive of saving money. People go to Walmart because of lower prices, when they purchase the good or service at a lower price they walk out of the store with more money in their pocket. An incentive for savers would be higher interest rates on their savings account. The same goes for investors, the would be led to invest if they see that the reward would be greater. If a producer sees that people are buying more of a product, that would be an incentive to produce more of that product. Wages could be an incentive for workers, they would more likely to take a job with a higher wage than a lower one.

Consumer Sovereignty

Consumer sovereignty is where the desires and needs of consumers controls the output of producers. Businesses would either produce more or less of a product or service based on what consumers desire or need. For example, teens desire more video games, movies, and electronics, the businesses produce more of those products.