Question

In a market economy, the incentive that encourages entrepreneurs to enter the industry is:

a) Government bonuses for meeting quotas
b) A guaranteed income level
c) Profit and self-interest
d) Government assistance when risk is high

Answer 1

In a market economy, entrepreneurs are primarily motivated by the incentive of profit and self-interest. Government support such as intellectual property rights and research and development aid can enhance this, but the profit motive is key. Excessively redistributive policies can, conversely, reduce economic output by diminishing these incentives.

Step-by-step explanation:

In a market economy, the primary incentive that encourages entrepreneurs to enter an industry is profit and self-interest. This incentive aligns with the principle that individuals are driven by the prospect of earning income and increasing their own wealth through successful business ventures. While government can play a role in supporting free markets through policies such as guaranteeing intellectual property rights and providing assistance with the costs of research and development, the fundamental motivator for private enterprise in a market system remains the potential for profit.

The trade-off between Incentives and Income Equality also illustrates how excessively redistributive policies aimed at achieving economic equality can reduce incentives for production and entrepreneurship, leading to a lower level of economic output.