Question

Consider the following​ statements: a. Consumers rent more kayaks from a vendor that rents kayaks at a lower price than other rival kayak vendors along Waikiki beach. b. Department stores take steps to increase security since they believe it is more costly to allow shoplifting than to install expensive security monitoring equipment. c. Farmers produce more cotton when its selling price falls. Which of the above statements demonstrates that economic agents respond to​ incentives?

Answer 1

Statement A and B

a. vendor that rents kayaks at a lower price than other rival kayak vendors along Waikiki beach.

b. Department stores take steps to increase security since they believe it is more costly to allow shoplifting than to install expensive security monitoring equipment

Step-by-step explanation:

In economics, it is assumed that economic agents or people are rational, and so therefore, based on their knowledge of cost and benefits, they would make the best decisions that would help the maximize their goals and objectives. One of these common goals is making a choice that will cost less in the long run, and as a result of this, economic agents will respond to economic incentives.

Taking a look at the statements given in the above question, we can clearly tell, statement A and B demonstrate that economic agents respond to incentive.

• Consumers renting more kayaks from a vendor that rents kayaks at a lower price than other rival kayak vendors, is an option that will cost them the least in the long run.
• Department stores opt to take steps to increase security by installing expensive security monitoring equipment, as they believe the cost associated with allowing shoplifting cost more than installing the security monitoring equipment. Their decision, as they believe, would cost them the least in the long run.