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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

If price is not the rationing device used, then individuals won’t have as sharp an incentive to produce. Explain.

To determine

The impact of price on the incentive to produce.

Explanation

The scarcity of resources and the unlimited human wants necessitate the demand for rationing of resources. When price is used as a rationing device, it induces an incentive among the producers to produce goods. This is due to the reason that when the producers are paid a price for the purchase of goods by consumers, they can use this money to meet their consumption needs. Thus, the price paid by the consumers becomes the income for the producers. However, if any other measure is used for rationing, such as need, it reduces the producers’ incentive...

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