Difference Between Positive And Negative Incentives

People respond predictably to positive and negative incentives. Benefits are positive incentives that make people better off. Penance are negative incentives that make people worse off. Both positive and negative incentives affect people’s choices and behaviour. People’s views of rewards and penalties differ because people have different values. Therefore, an incentive can influence different individuals in different ways. Responses to incentives are predictable because people usually pursue their self-interest. Changes in incentives cause people to change their behaviour in predictable ways. Incentives can be monetary or non-monetary.
Behaving as consumers, producers, workers, savers, investors, and citizens, people respond to incentives in order to allocate their scarce resources in ways that provide the highest possible satisfaction to them. Incentives play a very crucial role in analysing how the markets works and how the market allocates its scare resources to maximise the production level. Entrepreneurs are people who take the risks of organizing productive resources to make goods and services. Profit is an important incentive that drives entrepreneurs to accept the risks of business failure. Entrepreneurs compare the expected benefits of entering a new enterprise with the expected costs. Entrepreneurs accept the risks in organizing resources to produce goods and services and they hope to earn profits. Market based economies utilize the power of profit as an