Suppose the state of Massachusetts passes a law that increases the tax on alcoholic beverages. As a result, residents in Massachusetts start purchasing their alcohol in surrounding states. Which of the following principles does this best illustrate?

~people respond to incentives

~rational people think at the margin

~trade can make everyone better off

~markets are usually a good way to organize economic activity

Question

Social Studies

Ellie Mcclure

1 October, 10:16

Suppose the state of Massachusetts passes a law that increases the tax on alcoholic beverages. As a result, residents in Massachusetts start purchasing their alcohol in surrounding states. Which of the following principles does this best illustrate?

~people respond to incentives

~rational people think at the margin

~trade can make everyone better off

~markets are usually a good way to organize economic activity

+1

Answers (1)

Know the Answer?

Maliyah Woods · Answer 1

People respond to incentives.

Explanation:

People respond to incentives is the principle that illustrates the fact that people start purchasing their alcohol in surrounding states after the state in which they live increases the tax on alcoholic beverages. An incentive is either the possibility of a reward or the possibility of punishment. Incentives are key aspects of the way people act. Rational people decide by evaluating cost and benefits, and they act according to this.