Which of the following statements support the claim that incentives matter? Explain why or why not. 1. When income transfers to the able­bodied poor increase, the recipients will have less incentive to work. 2. An increase in the fines associated with downloading music and videos protected by copyright laws reduces the number of people engaging in this activity. 3. An increase in the number of people downloading music and videos negatively impacts the commercial production of music and videos.

Statements supporting the claim that incentives matter

1. When income transfers to the able­-bodied poor increase, the recipients will have less incentive to work.

2. An increase in the fines associated with downloading music and videos protected by copyright laws reduces the number of people engaging in this activity.

Explanation:

It must be established ab initio that these statements are relatively correct.  Firstly, able-bodied men will only continue to be transferred income when there are no jobs available.  Once, there are jobs and the able-bodied poor can access the jobs, they would automatically be denied of the incentives.  In the second case, the incentive may be destroyed if the increase in fines outweighs the collections from the privated downloading.

Economic incentives are the things that can motivate one to make choices and behave in some ways.  These incentives may be negative or positive, i.e. they may be motivating or demotivating.  Changes in incentives will always alter people's behavior.  Assuming that the transfers to the able-bodies people are greater in value than the potential job rewards, then the incentive to work will be greatly reduced, and vice versa.

To explain this situation, Economists have developed a framework called "incentives matter" to explain why bad behavior happens.  They conclude that incentives become destructive when the payoff for such behavior is more handsome than the low odds of being caught and reprimanded or any other available option.   The framework shows that ordinary people will work out a scheme or even perpetrate fraud, just to receive the incentives they are offered, especially by governments, that are always guilty of behaving like Father Christmas.

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