Which is an example of a negative incentive for producers?

Which is an example of a negative incentive for producers?

A. A chance to make more money

B. A special sale at a department store

C. A coupon clipped from a newspaper

D. A sharp increase in production costs

Answer: D. A sharp increase in production costs

A negative incentive for producers is a factor that dissuades a producer or reduces his or her output. An increase in production cost is a clear example of such a disincentive and this is why producers prefer social incentives. Where costs are high becoming even higher this means that producers will have slim or no profit margins, and for this reason; they may opt to produce less or not produce at all. Such circumstances can relate to anything from a rise in material costs, a hike in employees’ wages, new laws and regulations or a shift in technology that may necessitate costly adjustments. As for positive incentives, they motivate, that is, contribute to the performance increase, for example, the opportunity to earn more; negative incentives, on the other hand, create obstacles or difficulties. They push producers to readjust their strategies, which results in the consequences of rising prices for consumers or diminishing the volume of production or searching for cost-saving solutions. It is important to comprehend these negative incentives when describing the nature of the market and tendencies of the economical decisions.