Definition
- Incentive function
- The incentive function is the way a higher price makes extra output profitable, so producers are rewarded for supplying more of what buyers want.
Example
Can you think of an example of incentive function?
Christmas trees that cost a grower £45 each to raise do not pay at £40. When the price rises to £60 they do, so growers plant more land with trees.
Test yourself
Can you name the three functions of a price?