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Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents of Wisconsin who do not like breathing second-hand smoke begin driving across the border to Illinois to eat at restaurants there. Which of the following principles does this best illustrate?

A. People respond to incentives
B. Rational people think at the margin
C. Trade can make everyone better off
D. Markets are usually a good way to organize economic activity

Respuesta :

The correct option is A. People respond to incentives.

Explanation:

Smoking is injurious to health and it causes damage to your body. Smoking may lead to long-term health problems. Even secondhand smoke has adverse effects on people. Secondhand smoke is nothing but the mixture of smoke from the burning end of a cigarette and the smoke breathed out by smokers.

State of Illinois banned smoking inside the restaurant. This attracts the people from nearby state to reach Illinois restaurant, because people don’t like to breathe secondhand smoke while eating. So they decided to travel to restaurants at Illinois.

Answer:

The principle that the given case best illustrates is people respond to incentives.

Option: (A)

Explanation:

  • When a certain offer comes with an incentive attached to it, people naturally tend to get inclined towards choosing that offer over other offers available.
  • It is observed that when a particular activity is restricted, the alternative that is available then looked at as an incentive offer.
  • The ones who find it difficult to sustain a restriction, automatically look for alternatives or incentives that exist.

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