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An incentive is something, that induces action or motivates effort, such as the fear of punishment or the expectation of reward.[1]

The incentive that impels a man to act is always some uneasiness.[2]

How people respond to incentives

Incentives motivate people to action. People will do more of something as the cost falls, and they will do less of it as the cost rises (the law of demand). Similarly, they will try to supply more of something that gets more remunerative and less of something that gets less remunerative (the law of supply). Prices are some of the most important incentives in economics. The price is the number of dollars that have to be traded for something ($2 for a cup of coffee, for example). Market prices emerge from the interactions of buyers and sellers.[3]


  1. "Incentive", The Free Dictionary, referenced 2014-11-15.
  2. Ludwig von Mises. "2. The Prerequisites of Human Action", from "Chapter 1. Acting Man." from the Human Action. Referenced 2014-11-15.
  3. Art Carden. "Nine Principles of Economics", Mises Blog. Referenced 2014-11-15.