Suppose the state of Iowa passes a law that increases the price of cigarettes by $1 per pack.As a result,residents in Iowa start purchasing their cigarettes in surrounding states.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

Question

Quizplus · Accepted Answer

This scenario illustrates the principle of "People respond to incentives." The increase in the price of cigarettes in Iowa creates an incentive for residents to seek out lower prices in neighboring states, leading to a change in their behavior.

Suppose the State of Iowa Passes a Law That Increases