The opportunity cost of seeing a movie is forgoing studying for a final exam. While water is necessary for life, the marginal benefit of an additional glass is small due to its low cost. Policymakers should consider incentives because they can encourage people to work harder or purchase certain goods. The invisible hand of the marketplace refers to the forces of supply and demand that guide the functioning of the free market. Productivity is important because it leads to improved standards of living through better education and healthcare. Inflation is a rise in the overall level of prices in an economy and is caused by an increase in the money supply.