Question 1

Google has started a project to scan all books and make those that are not copyrighted available to people free of charge. Why is it important that only books without a copyright are available?
A) If all books were scanned and available free of charge, copyright holders would face a positive incentive to continue writing and publishing books.
B) If all books were scanned and available free of charge, copyright holders would face a negative incentive to continue writing and publishing books.
C) If only copyrighted texts were scanned and available free of charge, copyright holders would face an indirect incentive to continue writing and publishing books.
D) If only non-copyrighted books were scanned and available free of charge, copyright holders would face a negative incentive to continue writing and publishing books.
E) If only non-copyrighted books were scanned and available free of charge, copyright holders would face an indirect incentive to continue writing and publishing books.

Accepted Answer

If all books were scanned and available free of charge, copyright holders would face a negative incentive to continue writing and publishing books because they would not be able to benefit monetarily from their work. By making only non-copyrighted books available, Google is still allowing access to a large amount of literature while still incentivizing authors to continue creating new works that can generate revenue through copyright protections.

Question 2

Actions and activities are encouraged with which type of incentive?
A) positive
B) negative
C) neutral
D) complementary
E) unintended

Accepted Answer

Positive incentives encourage actions and activities by offering rewards or benefits.

Question 3

Public buildings in the United States are required to be accessible to the disabled and, as a result, almost all have an elevator. What would be an example of a positive direct incentive for those who can to use stairs?
A) Using the stairs will make it seem that they care about their health and that they aren't lazy.
B) Using the stairs will increase the risk of tripping and falling.
C) Using the stairs will take more time than taking the elevator and will increase the risk of missing an important meeting.
D) Using the stairs will give them some exercise and make them healthier.
E) Using the stairs will put elevator repair professionals out of work.

Accepted Answer

Providing a positive incentive for using the stairs would involve highlighting the benefits of doing so. Option D suggests that using the stairs will give them some exercise and make them healthier, which is a positive incentive for those who can to choose to take the stairs instead of the elevator.

Question 4

The government places warnings on cigarette and liquor packages. These warnings serve as an)
A) positive incentive.
B) negative incentive.
C) indirect incentive.
D) opportunity cost.
E) way to make cigarettes and liquor more scarce.

Accepted Answer

The warnings on cigarette and liquor packages serve as a negative incentive by warning consumers about potential health risks and consequences that may result from consuming these products.

Question 5

Entrepreneurs are willing to take risks because
A) technology provides a way to sidestep the patent and copyright system.
B) the patent and copyright system provides an exclusive right to sell the product for a period of time.
C) the patent and copyright system guarantees a certain level of profit.
D) technology always increases costs and prevents competitors from entering the market.
E) the patent and copyright system guarantees that the risks taken will be rewarded.

Accepted Answer

The patent and copyright system provides entrepreneurs with an exclusive right to sell their product for a period of time, which can give them a competitive advantage in the market. While it does not guarantee profits or reward for taking risks, it does offer a form of legal protection for their intellectual property, which can encourage entrepreneurs to take risks and invest in innovation.

Question 6

An example of a direct positive incentive is
A) a prison sentence for committing a crime.
B) unemployment insurance for those who are laid off.
C) providing a workplace safety program.
D) providing a commission for sales.
E) threatening to fire those who do not perform well.

Accepted Answer

Providing a commission for sales is a direct positive incentive because it rewards employees for their successful performance and incentivizes them to work harder to increase their sales.

Question 7

The patent system
A) acts as a direct positive incentive.
B) acts as a direct negative incentive.
C) acts as an indirect positive incentive.
D) acts as an indirect negative incentive.
E) does not provide an incentive.

Accepted Answer

The patent system acts as a direct positive incentive by granting inventors exclusive rights to their inventions for a certain period, encouraging innovation and investment in research and development.

Question 8

Actions and activities are discouraged with
A) positive incentives.
B) negative incentives.
C) direct incentives.
D) indirect incentives.
E) unintended consequences.

Accepted Answer

Negative incentives are used to discourage specific actions and activities. Positive incentives, direct incentives, and indirect incentives are used to encourage or reinforce certain behaviors. Unintended consequences are unforeseen results of an action that may be positive, negative, or neutral.

Question 9

A camera takes pictures of drivers who do not stop at a red light, and this practice is used to issue traffic tickets. These red light cameras can be understood as serving an)
A) positive incentive to encourage individuals to stop at a red light.
B) negative incentive to discourage individuals from driving through a red light.
C) indirect incentive to encourage individuals to stop at a red light.
D) direct incentive to encourage individuals to stop at a red light.
E) negative incentive to encourage individuals to drive through a red light.

Accepted Answer

The use of red light cameras serves as a negative incentive to discourage individuals from driving through a red light by issuing traffic tickets. It is meant to deter drivers from violating traffic laws and improve overall traffic safety.

Question 10

The U.S. federal government offers homeowners a tax deduction for their home loan interest payments. This reduction in taxes serves as a(n)_______ incentive to buy a house.
A) direct
B) indirect
C) neutral
D) complementary
E) unintended

Accepted Answer

The tax deduction for home loan interest payments directly incentivizes individuals to buy a house by reducing the amount of taxes they have to pay.

Question 11

A car insurance company is willing to offer accident-free drivers a discount. This is an example of
A) a positive incentive.
B) a negative incentive.
C) an opportunity cost.
D) a comparative advantage.
E) scarcity.

Accepted Answer

A discount for accident-free drivers is a positive incentive as it encourages them to continue driving safely by offering a benefit or reward.

Question 12

If the government wanted to give people a negative direct incentive not to save money, what would be the appropriate policy?
A) providing individuals a subsidy to save their money
B) providing funding for an advertising campaign encouraging people to spend more money
C) informing individuals that saving money causes people not to spend money, which will cause them to lose their jobs
D) imposing a tax on individuals for saving their money
E) informing consumers about all that they could buy with their money with the hope that they spend more

Accepted Answer

Imposing a tax on individuals for saving their money would be the appropriate policy to give people a negative direct incentive not to save money. This would make saving money more costly and therefore discourage individuals from doing so.

Question 13

A parent that pays a child an allowance for doing chores is providing a(n) _______incentive.
A) positive
B) negative
C) neutral
D) complementary
E) unintended

Accepted Answer

Paying a child for doing chores provides a positive incentive as it rewards the child for completing the task and encourages them to continue doing it in future.

Question 14

Economics professors are well aware of the importance of incentives. Which of the following situations shows the use of a positive incentive?
A) Students who show up late to class will not be allowed in the classroom.
B) Students who do not have a doctor's note will not be allowed to take an exam at a different time.
C) Students can choose whether they want to attend class-there is no attendance policy.
D) Students can choose to get a higher grade by doing extra credit work.
E) The professor decides to teach the class by reading out of the textbook to the entire class.

Accepted Answer

Offering students the opportunity to earn a higher grade through extra credit work provides a positive incentive for them to put in additional effort and improve their performance. Options A and B describe negative incentives (penalties for undesired behavior), while choice C describes the absence of any incentive for attending class. Choice E does not involve any incentive at all.

Question 15

When a ticket is given to a pedestrian for jaywalking, what type of incentive exists?
A) positive
B) negative
C) neutral
D) complementary
E) unintended

Accepted Answer

A ticket for jaywalking is a form of punishment and serves as a deterrent for the person to not engage in the behavior again in the future. This makes it a negative incentive.

Question 16

An example of a direct negative incentive is
A) providing a commission for sales.
B) awarding a promotion for hard work.
C) threatening to fire those who do not perform well.
D) providing an orientation for new employees.
E) providing generous benefits and pay for employees.

Accepted Answer

Threatening to fire those who do not perform well is an example of a direct negative incentive, as it uses the possibility of a negative consequence to motivate employees to perform better. The other options listed (A, B, D, and E) are all examples of positive incentives, as they offer rewards or benefits for good performance.

Question 17

Which of the following is NOT a type of incentive?
A) positive
B) negative
C) complementary
D) indirect
E) direct

Accepted Answer

Positive and negative incentives refer to rewards or punishments, direct and indirect incentives refer to the way in which the incentive is delivered (e.g. money versus a tax credit). Complementary is not a type of incentive, but rather refers to when two goods are consumed together, such as chips and salsa.

Question 18

In a growing number of cities, stores are required either not to make available plastic or paper bags or to do so only for an additional fee. What kind of incentive is this fee?
A) direct
B) indirect
C) neutral
D) complementary
E) unintended

Accepted Answer

The fee is a direct incentive as it directly encourages customers to bring reusable bags instead of using disposable bags.

Question 19

Many professors have a policy that punishes individuals if they don't come to class. Instead of punishing students who don't attend class, what could the professor do to provide a positive incentive to come to class?
A) Those who come to class are given extra points.
B) Those who do not come to class have their grades reduced.
C) Those who come to class will be asked questions, and if they answer them incorrectly, their grades will be lowered.
D) Those who come to class will be ridiculed.
E) Those who do not come to class might be dropped from the course.

Accepted Answer

Providing extra points for attending class is a positive incentive that rewards students for their attendance rather than punishing them for their absence. This approach is more likely to encourage students to attend class regularly and actively engage in the material being taught.

Question 20

On which of the following concepts do economists focus their study when explaining how humans behave?
A) fairness
B) money
C) emotions
D) incentives
E) justice

Accepted Answer

Economists focus on incentives when explaining how humans behave, as incentives are the driving force behind economic decision making.

Quiz 1: Five Foundations of Economics

Google has started a project to scan all books and make those that are not copyrighted available to people free of charge. Why is it important that only books without a copyright are available?

Actions and activities are encouraged with which type of incentive?

Public buildings in the United States are required to be accessible to the disabled and, as a result, almost all have an elevator. What would be an example of a positive direct incentive for those who can to use stairs?

The government places warnings on cigarette and liquor packages. These warnings serve as an)

Entrepreneurs are willing to take risks because

An example of a direct positive incentive is

The patent system

Actions and activities are discouraged with

A camera takes pictures of drivers who do not stop at a red light, and this practice is used to issue traffic tickets. These red light cameras can be understood as serving an)

The U.S. federal government offers homeowners a tax deduction for their home loan interest payments. This reduction in taxes serves as a(n) _______ incentive to buy a house.

A car insurance company is willing to offer accident-free drivers a discount. This is an example of

If the government wanted to give people a negative direct incentive not to save money, what would be the appropriate policy?

A parent that pays a child an allowance for doing chores is providing a(n) _______incentive.

Economics professors are well aware of the importance of incentives. Which of the following situations shows the use of a positive incentive?

When a ticket is given to a pedestrian for jaywalking, what type of incentive exists?

An example of a direct negative incentive is

Which of the following is NOT a type of incentive?

In a growing number of cities, stores are required either not to make available plastic or paper bags or to do so only for an additional fee. What kind of incentive is this fee?

Many professors have a policy that punishes individuals if they don't come to class. Instead of punishing students who don't attend class, what could the professor do to provide a positive incentive to come to class?

On which of the following concepts do economists focus their study when explaining how humans behave?