Question 1

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

Accepted Answer

Offering extra credit work as an option creates a positive incentive for students to seek out more opportunities to improve their grade.

Question 2

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

Accepted Answer

Imposing a tax on individuals for saving their money would provide a negative direct incentive not to save money, as individuals would be penalized for doing so. The other choices, such as providing subsidies or encouraging spending, would have the opposite effect and incentivize saving less. The option of informing individuals that saving money causes job loss is not accurate and would not be a realistic policy.

Question 3

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?

Accepted Answer

The best choice is to provide a positive incentive for attending class, rather than punishing those who don't show up. Giving extra points to students who consistently attend class is a way to reward their effort and engagement, which can encourage more students to come to class regularly. This positive reinforcement is more effective than negative consequences, such as grade reductions or ridicule, which can create a negative classroom atmosphere and decrease motivation. Dropping students from the course is a last resort and should only be done in extreme cases, such as when students are repeatedly absent or failing to meet course requirements.

Question 4

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

Accepted Answer

The warnings placed on cigarette and liquor packages serve as a negative incentive, as they are meant to discourage consumers from engaging in harmful behaviors.

Question 5

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

Accepted Answer

Offering a discount to accident-free drivers is a positive incentive, as it encourages drivers to drive safely and avoid accidents in order to save money on their insurance.

Question 6

Actions and activities are encouraged with which type of incentive?

Accepted Answer

Positive incentives encourage actions and activities by offering rewards or benefits. These can include things like bonus pay for meeting performance goals, recognition for good work, or prizes for winning a competition. Negative incentives, on the other hand, discourage actions and activities by imposing punishments or penalties. Neutral incentives have no effect on behavior, complementary incentives provide additional benefits but do not necessarily encourage specific actions, and unintended incentives arise accidentally and may have unexpected effects.

Question 7

An example of a direct negative incentive is

Accepted Answer

Threatening to fire those who do not perform well is an example of a direct negative incentive because it involves the use of punishment or a threat of punishment to motivate behavior.

Question 8

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

Accepted Answer

Economists focus on incentives, which include both positive and negative factors that influence behavior. Understanding how individuals and organizations respond to these incentives is an important part of economic analysis.

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)____________

Accepted Answer

The use of red light cameras serves as a negative incentive to discourage individuals from driving through a red light, as they risk receiving a traffic ticket if they do so.

Question 10

The patent system

Accepted Answer

The patent system acts as a direct positive incentive by granting inventors exclusive rights to their inventions for a limited period of time. This gives inventors the incentive to invest time and money in research and development because they know they will have exclusive rights to their invention and may be able to profit from it.

Question 11

Which of the following is NOT a type of incentive?

Accepted Answer

Positive and negative incentives are types of direct incentives, which directly offer rewards or punishments to influence behavior. Indirect incentives are more subtle and can include things like social norms or reputation. Complementary incentives do not fit into any of these categories and are not a recognized type of incentive.

Question 12

Actions and activities are discouraged with

Accepted Answer

Negative incentives are used to discourage certain actions or activities by imposing penalties or punishments for engaging in them. Positive incentives, direct incentives, and indirect incentives are used to encourage certain actions or activities. Unintended consequences are outcomes that were not foreseen or intended, and are not a type of incentive used to influence behavior.

Question 13

A parent that pays a child an allowance for doing chores is providing an) _____incentive.

Accepted Answer

Paying a child an allowance for doing chores is a form of positive incentive because it is a reward that encourages the child to continue doing the chores.

Question 14

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

Accepted Answer

The ticket for jaywalking is a punishment imposed on the pedestrian, therefore it is a negative incentive.

Question 15

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?

Accepted Answer

A positive direct incentive for using stairs would be the health benefits associated with exercise. Choosing to take the stairs can provide a quick burst of physical activity, which can lead to better cardiovascular health, weight management, and improved mood. Additionally, promoting the use of stairs can encourage a healthy workplace culture, as employees often benefit from the boost in energy and productivity that comes with physical activity.

Question 16

An example of a direct positive incentive is

Accepted Answer

Providing a commission for sales is a direct positive incentive as it rewards employees for their performance and encourages them to work harder to earn more money.

Question 17

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?

Accepted Answer

This fee is a direct incentive because it directly encourages customers to bring their own reusable bags or choose to go without a bag in order to avoid the additional cost.

Question 18

Entrepreneurs are willing to take risks because

Accepted Answer

The patent and copyright system provides an exclusive right to the inventor or creator for a set period of time, giving them a temporary monopoly on their product or idea. This exclusive right allows them to earn profits without competition, which can be a big incentive for entrepreneurs to take risks and innovate. This exclusivity is what provides a return on investment, and entrepreneurs are willing to take risks knowing that they will have exclusive rights and can earn profits during that time.

Question 19

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?

Accepted Answer

If all books were scanned and made available for free, copyright holders would not receive financial compensation for their work and may therefore be deterred from continuing to write and publish books. By limiting the scanned books to those that are not under copyright, Google is avoiding this negative incentive and allowing for continued creativity and publishing in the literary world.

Question 20

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

Accepted Answer

The answer of The U.S. federal government offers homeowners a...

Quiz 1: Five Foundations of Economics