Negative incentives:
a. increase benefits or reduce costs.
b. increase behaviors.
c. decrease benefits or increase costs.
d. include both cash subsidies and taxes.
The correct answer and explanation is:
Correct Answer: c. decrease benefits or increase costs.
Negative incentives are strategies or mechanisms designed to discourage certain behaviors by making them less attractive. They work by decreasing the benefits or increasing the costs associated with a specific action. When people face a higher cost or a reduced benefit for doing something, they are less likely to engage in that behavior.
In economics and behavioral science, incentives play a key role in shaping decision-making. A positive incentive encourages behavior by offering a reward, such as bonuses, tax cuts, or discounts. In contrast, a negative incentive discourages behavior by imposing a penalty or taking away a benefit. Common examples of negative incentives include fines for traffic violations, taxes on cigarettes, and fees for late payments.
For example, when the government wants to reduce smoking rates, it might impose a high tax on tobacco products. This tax increases the cost of smoking, which serves as a negative incentive to reduce tobacco consumption. The same principle applies in environmental policy, where companies might be fined for releasing pollutants into the environment. These fines raise the cost of polluting, encouraging businesses to adopt cleaner technologies.
Negative incentives are particularly effective when the goal is to reduce harmful or undesired actions. By making an activity more expensive or less rewarding, individuals or groups are more likely to avoid it. These incentives do not necessarily eliminate behavior entirely but aim to reduce its frequency or intensity.
In summary, negative incentives operate by decreasing benefits or increasing costs, which in turn discourages unwanted behaviors. They are a powerful tool in policy-making, business management, and everyday life to influence choices and outcomes.