Regarding the use of incentives as an influence on decision-making, which of the following is correct?

Question

BlackTom AI · Accepted Answer

Question restatement: The prompt asks which statement about incentives as an influence on decision-making is correct, given four options.
Option a: 'A government cash subsidy for households who install solar panels to their homes is a negative financial incentive.' A cash subsidy reduces costs and encourages the behavior; this is a positive financial incentive, not negative. The claim that it is negative is therefore incorrect.
Option b: 'Advertising to encourage healthy eating is a positive financial incentive.' Advertising aimed at healthier choices is not a financial incentive—it's a communication/behavioral influence. Financial incentives involve monetary rewards or penalties; advertising alone does not constitute a financial incentive, so this statement is inaccurate.
Option c: 'The imposition of a tax on cigarette consumption is a negative financial incentive.' Imposing a tax increases the cost of an undesirable behavior (smoking), which aligns with the concept of a negative (disincentive) financial incentive. This statement correctly identifies the mechanism.
Option d: 'A law that imposes a financial penalty (fine) on firms for pollution is a positive financial incentive.' A financial penalty is a cost imposed to deter pollution, which is a negative incentive, not a positive one. The characterization as positive is incorrect.
In summary, the key distinctions hinge on whether the financial instrument raises or lowers the cost of a behavior (positive incentive lowers cost or increases reward; negative incentive raises cost or imposes penalties). Specifically, option c correctly describes a tax as a negative financial incentive, while the other options misclassify the incentives or mischaracterize the type of incentive involved.

MUF0061 Economics Unit 1 - Semester 2, 2025 Revision Quiz - Incentives and Behavioural Economics (8 - 10 minutes)

Regarding the use of incentives as an influence on decision-making, which of the following is correct?

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