Question

1. (10 points) when we say people respond to incentives as a principle of economics we mean if governments want more of something they ______ and ____ it; and if governments want less of something they ____ and ______ it.

Explanation:

In economics, the principle of people responding to incentives implies that to encourage more of an activity or good, governments can provide positive incentives like subsidizing (reducing the cost for producers/consumers) and rewarding (giving benefits for engaging in it). To discourage less of an activity or good, they can tax (increase the cost) and penalize (impose costs for engaging in it). So the typical answers are: if governments want more of something they subsidize and reward it; and if governments want less of something they tax and penalize it. (Other similar terms like "incentivize", "encourage" for the first part and "discourage", "fine" could also be appropriate, but subsidize/reward and tax/penalize are common in economic policy context for incentives.)

Answer:

If governments want more of something they \underline{subsidize} and \underline{reward} it; and if governments want less of something they \underline{tax} and \underline{penalize} it. (Alternative acceptable pairs: e.g., "incentivize" & "encourage" for the first two blanks, "discourage" & "fine" for the last two, but the above is a standard economic policy - based response.)