Which of the following is an example of a negative incentive for producers?

• A. A government-imposed tax on each unit produced
• B. A subsidy provided for increasing production
• C. A bonus for meeting production targets
• D. A reduction in input costs due to technological advancement

Answer: (A)

Verified step by step guidance

1. Step 1: Understand what a negative incentive is in microeconomics. A negative incentive is a factor that discourages producers from producing more by increasing their costs or reducing their benefits.
2. Step 2: Analyze each option to determine if it discourages or encourages production. For example, a government-imposed tax on each unit produced increases the cost of production, which discourages producers from producing more.
3. Step 3: Recognize that a subsidy, a bonus, or a reduction in input costs are positive incentives because they lower costs or increase benefits, encouraging more production.
4. Step 4: Conclude that the government-imposed tax is the negative incentive because it imposes an additional cost on producers for each unit they produce.
5. Step 5: Summarize that negative incentives increase costs or reduce profits, thereby discouraging production, which matches the effect of a government-imposed tax on each unit produced.