If the Government Wanted to Use the Incentive Principle to Discourage

question 104

Multiple Choice

If the government wanted to use the incentive principle to discourage smoking, it could:

• A) publicize the health risks associated with second-hand smoke.
• B) increase taxes on cigarettes, effectively raising the price.
• C) subsidize hospitals treating lung disease.
• D) invest more money in health research.

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Definitions:

Forward Exchange Rate

The exchange rate at which two parties agree to exchange currencies at a future date.

Forward Trade

A non-standardized contract between two parties to buy or sell an asset at a specified future date for a price that is agreed upon today.

Spot Exchange Rate

The current price for exchanging one currency for another for immediate delivery, reflecting the value of one currency in terms of another at a specific moment in time.

Forward Trade

A financial contract agreement to buy or sell assets at a specified future date and price, used primarily in commodity and currency markets.