In 2018, two members of Congress introduced the Stop Bad Employers by Zeroing Out Subsidies Act, which would tax firms whose employees receive government assistance. These members of Congress thought this legislation would give firms a reason to raise employee wages so fewer employees would receive the government assistance. These members of Congress were counting on firms reacting to which key economic idea?
A) People are allocatively efficient.
B) People respond to economic incentives.
C) Optimal decisions are made at the margin.
D) The market system relies on the principle of voluntary exchange.

Question

Quizplus · Accepted Answer

The legislation is based on the economic principle that people (and firms, in this case) respond to economic incentives. By taxing firms whose employees receive government assistance, the act aims to incentivize firms to raise wages, thereby reducing the need for government assistance among their employees.

In 2018, Two Members of Congress Introduced the Stop Bad