Question

Medicare is an even bigger problem and solving it is a political minefield. Some ideas privatize as much as possible and encourage insurance only for catastrophic health bills to encourage a more thrifty approach to health care by seniors. This one is arguably the toughest fix of all and arguably needs to make health care as a whole more efficient and not just Medicare itself. How would you solve the national debt problem? Also explain which solution you feel is the most attractive?. What are the political obstacles? How does your philosophy affect which choices you make?Also see the last word in ch 13 for details of the entitlement options. . . One interesting In the recent health care reform is health care exchanges. They should have taken that aspect even further by creating a national exchange(instead of 50 state exchanges which will work well in the big states but not in the smaller states). We have to hope health care reform works. One good sign is recent health care inflation fell to a 20 year low at least before health care reform began. Medicaid which is health care for the poor needs reforming as well. Liberals would have the feds overhaul medicaid by merger with medicare. Conservatives like state grants with reforms such as the Rhode Island experience could be useful here as well. There the state, the feds saved money and appear to have gotten better health outcomes. In Rhode Island Bush gave the state an exemption from lots of federal rules ultimately saving the states and fed money has health care. What is the biggest obstacle to entitlement reform? (10 points)

Can economics explain what type of incentives are needed to get politicians to do the right thing. Why?(10 points)

Answer 1

Economic incentives are what motivates you to behave in a certain way, while preferences are your needs, wants and desires. Economic incentives provide you the motivation to pursue your preferences. Let's look at a basic example. Let's say you want wealth. You are motivated to work because you will be paid, which will help you achieve your preference for accumulating wealth. Of course, economic disincentives discourage behavior. Taxes are a prime example of disincentives because they make products and services more expensive.

Extrinsic incentives come from outside of a person. These are the typical economic incentives that you probably think about all of the time. Extrinsic incentives include cash rewards, bonuses, income and profits. However, it's not all about money. External incentives can include such things as peer recognition, fame, social status and power. Some of these incentives will work better than others, depending upon your preferences. Someone may care more about social status, for example, than money.

Intrinsic incentives are psychological incentives and are internal to the person. Getting satisfaction from work is an intrinsic incentive. The feeling of making a difference in the world is also an intrinsic motivation - regardless of whether you actually make a difference or not. Sometimes extrinsic motivations will trump intrinsic motivations. For example, the idea of building a home for the poor makes you feel good, but you will gladly accept pay to do it, which ends your spirit of volunteering.

A fundamental assumption in economics is that people respond to incentives—they will (almost always) act in a way that will improve their economic standing. So, knowledge of the different types of incentives—and what incentives might exist on either side of any economic transaction—can help you understand how economies work.