Suppose that the government of New York state promises to decrease taxes to a firm if it decides to stay in New York instead of moving to another state. This policy on the part of the state constitutes
, to make the of the firm remaining in New York.

Question

Quizplus · Accepted Answer

This is an example of an incentive. The government is providing a benefit (decreased taxes) to encourage the firm to stay in New York. The firm will compare the marginal cost of staying in New York (e.g. higher taxes) to the marginal benefit (e.g. staying in a preferred location) and hopefully choose to stay in New York.

Suppose That the Government of New York State Promises to Decrease