Incentives
Definition
Incentives are rewards or benefits offered to motivate individuals or firms to take specific actions. They can be financial (such as tax breaks) or non-financial (such as recognition).
Analogy
Imagine you have a part-time job at a restaurant, and your boss offers a bonus for every customer you convince to try a new dish. This bonus would serve as an incentive for you to actively promote that particular dish since it would benefit both you (financially) and your boss (increased sales).
Related terms
Opportunity Cost: The value of the next best alternative that must be given up when making a decision.
Marginal Benefit: The additional satisfaction or utility gained from consuming one more unit of a good or service.
Moral Hazard: When individuals change their behavior due to having insurance against negative outcomes.
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