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Economics vocabulary · Core Concepts

Incentive

Meaning in economics, with examples

/ɪnˈsentɪv/nounCore term

In economics, incentive means: Something such as a reward, a price or a penalty that encourages people or firms to act in a particular way.

In Turkish: teşvik, özendirici, güdü

How it is used

A core idea in economics: people respond to incentives. Governments offer tax incentives or investment incentives, and economists ask whether a policy creates the right incentives or perverse ones. Common verbs are create, give, offer, provide and respond to.

Example sentences

  1. Tax incentives encouraged several car makers to build factories in the region.

  2. If fuel is heavily subsidised, people have little incentive to use less of it.

Common collocations

  • tax incentives
  • investment incentives
  • create incentives
  • respond to incentives
  • an incentive to
  • subsidyMoney or other support that a government gives to producers or consumers to lower the price of a product or to encourage an activity.
  • opportunity costThe value of the best alternative you give up when you make a choice, for example the salary you lose by studying full time instead of working.
  • taxationThe system by which a government collects money from people and businesses through taxes on income, profits, spending and property.
  • market failureA situation in which a free market, left alone, does not produce an efficient outcome for society, so too much or too little of something is produced.

This word in other fields

The same English word can have a different meaning in another field:

More terms: Core Concepts

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This page explains English vocabulary for learners. It is not financial advice.