Question

What role do incentives play in understanding economic decisions? Provide an example to make your point. Explain the basic difference between a flow variable and a stock variable, and provide an example of each.

Answer 1

Economic incentives help us to behave in a certain way. Economic priorities give us the incentive to follow our needs. As We know that motivations to work are incentives.
For example, The government provide subsidies are incentive for business firms to grow. This helps them stay active in business.
For example, there are many incentives provided by the government to activate economic activities. Those are the tax benefits: the government cuts taxes to encourage certain activities, Subsidies: Government subsidies are often granted to promote industry and agriculture.

When a government deducts taxes on a company, the economy of the organization is good enough to enable people to get jobs and to buy goods or services. The financial incentives also work like this, As far considered customer, or financial institution get the power to act.

A stock is measured at a specific point in time. See, e.g., March 20, 2009. This represents the amount of time that exists. Eg: Wealth is a stock. Because it can be measured at one point
But Income is a flow variable , that can be measured in a time interval. So a unit of flow is measured per unit volume. Eg: income, flow is an example. Because income can be measured over a period of time.
Examples of stock, wealth, inventories, foreign debt, loans, money supply, population, opening stock, etc.
Example of the flow variables are national income , cost , saving, interest etc..
A flow is a measure of a time limit. For example, it is defined here using weeks, months and years. National income is measured in this way. One's income is calculated by this method.
But a stock is measured at a particular time. It will define the exact time, date and year. Eg: 6 p.m, 2020 Jan 1. A flow shows the change over a period of time. But A stock refers to a point.