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Just set up two identical campaigns, one targeting the whole country and the other targeting just New York state. Make the ads different enough so you can tell which campaign it belongs to (just omit a comma or period in one of them, for example). Then go to [google.com...] and see which one is shown. Play around with the bids for the two campaigns to see how the bids affect which ad is chosen.
[edited by: Rehan at 12:20 am (utc) on April 24, 2007]