PT156.S2.Q20 - Economist: When national governments

ostrov.8

Can anyone explain how C is a better option than D? (No official explanation posted yet)

lawguy2025

the proposition in the stem results in the local governments spending more money as a result of receiving more money from the national government.

D is wrong in that there is nothing added (they are just pooling their money together) and that the spending of each individual stays the same.

C is the same as the stem just flipped. The sales manager offers prizes (which equates to more money from the national government) to whoever sells the most products. The sales people undercut each other (this equates to local governments creating more projects) and end up making less money than they would have if the prizes were never introduced (this equates to the overall government spending being higher than if local govts just paid for everything themselves).