PT156 S2 Q20 ExplanationEconomist: When national governments dispense funds

Answer choices, explained

1. A

   Bad Conclusion Match5% picked this

   A large company invests in a new technology that greatly improves its product. Smaller companies, individually unable to match the large company's investment, pool

   This involves smaller companies cooperating to compete with a large company. There's no competitive escalation between equals, no relative-performance incentive driving each participant to overdo an activity, and no worse-collective-outcome punchline. The companies pool to compete more effectively, which is the opposite dynamic.

   5%
2. B

   Bad Conclusion Match9% picked this

   A national government finances an irrigation project in order to turn an arid valley into fertile farmland. The food grown in the valley reduces

   This describes a single project funded by a national government with regional winners and losers. There's no relative-performance incentive driving multiple parties to escalate an activity, and no aggregate worsening from competitive overuse. It's about a single intervention's distributional effects.

   9%
3. C

   Correct66% picked this

   A sales manager offers prizes for the salesperson who sells the most products during a month. This causes each salesperson to try to undercut

   Why this is right

   This is the structural twin. The sales manager creates a relative-performance incentive: prizes for whoever sells most. Each salesperson responds by undercutting the others' prices to capture the prize. The aggregate result is lower profits than if no incentive existed — collectively worse off, just as in the economist's scenario. Same shape: relative-performance reward → each participant escalates a particular action → aggregate worse outcome.

   Skill tested: Principle-Conform · how this choice captures the argument's function is the move to repeat next time.

   66%
4. D

   Bad Conclusion Match18% picked this

   People pool their money to buy certain foods in bulk in order to get a volume discount and reduce their bills. But after doing

   This is about pooled buying for a discount, then eating more. The discount isn't a relative-performance reward — there's no competition between buyers to capture more by doing more than others. It's a flat volume discount. The "spending the same despite the discount" outcome is unrelated to the economist's competitive-escalation story.

   18%
5. E

   Bad Conclusion Match2% picked this

   Several communities band together to build a large conference center. But the project nearly collapses as each community, because of the revenue the center

   This describes communities fighting over where the conference center will be located. There's no relative-performance incentive driving each community to escalate an activity (e.g., building more centers); they're fighting for one fixed prize's location. The escalation in the economist's scenario is about doing more of an activity, not about disputing the location of one project.

   2%