Step 1. The two factory owners each stand to lose $1 million if the tax passes, so each should be willing to spend

up to that amount to prevent the passage, a combined sum of $2 million. Of course, in the real world, there is no

guarantee that lobbying efforts will be successful, so the factory owners may choose to invest an amount that is

substantially lower.

Step 2. There are 10,000 townspeople, each standing to benefit by $300 if the tax passes. Theoretically, then,

they should be willing to spend up to $3 million (10,000 × $300) to ensure passage. (Again, in the real world with

no guarantees of success, they may choose to spend less.)

Step 3. It is costly and difficult for 10,000 people to coordinate in such a way as to influence public policy. Since

each person stands to gain only $300, many may feel lobbying is not worth the effort.

Step 4. The two factory owners, however, find it very easy and profitable to coordinate their activities, so they
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