Critical Reasoning

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Critical Reasoning

by RiyaR » Sun Jul 27, 2014 7:20 am
The cotton farms of Country Q became so productive that the market could not absorb all that they produced. Consequently, cotton prices fell. The government tried to boost cotton prices by offering farmers who took 25% of their cotton acreage out of production direct support payments up to a specified maximum per farm. The government's program, if successful, will not be a net burden on the budget.
Which of the following, if true, is the basis for the best explanation of how this is so?
A. Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.
B. Cotton production in several counties other than Q declined slightly the year that the support-payment program went into effect in Q.
C. The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level in the base year for the program.
D. The specified maximum per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms.
E. Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop


The answer as per the key is A. Though I feel it should be either D or E.

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by ceilidh.erickson » Sun Jul 27, 2014 8:11 am
When we're asked to EXPLAIN a circumstance, we need to close the gap between what we might have expected and what actually happened.

Given: Cotton farms productive -> cotton prices fell -> government offered payment to farmers for producing less

Expected: Paying farmers not to produce costs the government money, and will be a burden on the budget.

Actual: The program will NOT be a burden on the budget.

In order to explain this, we need an answer that suggests that either a) the program will somehow reduce other costs for the government, or b) that it will somehow increase revenue for the government.

A. Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.
If prices stay depressed, the government loses tax revenue. Ergo if the government program can increase prices, it will increase revenue. This was one of our two possible explanations. Correct.

B. Cotton production in several counties other than Q declined slightly the year that the support-payment program went into effect in Q.
We have no reason to believe that anything happening in other countries is relevant to Q.

C. The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level in the base year for the program.
This doesn't tell us anything about revenue or cost.

D. The specified maximum per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms.
The comparison between small farms and large farms is irrelevant - we don't know what proportion of Q's farms are small v. large.

E. Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop
This would weaken the outcome. If farmers COULD grow other crops on that land, presumably they're raise more in tax revenue. If they can't, we'd expect it to have a negative impact on the country's budget.
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Harvard Graduate School of Education

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by ceilidh.erickson » Sun Jul 27, 2014 8:26 am
For similar questions asking to EXPLAIN A DISCREPANCY involving profit/revenue/cost, see:
https://www.beatthegmat.com/gmat-prep-ro ... tml#708535
https://www.beatthegmat.com/resolve-the- ... tml#717366
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EdM in Mind, Brain, and Education
Harvard Graduate School of Education