Doubt

Question

In the past year, there has been a large drop in the number of new cars sold, due to harsh economic conditions in the marketplace and high taxes. At the same time, the average price paid for a new car has risen dramatically.
Which of the following, if true, best explains the increase in the average price of a new car?
(A) The price of used cars has climbed steadily over the past ten years.
(B) There will be a tax reduction later in the year which is expected to aid moderate and low income families.
(C) The market for expensive car has been unaffected by the current economic conditions.
(D) Economic conditions are expected to get significantly worse before the end of the year.
(E) Low demand for trucks and vans has led to lower production in the factories

Ans:C

Can anybody explain the ans.

Thanks a ton

vijay_venky · Answer

Average price of the car is (Total Revenue)/(Number of cars sold)

Now if the given the number of cars sold decreases and the Avg.price remains the same, the Total Revenue should be the same or should decrease fractionally.

Now if Total Revenue decreases fractionally or almost remains the same, the cars that are sold should be expensive. So we should attack the question from this front.

And Answer C does that by commenting about the expensive car market "The market for expensive car has been unaffected by the current economic conditions. ".

ichadaram · Answer

Thanks a ton for that Vijay

could u pls explain what's wrong with option D where it says

(D) Economic conditions are expected to get significantly worse before the end of the year.

My argument is in case it is predicted that the Economic condition is going to get worse in that case the sales of cars is going to worsen too n so it would be better for the car companies to increase there prices so that they could make as much profit from the sales as possible.

Pls correct me.

vijay_venky · Answer

Economic conditions getting weakened is cited as a reason for decrease in the sales of the new cars. This shows the reluctance on the part of people to invest in the new cars as their(people's) ec. cond. gets weakened.

With the prediction that the conditions weaken further, the sales are bound to reduce further.

The reaction of the companies to this is difficult to guess as they can chose to reduce the prices (to lure customers) because increase in prices is unlikely to increase the sales.

However if they do increase prices and the sales drop, the way it affects the avg. price is difficult to calculate(it might increase or decrease).

But Option C clearly provides the reason for the high average price. This is the reason I went with option C.

kris77 · Answer

Option C looks good than other answers.

Choose how you want to prepare

Get Ready for GMAT Test Day Faster with Live Online Classes

Target Test Prep EA OnDemand

Target Test Prep GMAT OnDemand

Doubt

Chicago Booth

GMAT Course Reviews

Admissions Consulting Reviews

FREE GMAT PREP RESOURCES

GMAT PREP DEAL TRACKER