Critical Reasoning

The oil wells of Barlandia produced so much oil that the market was overwhelmed; consumption did not keep pace with production. As a result, oil prices fell. The government of Barlandia attempted to support oil prices through a subsidy scheme: oil producers who voluntarily limited the amount of oil they produced were compensated directly by the government up to a specified maximum payment.

The program instituted by the government of Barlandia, if successful, will not be a net cost to the government. Which of the following, if true, is the best basis for an explanation of how this could be true?

A.Depressed oil prices meant operating losses for oil producers, decreasing the income of oil producers, and thus decreasing the taxes paid to the government by oil producers.

B.Oil production in countries other than Barlandia declined in the same year that Barlandia's government instituted the compensatory scheme.

C.In the first quarter after Barlandia's government instituted the compensatory scheme, oil production declined 8 percent.

D.Because the government specified a maximum subsidy payment per oil producer, those producers with numerous wells in production received less support per well than those producers with fewer wells in production.

E.Oil producers desiring to qualify for the compensatory scheme could not continue to produce oil and simply withhold it from the market.

What is the jist of this???

IMO : Either A or E

any thoughts ?

Question

The program instituted by the government of Barlandia, if successful, will not be a net cost to the government. Which of the following, if true, is the best basis for an explanation of how this could be true

So, we have to find out why the government will not incur any losses as a result of this program i.e. how they will recoup the cash that they are dishing out

IMO, only A comes anywhere near answering the question and thus it must be the answer. Any thoughts?[/u]

Yes A it is.

But how and why ? what made u opt for A ?

sars72 wrote:Question

The program instituted by the government of Barlandia, if successful, will not be a net cost to the government. Which of the following, if true, is the best basis for an explanation of how this could be true

So, we have to find out why the government will not incur any losses as a result of this program i.e. how they will recoup the cash that they are dishing out

IMO, only A comes anywhere near answering the question and thus it must be the answer. Any thoughts?[/u]

I don't see why A is the answer.

If fewer taxes are being paid to the government, why would that negate the government subsidies? Shouldn't if be if MORE taxes are paid?

If the government is receiving fewer tax payments, wouldn't they incur a loss?

no can do. OA is A

According to me this question is in the form of a resolve a paradox.

P1. B Oil wells so much oil that market overwhelmed.
P2. Consumption != production --> oil prices fell.
P3. Govt--> Oil producers who limited production compensated(specified maximum payment)

P4. Program instituted if successful, not a net cost to the govt.


In general, a specified maximum payment during the times of decreasing prices should be costly to the government. But the stimulus says it is not a cost to the government. Other point that should be noted is that the Government is trying to spend this money to contain the fall in prices.

That means decrease in prices is more costly to the government than paying specified maximum amount to the checked production (contain prices).

The problem associated with the price fall is stated only in the option A.

What Vijay is saying makes sense but the answer choice still doesn't make sense to me. If depressed oil prices reduce oil producers' income, thus reducing taxes paid to the government, how will the government recoup what they have paid?

What's the source?

pkw209 wrote:What Vijay is saying makes sense but the answer choice still doesn't make sense to me. If depressed oil prices reduce oil producers' income, thus reducing taxes paid to the government, how will the government recoup what they have paid?

What's the source?

The government will recoup the money by increased taxes.
Increased taxes will result when price / unit of oil rises.
Price / unit of oil will rise when oil supply in the market is diminished.
Oil supply in the market will diminish when govt. provides a carrot (in the form of subsidy) to reduce production.

The cost of the subsidy is < than the money recouped due to taxes levied on high priced oil.

A is the best bet here.

Totally agree with your statements vscid.

However, that is not the scenario discussed in the answer choice.

DEPRESSED oil prices meant operating losses for oil producers, decreasing the income of oil producers, and thus DECREASING the taxes paid to the government by oil producers.

I just want to go to Tuck already.

pkw209 wrote:Totally agree with your statements vscid.

However, that is not the scenario discussed in the answer choice.

DEPRESSED oil prices meant operating losses for oil producers, decreasing the income of oil producers, and thus DECREASING the taxes paid to the government by oil producers.

I just want to go to Tuck already.

Pkw,

It is 6 of one or half dozen of the other.

Read the question stem carefully.

Tuck!!! good for u!