Critical reasoning
Recently credit card companies have come under attack by consumer groups who argue that the interest rates charged by these companies are unconscionably high. In fact, the rates are generally several percentage points above those charged by banks for ordinary personal loans. But consumer groups overlook the fact that credit cards afford the user great flexibility. A user can purchase an item while it is on sale. So the lower costs of the item offsets the extra cost of credit.
The argument above makes which of the following assumptions?
* The cost savings of buying an item at a reduced price are at least equal to the excess interest that a consumer pays on purchases made with a credit card.
* A credit card application is not rejected unless the applicant has a long history of late payments and other credit problems.
* The prices of items on sale purchased by consumers are still sufficiently high to enable sellers to recoup their costs and make a modest profit.
* The consumers who make purchases of sale items with credit cards are persons who might not qualify for bank loans with a lower interest rate.
* The average outstanding balance of the ordinary credit card user is no greater than the total non-credit-card debt of the credit card user.
WHAT DO YOU THINK THE ANSWER IS???
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gmatnovice
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gmatmachoman
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IMO D.
Evidence 1: Credit cards have higher rate than loans.
Evidence 2: But consumers can offset higher rate with lower purchase costs.
Conclusion: Therefore credit cards are more flexible and worth the higher rate.
The assumption here is that bank loans are less flexible than credit cards.
1) Wrong, it simply restates Evidence 2.
2) Wrong, just talks about credit card.
3) Wrong, out of scope.
4) Right, loans are less flexible because their application rejects people who otherwise can purchase items at lower cost.
5) Wrong, credit card usage is not the issue here.
Evidence 1: Credit cards have higher rate than loans.
Evidence 2: But consumers can offset higher rate with lower purchase costs.
Conclusion: Therefore credit cards are more flexible and worth the higher rate.
The assumption here is that bank loans are less flexible than credit cards.
1) Wrong, it simply restates Evidence 2.
2) Wrong, just talks about credit card.
3) Wrong, out of scope.
4) Right, loans are less flexible because their application rejects people who otherwise can purchase items at lower cost.
5) Wrong, credit card usage is not the issue here.
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logitech
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Agreed. Assumption needs to be tied to the conclusion. One more DArgen wrote:IMO D.
Evidence 1: Credit cards have higher rate than loans.
Evidence 2: But consumers can offset higher rate with lower purchase costs.
Conclusion: Therefore credit cards are more flexible and worth the higher rate.
The assumption here is that bank loans are less flexible than credit cards.
1) Wrong, it simply restates Evidence 2.
2) Wrong, just talks about credit card.
3) Wrong, out of scope.
4) Right, loans are less flexible because their application rejects people who otherwise can purchase items at lower cost.
5) Wrong, credit card usage is not the issue here.
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An interesting question. B, C and E are clearly irrelevant. The important word in the question is 'offsets'. If the amount you save, by buying items which are on sale, is minimal compared to the added interest you pay for using a credit card, the argument becomes nonsensical. That is, if I can save $1 by buying things on sale, but I'll pay $100 in added interest, clearly lower costs do not offset the cost of credit. So A is the assumption behind the argument.gmatnovice wrote: A user can purchase an item while it is on sale. So the lower costs of the item offsets the extra cost of credit.
* The cost savings of buying an item at a reduced price are at least equal to the excess interest that a consumer pays on purchases made with a credit card.
* The consumers who make purchases of sale items with credit cards are persons who might not qualify for bank loans with a lower interest rate.
D looks tempting, but it isn't relevant to the argument. The argument is not about who can and cannot get a credit card; it's about whether the added cost of a credit card is recouped because one can buy things at lower prices. Even if only one person in the world was qualified to get a credit card, the argument would still make sense.
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