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cotton

by dreamv » Mon Feb 13, 2012 9:42 pm
The cotton farms of County 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 percent 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 best basis for an explanation of how this could be 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 countries 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per farm meant that for very large cotton farms the support payment were less per acre for those acres that were withdrawn from production than they were for smaller farms.

E. Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other group.
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by pemdas » Mon Feb 13, 2012 10:41 pm
this question is from OG-10, quest#149

I came to the conclusion that most recycled questions from OG do not reflect the difficulty level of recent GMAT verbal section, neither the old OG (10) is comparable to the recent OG (11, 12) with CR entries. As such I picked an answer A with the grain of salt. I will explain why?

A. Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

My reasoning is that the government increases its tax collection from farm profits sounds perfectly nice TRAP with recent OG echoing false premises. In fact, OG-11 or 12 would question my logic further and find answer choice A) incorrect, for one simple reason

where is the estimate that the net tax collection from farm profits will at least offset the direct support payments to farmers???

No clue, sure, this choice would be INCORRECT on GMAT, but it's marked as OA and correct choice in OG-10. Nice. Do we practice the wrong mind-set by solving questions from OG-10?
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by avik.ch » Mon Feb 13, 2012 11:45 pm
pemdas wrote:A. Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

My reasoning is that the government increases its tax collection from farm profits sounds perfectly nice TRAP with recent OG echoing false premises. In fact, OG-11 or 12 would question my logic further and find answer choice A) incorrect, for one simple reason

where is the estimate that the net tax collection from farm profits will at least offset the direct support payments to farmers???

No clue, sure, this choice would be INCORRECT on GMAT, but it's marked as OA and correct choice in OG-10. Nice. Do we practice the wrong mind-set by solving questions from OG-10?
I am not much aware of OG-10's questions.

Anyway, I think that for every Strengthening/weakening/assumption/evaluate CR we are choosing the best out of the five. Here I think A is the best choice out of the five.

Why do you think that this choice would be incorrect when it is presented with the same four choices in recent GMAT ?
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by pemdas » Tue Feb 14, 2012 4:58 am
I considered the choice A as one resting on another assumption. I agree when it's one deal out of five, we got to select the only one right answer. I was arguing not that choice A is wrong or right, rather I put my reasoning as to why it could be wrong. Do you see that? May be I should be more explicit in reasoning above? I always counted on my practice not for the sake of picking the right answer but aspired for some learning as I practice - so called "learn as you go" method. Here my learning would be only *select one bad answer by leaving out the other four and the very bad answers*, that's my concern with this question.

Anyways, I will be disclosing my reasoning in more details below

Government collects taxes from farms and thus is interested in increased profits by farms which is possible if the prices are steady or increasing (not declining). This is feasible if the additional undemanded cotton is not produced and the only produced cotton continues to be marketable and to bring profits to the farms. The government will make direct payments to farms, so that they don't over-produce and thus will stimulate price stability (or increase). When the profits of farms will increase the government will rip off its tax collections from the profits of farms.

This reasoning is introduced by answer A)

My doubt: What if the net tax collections (revenue) are less than the direct payments to farms. Then the government incurs net debt (loss). The reasoning in choice A) is good if we know or *assume* that the tax collections will at least offset the direct payments to farms. Otherwise, the government will incur net debt.
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by dreamv » Tue Feb 14, 2012 6:03 pm
OA is A. Is this OG 10 Question? It was on GMATPrep. I am wondering whether it's worth to study OG10 after OG12.
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by [email protected] » Tue Feb 14, 2012 11:54 pm
The cotton farms of County 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 percent 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 best basis for an explanation of how this could be 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 countries 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 payment 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 group.



I came down to options A and D. I chose D because the option A says that depressed prices of cotton actually lowers the profit. But it nowhere says that decrease in profits were actually more lesser than the cotton acreage given to the farmers. Hence not sure if A is the right one...

Also choice D states that the cotton acreage given is lesser for big farms than for smaller farms. hence somewhere saving of the acreage...

Dont you feel that option A is based on a very important assumption as said by Pemdas...
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by GMATGuruNY » Wed Feb 15, 2012 4:49 am
dreamv wrote:The cotton farms of County 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 percent 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 best basis for an explanation of how this could be 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 countries 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 payment 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 group.
This is a RESOLVE/EXPLAIN question.
We are asked to EXPLAIN how two facts that seem to contradict each other can both be true at the same time:

Fact 1: The government tried to boost cotton prices by offering DIRECT SUPPORT PAYMENTS to farms.
FAct 2: The program, if successful, WILL NOT BE A NET BURDEN on the budget.

In order for there to be no net burden, REVENUES must equal COSTS: the government must take in as much as it gives out.

Answer choice A: Depressed cotton prices meant operating losses for cotton farms, and the government LOST REVENUE from taxes on farm profits.
The implication is that the support program will help RAISE cotton prices, resulting in an increase in tax REVENUE that will offset the COST of the program.

The correct answer is A.
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