Connsumers in California seeking personal loans have fewer : GMAT Critical Reasoning (CR)
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# Connsumers in California seeking personal loans have fewer

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Connsumers in California seeking personal loans have fewer [#permalink]

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07 May 2007, 19:35
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Connsumers in California seeking personal loans have fewer banks to turn than do consumers elsewhere in the US. This shortage of competion among banks explains why interest rates on personal loans in California are higher than in any other region of the US.
Which of the following, if true, most substantially weakens the conclusion above?

A. Because of the comparatively high wayes they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of the services they offer.
B. Personal loans are risker than other types of loans, such as home mortgage loans, that banks make.
C. Since bank deposits in California are covered by the same type of insurnance that guarentees bank deposit in other parts of the United States, they are no less secure than deposits elsewhere
D. The proportion of consumers who default on their personal loans is lower in California than in any other region of the US
E. Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the US because in California there is less competition to attract depositors

In the passage, does the shortage of competition among banks mean that there is no competition? I am a bit confused
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11 May 2007, 05:15
This is what I think.

Shortage doesn't mean there is no competition. I think it just means CA consumers have less options than consumers in other states.

Since they pay more for their operating expenses, banks cannot afford to offer cheaper loans.

C,D & E strengthen the conclusion. B talks about mortgages etc.
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11 May 2007, 09:04
I think it should be A.... because it gives a reason other than shortage of competetion ... for higher interest rates in california....
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11 May 2007, 15:28
Well, it would be interesting to read more explanations. None of the five choices sound convincing.
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11 May 2007, 18:59
Add another A here.

We are asked to weakend the conclusion that the reason banks in CA charge highter interest rates is because there is less competition in CA than in any other US region.

Therefore, we need to look for a choice that would provide an alternative explanation to higher interest rates on personal loans in CA.

a - YES! this choice states that since CA banks have to pay higher wages to the bank employees, they have to generate more revenue to operate. So they charge more for the services they offer (higher rates on personal loans )
b - talks about personal loans in general. there is nothing here that applies to CA
c - from this choice we can only conclude that CA banks are as secure as the rest of the banks in the US - still doesn't help
d - this choice actually infers the opposite - that CA borrowers are safer than borrowers in other regions, and therefore should be charged lower rates
e - talks about rates on deposits - ummm... not relevant to the argument in the passage at all
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11 May 2007, 19:40
A...
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11 May 2007, 22:13
(A)
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12 May 2007, 13:10
A for me as well - same reason as raj_singh.
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12 May 2007, 13:11
pls post the OA..
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12 May 2007, 15:26
'A' successfully establishes an alternative reason that high wages need to be supported. All other choices fail to provide any alternate reasoning that would justify the higher rates
12 May 2007, 15:26
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# Connsumers in California seeking personal loans have fewer

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