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# Economist: The law of demand predicts that as the price of a

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Economist: The law of demand predicts that as the price of a [#permalink]  27 Jul 2010, 23:26
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Economist: The law of demand predicts that as the price of a good goes down, demand for that good will increase, and vice-versa. In a recent experiment, economists gave coupons for rice to families in a province of China, where it is a staple food. The coupons effectively lowered the cost of rice, and should have led the families to buy more of it. Instead, households given the coupons purchased less rice than a control group who did not receive coupons.

Which of the following, if true, most helps to explain the amount of rice purchased by families who received coupons?
(A) Chinese families spend an unusually high proportion of their income on rice.
(B) The prices of staple goods, including foodstuffs such as rice, do not fluctuate as much as those of non-necessary goods, such as consumer electronics.
(C) In the months before and after the experiment, the average per-family consumption of rice in the Chinese province steadily decreased.
(D) Many of the families given coupons discovered that they could sell the coupons on the black market.
(E) The availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice.

OA Later
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Re: Rice coupons [#permalink]  27 Jul 2010, 23:42
P1 : When the price of a good goes down, demand for that good will increase
P2 : Price of rice went down but the demand also decreased

Between D and E

D : does not explains why the demand of rice will go down. demand of rice should have gone up if the coupons are sold in black market.

E : Yes this explains why the demand of rice went down and resolves the discrepancy. Answer.
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Re: Rice coupons [#permalink]  28 Jul 2010, 11:46
E for me too. OA please. Thank You.

Thanks,
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Re: Rice coupons [#permalink]  28 Jul 2010, 12:50
I narrowed to B, D and E.

D is out because families discovered that that can sell coupons in black market. We dont know if thye actually did that.

B is out because if the price of rice does not fluctuate as much as other goods than why 1 group demanded more rice and the other demanded less.

E is correct as it explains that people who had coupons used it for expensive substitiutes of rice thereby decreasing the demand for rice.
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Re: Rice coupons [#permalink]  28 Jul 2010, 15:03
i will go with 'D' ,
E - Coupons can only be used for rice, people have to purchase rice to save money and thn only can spend the remaining on others. I don;t think in this case rice consumption decreases.
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Re: Rice coupons [#permalink]  28 Jul 2010, 19:16
jainrahul1234 wrote:
i will go with 'D' ,
E - Coupons can only be used for rice, people have to purchase rice to save money and thn only can spend the remaining on others. I don;t think in this case rice consumption decreases.

I pick E

Say you usually spend $10 to buy 10kg rice. Now with the coupon, you can spend$2 to buy 5kg rice and \$8 to buy 5kg Kimchi (assume Kimchi is more desirable than Rice) for example.
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Re: Rice coupons [#permalink]  28 Jul 2010, 19:47
D for me too...
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Re: Rice coupons [#permalink]  28 Jul 2010, 23:16
OA is E . I went for D .

nusmavrik has explained precisely.

P1 : When the price of a good goes down, demand for that good will increase
P2 : Price of rice went down but the demand also decreased

Between D and E

D : does not explains why the demand of rice will go down. demand of rice should have gone up if the coupons are sold in black market.

E : Yes this explains why the demand of rice went down and resolves the discrepancy. Answer.

Thx GUys !
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Re: Rice coupons [#permalink]  29 Jul 2010, 02:25
E for me too,, good explanation by nusmavrik
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Re: Rice coupons [#permalink]  29 Jul 2010, 02:27
good Q
also went for D first time
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Re: Rice coupons [#permalink]  13 Jun 2011, 01:55
E precisely gives the reason why the people purchased less rice.
E it is.
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Re: Rice coupons [#permalink]  08 Sep 2011, 04:13
We are given higher price, decrease demand.

I don't understand how the reverse can be assumed. => decrease in price would increase in the demand??
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Re: Rice coupons [#permalink]  08 Sep 2011, 09:07
This is a classic case where the question makes you think everything in D is good. And you mark D without paying much attention to E.

E for me too..

Schandok..I have learnt one in the GMAT questions that you should not apply your common outside knowledge.Go as per what is given in the questions..If you read carefully, the word 'vice-versa' is mentioned in the stimulus..Hence, you are not assuming anything here..Everything is given..and go as per that..
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Re: Rice coupons [#permalink]  08 Sep 2011, 10:42
KissGMAT wrote:
Economist: The law of demand predicts that as the price of a good goes down, demand for that good will increase, and vice-versa. In a recent experiment, economists gave coupons for rice to families in a province of China, where it is a staple food. The coupons effectively lowered the cost of rice, and should have led the families to buy more of it. Instead, households given the coupons purchased less rice than a control group who did not receive coupons.

Which of the following, if true, most helps to explain the amount of rice purchased by families who received coupons?
(A) Chinese families spend an unusually high proportion of their income on rice.
(B) The prices of staple goods, including foodstuffs such as rice, do not fluctuate as much as those of non-necessary goods, such as consumer electronics.
(C) In the months before and after the experiment, the average per-family consumption of rice in the Chinese province steadily decreased.
(D) Many of the families given coupons discovered that they could sell the coupons on the black market.
(E) The availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice.

OA Later

(E) The availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice.
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Re: Rice coupons [#permalink]  08 Sep 2011, 17:01
Thanks @OptimusPrimea1. Now it makes sense to me. +1 for E. I did missed vice-versa. Need to increase my concentration.
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Re: Rice coupons [#permalink]  20 Sep 2011, 20:05
schandok wrote:
Thanks @OptimusPrimea1. Now it makes sense to me. +1 for E. I did missed vice-versa. Need to increase my concentration.

Gr8 Question.

E for me.
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Re: Economist: The law of demand predicts that as the price of a [#permalink]  14 Oct 2013, 07:21
This appears to be a GMAT Hacks question of the day. It reappeared on 3/5/2013. The Official Explanation is as follows:

Answer: E This is an explanation question. The apparent paradox is that, while the price of rice effectively declined, rice consumption also declined. Consider each choice in turn, looking for a reason why this might occur: (A) This doesn't tell us anything about the effect of the coupons. (B) The amount of fluctuation is outside the scope; we're concerned with the effect of lowering the price of rice. (C) That the average consumption of rice declined is not important; the study described in the passage included a control group, to which the households given coupons were compared. (D) This choice suggests that some families did not purchase rice with their coupons; however, this doesn't explain why they would also purchase less rice. (E) This is correct. If these families had money to purchase preferable rice substitutes, they may have increased or kept constant their consumption of rice and rice substitutes, but shifted some of their consumption from rice to substitutes because of the coupons.
Re: Economist: The law of demand predicts that as the price of a   [#permalink] 14 Oct 2013, 07:21
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