For several years, per capita expenditure on prescription : GMAT Critical Reasoning (CR)
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# For several years, per capita expenditure on prescription

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For several years, per capita expenditure on prescription [#permalink]

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07 Aug 2009, 05:31
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For several years, per capita expenditure on prescription drugs in Voronia rose by fifteen percent or more annually. In order to curb these dramatic increases, the ministry of health prohibited drug manufacturers from raising any of their products’ prices. Even though use of prescription drugs did not expand after this price freeze, per capita expenditure for prescription drugs continued to increase by a substantial percentage each year.

Which of the following, if true, most helps to explain why the ministry’s action did not achieve its goal?

A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products
B. The population of Voronia rose steadily throughout the period
C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze.
D. In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions
E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia.

I cannot get my head round the reasonings of the OA. No matter how I look at it, D seems the best answer. If D is true, wouldn’t per capita expenditure of drugs increase?
[Reveal] Spoiler: OA

Last edited by WoundedTiger on 29 Jul 2014, 22:00, edited 1 time in total.
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07 Aug 2009, 10:29
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I would go with A.

Although manufacturers did not increase price of their existing products, but they replaced existing ones with new medications, which cost more. Even though there is no expansion in use of prescription drugs, still per capita expenditure for prescription drugs continued to increase by a substantial percentage each year.

In D, if doctor’s prescribe generic drugs which are cheaper than expensive brand-names then how would it justify the increase in per capita expenditure for prescription drugs. It will in fact decrease per capita expenditure for prescription drugs.
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07 Aug 2009, 10:34
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A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products - this has no effect on per capita expenditure

B. The population of Voronia rose steadily throughout the period - this would decrease per capita expenditure

C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze. - nothing to do with increase in per capita expenditure

D. In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions
- people would have started to buy less expensive generic medicine and per capita expenditure would have gone done, therfore government's action would have worked. BUt the q is why government's action didn't work.

E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia. - as the usage of prescription drug didn't change, people would have started to buy these drugs outside voronia and pay additional shipping costs eventually rising the per capita expenditure. So the governmet's action didn't work.

Whats OA ?
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Re: For several years, per capita expenditure on prescription [#permalink]

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07 Aug 2009, 19:56
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IMO A..

If the Gov froze the prices only for certain drug then this holds....
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07 Aug 2009, 23:32
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A for me.
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08 Aug 2009, 23:11
A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products
B. The population of Voronia rose steadily throughout the period - per capita comparision so doesnt make a difference
C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze. -- talking abt expenditure and not profit
D. In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions - how does this explain the rise in per capita.
E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia. - out of scope
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09 Aug 2009, 01:26
I will vote for E.
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09 Aug 2009, 02:18
IMO...E, according to learner's explanation.

'A' would have been the answer if it was stated that the new medicines are more expensive than those currently existing in the market. 'B' and 'D' would decrease the per capita expenditure, and c is irrelevant, leaving us with 'E'. However, 'E' needs too much assumptions.

What is the OA?
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09 Aug 2009, 05:44
OA is A...

Can't believe we are bullied into taking A as an answer...

It's not convincing (to me at least)...
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09 Aug 2009, 18:18
What is the source? I am also not convinced with 'A' being the answer.
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09 Aug 2009, 20:19
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10 Aug 2009, 00:02
getMBA already gave nice explanation for A.

Total drugss sold same.
per capita increased ==> cost of drugs increased
price of old drugs, drugs already existed in the market, not increased

How is that possible? New drugs have the higher prices than older ones reulting in per-capita expense on drugs to increase.
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10 Aug 2009, 01:05
Nowhere it was specifically mentioned that the new drugs will be more expensive....so I was confused with A.
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08 Sep 2009, 12:45
eresh wrote:
Nowhere it was specifically mentioned that the new drugs will be more expensive....so I was confused with A.

In fact, is not necessary that the new drugs are more expensive. What it matters here is that are new drugs--> more expenditure.
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01 Nov 2009, 10:16
Quite a challenging question.

I picked initially D, but when saw the OA was very confused.

good reasoning is provided by MGMAT staff here:

http://www.manhattangmat.com/forums/for ... t2413.html
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02 Nov 2009, 08:42
Would go with A..
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11 Nov 2009, 16:08
I would go with A as well.

As far as your reasoning is concerned 'stopping to market' doest not necessarily mean 'stopping to sell'

learner wrote:
A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products - this has no effect on per capita expenditure

B. The population of Voronia rose steadily throughout the period - this would decrease per capita expenditure

C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze. - nothing to do with increase in per capita expenditure

D. In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions
- people would have started to buy less expensive generic medicine and per capita expenditure would have gone done, therfore government's action would have worked. BUt the q is why government's action didn't work.

E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia. - as the usage of prescription drug didn't change, people would have started to buy these drugs outside voronia and pay additional shipping costs eventually rising the per capita expenditure. So the governmet's action didn't work.

Whats OA ?
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Re: For several years, per capita expenditure on prescription [#permalink]

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14 Nov 2010, 03:43
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A it is

This was an easy one but others are really hard.
CR is the most difficult in verbal
i get only 40% correct answers.
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14 Nov 2010, 04:27
A it is

This was an easy one but others are really hard.
CR is the most difficult in verbal
i get only 40% correct answers.

Best of luck for tomorrow!

Keep us informed!
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14 Nov 2010, 07:02
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sly:)... they found the loophole.

Law says: you can't increase the price.

Businessman: ok. I will manufacture a new product (with slight changes) and put it in the market and charge a high price to begin with - then the price ceiling can't stop me from charging the price I want.
Re: For several years, per capita expenditure on prescription   [#permalink] 14 Nov 2010, 07:02

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