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Director
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Oil analysis predict that if the price of oil fails by half, [#permalink]
 19 Aug 2004, 12:18
Question Stats:
100% (02:10) correct
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3. Oil analysis predict that if the price of oil fails by half, the consumer's purchase price for gasoline made from this oil will also fall by half.
Which one of the following, If true, would cast the most serious doubt on the prediction made by the oil analysts?
(A) Improved automobile technology and new kinds of fuel for cars have enabled some drivers to use less gasoline.
(B) Gasoline manufacturers will not expand their profit margins.
(C) There are many different gasoline companies that compete with each other to provide the most attractive price to consumers.
(D) Studies in several countries show that the amount of gasoline purchased by consumers initially rises after the price of gasoline has fallen.
(E) Refining costs, distribution costs, and taxes, none of which varies significantly with oil prices. constitute a large portion of the prices of gasoline.
Please explain
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Director
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E would be my choice - states that gasoline prices are not diectly proportional to oil prices and that there are several other costs besides the oil price factor.
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Senior Manager
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E also.
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GMAT Club Legend
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E with the crowd
In a simple scenario, if oil price is 10$ and taxes are at 5$, consumer will pay 15$
If oil price drops to 5$ but taxes remain at 5$, then consumer pays 10$ which is not half of 15$
_________________
Best Regards,
Paul
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GMAT Club Legend
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Why not (B). If the company expands its profit margin, then consumer wil pay more even if the oil prices drop.
In (E), even though the manufacturing cost varies with oil prices, it is still subjected to the assumption that the oil company does not want to expand its profit.
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Director
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ywilfred wrote: Why not (B). If the company expands its profit margin, then consumer wil pay more even if the oil prices drop.
In (E), even though the manufacturing cost varies with oil prices, it is still subjected to the assumption that the oil company does not want to expand its profit.
Anyone would like to refute B.
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SVP
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E.
B actually strengthens the argument. If the manufacturers do not expand profit and keep the same profit margin then we can reasonably conclude that the gasoline price will fall with oil prices
Actually B says that "will not expand". I think, ywilfred you read it otherwise.
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Director
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Lets go with some numbers here
Assume price of gasoline = price of oil + taxes/other costs + profit margins. Let me put some numbers here...
so we have 100 = 50 + 25 + 25 - Margin is 50%(25 = 50% of 50)
New No.s as per B would be = 25+ 12.5 + 12.5 = 50 (12.5= 50% of 25 )
New No.s as per E would be = 25 + 25 + 12.5 = 62.5
Hence E.
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