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12 Mar 2024, 01:59
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E
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
75%
(hard)
Question Stats:
60% (02:08) correct
40%
(02:10)
wrong
based on 1415
sessions
History
Date
Time
Result
Not Attempted Yet
In Region X, all rights to use water from the Dusty River were allocated to farms at a government auction held more than a century ago. To increase long-term tax revenue generated by the region’s farms, the government now plans to allow holders of water rights to sell those rights freely. The government reasons that this will ensure that more water is allocated to those farms able to use it more profitably.
To assess how successful the government's plan, if implemented, is likely to be in increasing tax revenue, it would be most helpful to know
A. which farms received rights to the most water at the government auction
B. whether farms that cannot most efficiently use water would be adversely affected if the government took away their water rights
C. whether the sale of water rights would be taxable
D. what steps other than changing the allocation of water rights the government could take to increase tax revenues from farms
E. how taxes on the region’s farms vary with those farms’ profits
GMAT-Club-Forum-72aaxsts.png [ 90.56 KiB | Viewed 2709 times ]
To assess how successful the government's plan, if implemented, is likely to be in increasing tax revenue, it would be most helpful to know
A. which farms received rights to the most water at the government auction
B. whether farms that cannot most efficiently use water would be adversely affected if the government took away their water rights
C. whether the sale of water rights would be taxable
D. what steps other than changing the allocation of water rights the government could take to increase tax revenues from farms
E. how taxes on the region’s farms vary with those farms’ profits
Attachment:
GMAT-Club-Forum-72aaxsts.png [ 90.56 KiB | Viewed 2709 times ]
15 May 2025, 07:18
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In Region X, all rights to use water from the Dusty River were allocated to farms at a government auction held more than a century ago. To increase long-term tax revenue generated by the region’s farms, the government now plans to allow holders of water rights to sell those rights freely. The government reasons that this will ensure that more water is allocated to those farms able to use it more profitably.
Goal of the plan:
To increase long-term tax revenue generated by the region’s farms
The plan:
allow holders of water rights to sell those rights freely
Rationale for the plan:
this (allowing holders of water rights to sell them) will ensure that more water is allocated to those farms able to use it more profitably
We see that the idea of the plan is that, by allowing water rights to be sold, the government will cause water to be used more profitably by farms, and the end result will be that "long-term tax revenue generated by the region's farms" will increase.
One thing we might notice about the rationale for the plan is that it jumps from "more profitably" to "increase long-term tax revenue" without indicating how exactly the two are connected. In other words, it appears to depend on the assumption that increases in profits will result in increased tax revenue.
To assess how successful the government's plan, if implemented, is likely to be in increasing tax revenue, it would be most helpful to know
This is an Evaluate question, and the information mentioned by the correct answer will weaken or strengthen the case for the plan's success.
A. which farms received rights to the most water at the government auction
This information does not help with determining whether the plan will succeed.
After all, as long as water rights will go to farms that can use them more profitably, the plan should work, regardless of which farms got them at the original auction.
Eliminate.
B. whether farms that cannot most efficiently use water would be adversely affected if the government took away their water rights
This choice is tricky because, if some farms would be adversely affected as a result of implementation of the plan, then it's likely that tax revenue from those farms would decrease, an outcome that would be counter to the success of the plan.
At the same time, there are two reasons why this choice is incorrect.
One is that the plan is not for the government to take away water rights. The plan is to allow farms to sell water rights. So, this choice involves a plan other than the one presented.
The other is that, even if some farms would be adversely affected, implementation of the plan should still result in an increase in overall profitability of farms. After all, the idea is that farms that use water with relatively low profitability would sell their rights to farms that would use it more profitably. So, even if some farms' profits were to decrease as a result of a reduction in their access to water, the net effect should still be an increase in profits.
So, the plan could succeed regardless of whether the profitability of some farms would be adversely affected.
Eliminate.
C. whether the sale of water rights would be taxable
This choice is tricky because, if the answer to it is that the sale of water rights would be taxable, then the implementing the plan could result in an increase in tax revenue.
At the same time, this choice is incorrect because the goal of the plan is "to increase long-term tax revenue generated by the region’s farms," and tax revenue occasionally generated by taxation of water rights sales would not be "long-term tax revenue generated by the region’s farms."
It's true that the question stem does not use the wording "long-term tax revenue." So, if we go only by what we see in the question stem, we could make a case for this choice. At the same time, we can make the judgment call that what matters is the stated goal of the plan and eliminate this choice, partly because (E) is more clearly correct.
Eliminate.
D. what steps other than changing the allocation of water rights the government could take to increase tax revenues from farms
The information mentioned by this choice does not indicate anything about the prospects for success of the plan.
After all, information on what other steps the government could take to increase revenue would not indicate whether this particular plan of allowing water rights sales will work.
Eliminate.
E. how taxes on the region’s farms vary with those farms’ profits
This choice is interesting.
The rationale of the plan is the following: Allowing the sale of water rights will cause water to be used more profitably, with the presumed result of an increase in farm profits, which is expected to result in an increase in tax revenue.
What's missing from that rationale is a connection between increased farm profits and increased tax revenue. Is farm tax revenue related to farm profits? The passage doesn't say one way or the other.
So, the information mentioned by this choice is key to assessing the likelihood that the plan will work.
After all, if taxes on farms do not vary with farm's profits, then increasing farm profitability through allowing sales of water rights won't have any effect on tax revenue.
On the other hand, if taxes on farms vary directly with farm's profits, then there's reason to believe the plan will work.
Keep.
Correct answer: E
Goal of the plan:
To increase long-term tax revenue generated by the region’s farms
The plan:
allow holders of water rights to sell those rights freely
Rationale for the plan:
this (allowing holders of water rights to sell them) will ensure that more water is allocated to those farms able to use it more profitably
We see that the idea of the plan is that, by allowing water rights to be sold, the government will cause water to be used more profitably by farms, and the end result will be that "long-term tax revenue generated by the region's farms" will increase.
One thing we might notice about the rationale for the plan is that it jumps from "more profitably" to "increase long-term tax revenue" without indicating how exactly the two are connected. In other words, it appears to depend on the assumption that increases in profits will result in increased tax revenue.
To assess how successful the government's plan, if implemented, is likely to be in increasing tax revenue, it would be most helpful to know
This is an Evaluate question, and the information mentioned by the correct answer will weaken or strengthen the case for the plan's success.
A. which farms received rights to the most water at the government auction
This information does not help with determining whether the plan will succeed.
After all, as long as water rights will go to farms that can use them more profitably, the plan should work, regardless of which farms got them at the original auction.
Eliminate.
B. whether farms that cannot most efficiently use water would be adversely affected if the government took away their water rights
This choice is tricky because, if some farms would be adversely affected as a result of implementation of the plan, then it's likely that tax revenue from those farms would decrease, an outcome that would be counter to the success of the plan.
At the same time, there are two reasons why this choice is incorrect.
One is that the plan is not for the government to take away water rights. The plan is to allow farms to sell water rights. So, this choice involves a plan other than the one presented.
The other is that, even if some farms would be adversely affected, implementation of the plan should still result in an increase in overall profitability of farms. After all, the idea is that farms that use water with relatively low profitability would sell their rights to farms that would use it more profitably. So, even if some farms' profits were to decrease as a result of a reduction in their access to water, the net effect should still be an increase in profits.
So, the plan could succeed regardless of whether the profitability of some farms would be adversely affected.
Eliminate.
C. whether the sale of water rights would be taxable
This choice is tricky because, if the answer to it is that the sale of water rights would be taxable, then the implementing the plan could result in an increase in tax revenue.
At the same time, this choice is incorrect because the goal of the plan is "to increase long-term tax revenue generated by the region’s farms," and tax revenue occasionally generated by taxation of water rights sales would not be "long-term tax revenue generated by the region’s farms."
It's true that the question stem does not use the wording "long-term tax revenue." So, if we go only by what we see in the question stem, we could make a case for this choice. At the same time, we can make the judgment call that what matters is the stated goal of the plan and eliminate this choice, partly because (E) is more clearly correct.
Eliminate.
D. what steps other than changing the allocation of water rights the government could take to increase tax revenues from farms
The information mentioned by this choice does not indicate anything about the prospects for success of the plan.
After all, information on what other steps the government could take to increase revenue would not indicate whether this particular plan of allowing water rights sales will work.
Eliminate.
E. how taxes on the region’s farms vary with those farms’ profits
This choice is interesting.
The rationale of the plan is the following: Allowing the sale of water rights will cause water to be used more profitably, with the presumed result of an increase in farm profits, which is expected to result in an increase in tax revenue.
What's missing from that rationale is a connection between increased farm profits and increased tax revenue. Is farm tax revenue related to farm profits? The passage doesn't say one way or the other.
So, the information mentioned by this choice is key to assessing the likelihood that the plan will work.
After all, if taxes on farms do not vary with farm's profits, then increasing farm profitability through allowing sales of water rights won't have any effect on tax revenue.
On the other hand, if taxes on farms vary directly with farm's profits, then there's reason to believe the plan will work.
Keep.
Correct answer: E
General Discussion
12 Mar 2024, 12:16
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Bunuel
The objective is "To increase long-term tax revenue"
(A) Irrelevant which firm received rights to increasing long-term tax revenue.
(B) Irrelevant as it doesn't address the issue of increasing long-term tax revenue.
(C) If it is it will lead to tax revenue, but it will be short term (Only at the time of transaction, like property tax - A one time affair) it doesn't address the issue of increasing long-term tax revenue.
(D) steps other than changing the allocation of water rights - Out of scope.
(E) If TAx varies with profitability - it will keep generating long-term tax revenue.
Answer will be (E)
