In an effort to lower the average price over the long term for electri

Question

In an effort to lower the average price over the long term for electricity generated from wind turbines, the national government of Mongrove plans to offer large, temporary tax reductions to companies that sell wind-generated electricity, which will allow those companies to lower prices to competitive levels and thus increase the amount of wind-generated electricity they sell. An economist argues that this approach will not yield the desired long-term result. She claims that the tax reductions will keep prices for wind-generated electricity artificially low, and thus that prices will return to their previous levels as soon as the taxes do.

Which of the following information would be most valuable to know in evaluating the economist's argument?

A. Whether enough wind turbines could be installed during the period covered by the tax reduction to satisfy the demand for wind-generated electricity in Mongrove

B. Whether there is currently an effective marketing campaign in Mongrove for wind-generated electricity

C. How the price of wind-generated electricity in Mongrove is affected by the amount of it produced there

D. How many Mongrovian customers currently pay for wind-generated electricity even though it costs more than other forms of electricity

E. Whether other energy industries in Mongrove received similar tax breaks in the past

MartyMurray · Accepted Answer

Honestly, this question isn't ideally constructed.

(A) is supposedly incorrect, but let's look at (A).

A. Whether enough wind turbines could be installed during the period covered by the tax reduction to satisfy the demand for wind-generated electricity in Mongrove

Perhaps we don't know for sure whether the installation of "enough wind turbines ... to satisfy the demand for wind-generated electricity in Mongrove" would result in a permanently lower price, but certainly, whether there are enough turbines to satisfy demand will affect the price. For one thing, if not enough turbines can be installed to satisfy demand at the lower price resulting from the tax reduction, then after the period covered by the tax reduction, the price will likely be higher than what could be considered "competitive."

Also, (A) is not really logical since demand depends on price. So, what exactly does "satisfy the demand" mean? Does it mean the price could be unnaturally low? Why? Because of the tax reduction? How would that work? Does "satisfy the demand" mean "produce enough to make the price of wind-generated electricity the same as that of other electricity"? If so, is that price a "competitive" price? If so, this choice is starting to look correct again.

So, (A), if not clearly correct, is arguably correct or at least a little too close to correct for this question to be well constructed, and it's also not quite logical.

Then, here's (C), the supposedly correct answer.

C. How the price of wind-generated electricity in Mongrove is affected by the amount of it produced there

In a way, this choice works because the tax reduction will allow companies to "increase the amount of wind-generated electricity they sell," but is "amount ... they sell" the same as "amount of it produced"? Maybe, but if we're expected to sort of ignore the real-world effect of satisfying or not satisfying demand in (A), then are we supposed to consider that, in the real world, an electric company would not produce more than it sells, meaning that increased sales means increased production?

So, while this question is gettable, I think, if it were a third-party question rather than an official question, people might be saying, "This third-party question is not as good as official."

Takeaway:  While most official CR questions work well, not all are very well constructed. So, there's a chance that you'll see on your GMAT a CR question such that, to find the credited answer, you have to be a little flexible in your logical analysis and consider what the question-writer probably intended.

GMATCoachBen · Answer

Themightyknight

The biggest key habit on CR is to focus on the exact wording of the conclusion:

"She claims that the tax reductions WILL keep PRICES for wind-generated electricity artificially low, and thus that PRICES WILL return to their previous levels as soon as the taxes do."

So, the conclusion is a prediction about prices in the future.

But what if there is some other  offsetting factor  that she isn't accounting for?

C points to this:

"How the PRICE of wind-generated electricity in Mongrove is affected by the amount of it produced there"

What if increased production causes a reduction in price (potentially from economies of scale), completely separate from the impact of the taxes?

Then we have another factor that will  reduce  prices, and her prediction about increasing prices would be weakened.

For A, "satisfy the demand" is outside of the scope of the conclusion; we must focus on the prediction about prices.

Themightyknight · Answer

i am confused between A & C can anyone explain

muskaaaanmehra · Answer

In an effort to lower the average price over the long term for electricity generated from wind turbines, the national government of Mongrove plans to offer large, temporary tax reductions to companies that sell wind-generated electricity, which will allow those companies to lower prices to competitive levels and thus increase the amount of wind-generated electricity they sell. An economist argues that this approach will not yield the desired long-term result. She claims that the tax reductions will keep prices for wind-generated electricity artificially low, and thus that prices will return to their previous levels as soon as the taxes do.

Main aim is : lower the average price over the long term for electricity generated from wind turbines

Which of the following information would be most valuable to know in evaluating the economist's argument?

A. Whether enough wind turbines could be installed during the period covered by the tax reduction to satisfy the demand for wind-generated electricity in Mongrove. - How are we sure that the demand wouldn't increase post the tax reduction period?. Eliminate.

B. Whether there is currently an effective marketing campaign in Mongrove for wind-generated electricity - Out of scope. We need to find if the price would change once the tax breaks are off and not an alternative for tax breaks.

C. How the price of wind-generated electricity in Mongrove is affected by the amount of it produced there - If it is affected a lot then the price will be solely dependent on the demand and supply and would change post tax break.

D. How many Mongrovian customers currently pay for wind-generated electricity even though it costs more than other forms of electricity- This doesn't say anything about the effect on the price once the tax break is lifted. Eliminate.

E. Whether other energy industries in Mongrove received similar tax breaks in the past - Out of Scope. Even if they did we don't know anything about their state of pricing after the tax break was lifted. Eliminate.

sachi-in · Answer

Summary:  Govt propose tax subsidy to bring prices down - reduced prices would lead to more consumption

Critic says:  No prices would stay low and electricity consumption high only till the subsidy exists ( if you remove it prices shoot up -> consumption decrease )

Prethinking:  Think of a real world scenario :  What if lower tax -> increased AMOUNT sold -> increased profit -> lead to innovation -> long term lower cost ? then the Critic is wrong 
Hence knowing   wheather the tax subsidy would in anyway contribute directly or indirectly to lower long term cost ?     is the goal

A. Whether enough wind turbines could be installed during the period covered by the tax reduction to satisfy the demand for wind-generated electricity in Mongrove
 We are not concerned about meeting the demand for electricity ! We have production capacity still we don't see a lot of buyer - this won't help us evaluate if long term cost decrease can be achieved through lowering taxes at present

C. How the price of wind-generated electricity in Mongrove is affected by the amount of it produced there
  Yes this relation will help us evaluate the link :  Does the following relation hold good ? 
 increased AMOUNT sold -> long term lower cost

Other options don't come close to evaluating this particular concept.  
If we try to properly understand what the summary intends to say we can jump onto the right answer without eliminating each options ( - which can be inefficient )

Raman109 · Answer

Understanding the argument - 
In an effort to lower the average price over the long term for electricity generated from wind turbines, the national government of Mongrove plans to offer large, temporary tax reductions to companies that sell wind-generated electricity, which will allow those companies to lower prices to competitive levels and thus increase the amount of wind-generated electricity they sell. - Background info. 
An economist argues that this approach will not yield the desired long-term result. - Claim. 
She claims that the tax reductions will keep prices for wind-generated electricity artificially low, (supporting premise) and thus that prices will return to their previous levels as soon as the taxes do. (main conclusion)

Which of the following information would be most valuable to know in  evaluating the economist's argument ? What is the economist's argument? "prices will return to their previous levels as soon as the taxes do."

A. Whether enough wind turbines could be installed during the period covered by the tax reduction to satisfy the demand for wind-generated electricity in Mongrove - It means that, say, the demand was 10 Giga Watts and the installed capacity was 1 Gigawatt. This option means that enough wind turbines can be installed to meet the remaining 9 Gigawatts.

But the scope is whether the lower prices can be sustained, not whether electricity demand is met during the tax period. Out of scope.

B. Whether there is currently an effective marketing campaign in Mongrove for wind-generated electricity - Out of scope.

C. How the price of wind-generated electricity in Mongrove is affected by the amount of it produced there - say, with the increase in the amount, the price decreases, and then even if the tax break goes out of effect, lower prices could still be maintained? Isnt it? Yes. So if the answer to this is yes, it weakens the economist's argument, and if not, it strengthens his argument. ok.

D. How many Mongrovian customers currently pay for wind-generated electricity even though it costs more than other forms of electricity - out of scope.

E. Whether other energy industries in Mongrove received similar tax breaks in the past - Out of scope.

illegallyblonde · Answer

GMATNinja   KarishmaB   MartyMurray  requesting your help with this question. I've been racking my brain but I can't seem to understand this. Please, if you could simplify the argument as well as help with the answer choices.

KarishmaB · Answer

Plan  : Offer large, temporary tax reductions to companies
So these companies will be able to lower prices to competitive levels
and increase the amount of wind-generated electricity they sell

Aim of the Plan  : Lower the average price over the long term for electricity generated from wind turbines

Critic of the Plan  : An economist argues that this approach will not yield the desired long-term result. Tax reductions will keep prices for wind-generated electricity artificially low, and thus that prices will return to their previous levels as soon as the taxes do.

The critic is saying that with tax cuts, price will be kept low artifically. It will not lead to actual lowering of the prices. So once tax goes back to normal levels, pricing will also go back to normal level and demand for wind elec will reduce again.

We need to evaluate the critic's argument. Is what she saying correct? What do we need to know for that?

A. Whether enough wind turbines could be installed during the period covered by the tax reduction to satisfy the demand for wind-generated electricity in Mongrove

Irrevelant. The question makes no sense. The demand for wind-generated electricity in Mongrove depends on its price. This option doesn't tell us whether the price will reduce or not after the tax period. If you are able to install more wind turbines will it increase the pricing or decrease it? If you are not able to, then?

B. Whether there is currently an effective marketing campaign in Mongrove for wind-generated electricity

Marketing campaign is out of scope.

C. How the price of wind-generated electricity in Mongrove is affected by the amount of it produced there

Correct. Say price reduces when more wind-generated electricity is produced. Then the tax cut period could lead to actual decrease in pricing (because tax cuts would lead to more production) of wind-generated electricity, not just artificial decrease. So when the taxes are back to original levels, the price of wind generated electricity will remain lower than now. Then the critic is not correct.
If the price does not reduce when more of wind-generated electricity is produced in Mangrove, then it will be an artificial decraese for a limited time and the critic is correct.

D. How many Mongrovian customers currently pay for wind-generated electricity even though it costs more than other forms of electricity

Irrelevant.

E. Whether other energy industries in Mongrove received similar tax breaks in the past

Again irrelevant.

Answer (C)

Dbrunik · Answer

Hi, Can you please help me understand D in more detail? When i read this, i thought that D was the answer because i interpreted it as a possible either/or before the economists argument. For example, if 100% of mongrovians pay for it anyways, despite its relative costs, or if 0% pay for it, because its too expensive, wouldnt that change the pricing dynamic after a tax reduction is implemented? for example, if there are currently 0% and teh tax reduction is implemented, can we not assume that some people would then take advantage of it, and even if the tax expires, that some would still pay for anyways? im having trouble ruling this one out.

Dbrunik · Answer

Hi, Can you please help me understand D in more detail? When i read this, i thought that D was the answer because i interpreted it as a possible either/or before the economists argument. For example, if 100% of mongrovians pay for it anyways, despite its relative costs, or if 0% pay for it, because its too expensive, wouldnt that change the pricing dynamic after a tax reduction is implemented? for example, if there are currently 0% and teh tax reduction is implemented, can we not assume that some people would then take advantage of it, and even if the tax expires, that some would still pay for anyways? im having trouble ruling this one out.

soumyab12 · Answer

Hi, could someone kindly clarify this? I had the same thoughts - if a good enough percentage of citizens currently pay for the high price of wind-generated electricity (the price before tax relief), then we can say that when prices come back to this rate in the long-term, people will still be be okay to pay them?

GMATQuizMaster · Answer

Hi  soumyab12 ,

I am afraid you have not understood the conclusion here.

The conclusion is -  this approach will not yield the desired long-term result.  
  What is the desired long-term result? It is to lower the average price.  
  So, the conclusion becomes- this approach will not lower the average price over the long term  .

So, the conclusion is not about paying capacity or will people buy this electricity or not. It is about the impact on average price in the long term.

Learning: Always make sure you understand the passage as well as the conclusion well!

Good luck!

In an effort to lower the average price over the long term for electri

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Critical Reasoning (CR) Questions

In an effort to lower the average price over the long term for electri

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards