In the country of Veltria, the past two years' broad economic recessio

- There has been recession in which clothing sales are down by 7% in the last 2 years.
- But, the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

What is the meaning of the second sentence?
Wholesalers extend credit to retailers i.e. they supply material to retailers but say, have a 90 day credit cycle. After 90 days, the retailers need to pay for the goods given to them by wholesalers. The idea is that the retailers will get time to sell off at least part of the wares and hence get some working capital on hand to pay to the wholesalers. The second sentence tells us that the proportion of credit extended to retailers which was paid off on time (say within 90 days) decreased sharply in first year (presumably because sales of retailers were hit and they did not have enough capital on hand to pay the wholesalers on time) but, the proportion paid back returned to normal levels in year 2 of the recession. This is somewhat unexpected, right? Since recession is still there and sales are down by 7%, one might expect that proportion of credit paid back by retailers on time will stay low.

What explains this change from year 1 to year 2?

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.

Total amount of credit is irrelevant. We need to compare proportion of credit paid back on time.

(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.

If costs increased for retailers, they would find it even harder to pay back to wholesalers on time. Why then did things get normal in year 2?

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.

The retailers facing difficulties (and presumably were unable to pay on time) went out of business in year 1. Hence, only the more stable retailers were left in year 2. This explains why the proportion of pay back on time became normal in year 2.
Correct.

(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.

The sales were down by 7% in year 2. Discounts would have actually led to lower revenue in year 2 and hence it doesn't explain why retailers started paying on time again in year 2.

(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.

We are talking about the entire industry, not just a section.

Answer (C)

Of the considerable number of clothing retailers
in Veltria who were having financial difficulties
before the start of the recession, virtually all
were forced to go out of business during its
first year.

these retailers who were having financial difficulties were more likely to default on credit. so they defaulted in first year of recession and went out of business. which also means credit in the second year was extended to only those remaining in business.
the remaining were not having financial difficulties so they stayed in business and managed to pay credit by the end of second year.

Can someone please explain why C is better than D?

C assumes that retailers will gain if competitors go out of business. Is this a valid assumption given the broad economic recession?

Also, C does not indicate the percentage of businessmen who had financial difficulties.

I am leaning more towards D, although it is not clear if the attempt made by retailers was fruitful.

Thanks!

I don't see the above assumption in C. All C tries to say is that a large proportion of retailers were having financial difficulties before the start of recession; these retailers went out of business in the first year. Now, the assumption that I do see is, these people who had financial difficulties before the start of recession are likely to have missed their dues to the creditors during the first year. Thus, those who had financial difficulties ( further burdened by the recession ) during the first year could have been the reason for the unusual percentage of credit defaults. Once they were out of business, the proportion of debts that were payed off returned to prerecession levels.




C does indicate the percentage of businessmen who had financial difficulties before recession. The lines "Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced" indicate a relatively large proportion.



Even if the retailer's efforts as described by D were to be successful, considering the recession, there is no reason to think that their profit margins will be enough to payback the creditors. This further weakens D.

Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on timefell sharply in the first year of the recession but returned to its prerecession level in the second year.

let say there were 4 retailers
total revenue from all 4 let say = 100 (assume 25 from each)
now recession came now revenue dropped to 50 in first year ( assume 12.5 from each)===>so this is the proportion of credit which dropped from 25 to 12.5
now it says in second year proportion came back to normal i.e =25
now how is that possible.
let say 2 retailers close their shop so we have 2 retailer left and demand in recession is of 50 which can be equally divided between 2 i,e it will come to normal of 50...==>now this is what correct option (C) says.


(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.

hope this helps

The explanation by KeepingUp is awesome.
Here is some more info.

In the country of Veltria, the past two years' broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago. Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

ok, so in first year, a lot of companies went bankrupt, hence the proportion of credit that was paid off fell. As a result, only big/financially stable companies remained in the business. These company could pay in time so therefore in the second year, the PROPORTION was not that low as in first year.

that's how I got to the C, although I chose D first time.

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year --> The amount of extended credit is errelevant, as the argument says the proportion Payment/Credit, the amount can change but the proportion can stay the same. (paid 100 / credit 1000 = 10%; paid 200 / credit 2000 = 10 %)
(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase --> when the costs went up between 1 and 2nd years, companies can not have more money to pay for the credit - reverse: they have less money.
(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year --> CORRECT. Just eliminated the wrong answer choices to derive to ....(C). Update for (C). I have other opinion regarding WHY C is the right answer, many have stated here, ok, companies were kicked out , so that's why other companies have a better life now and can pay back the loan, because of the decreased competition --> In my opinion, if those companies were eliminated, it means that only healthy companies left there, wich can pay the credit back.
(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise --> OK, attempted, and what was the result of it ? Had the succeeded or not...?
(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession --> a) We need some information that 1st year had worse ecomic situation than 2nd --> this answer choice illustrates the reverse one. B) We don't know the share of work clothes in the whole clothes market...

In the country of Veltria, the past two years' broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago. Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

Which of the following, if true, most helps to explain the change between the first and the second year of the recession in the proportion of credit not paid off on time?

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.
(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.
(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.
(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.
(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.

*********************************************************************************************************************

=======================================================================
PreThinking:In Resolve the Paradox question the one needs to link the opposite premises by providing a fitting reason.
=======================================================================


A:Out of scope.
B:It will increase the paradox further.
C:Correct answer .Since most of the retailers were forced to go out of business the remaining were sufficinet to fulful the lowered demand and maintianed better business.
D:The attempt results are not provided so cannot be considered.
E:limited scope does not provide impact data.

Situation

Two years of recession in Veltria included a downturn in the clothing trade where sales are down 7 percent from two years ago. Yet, in the second year of the recession, the proportion of credit extended from clothing wholesalers to retailers that was paid off on time has returned to its prerecession level, after having fallen sharply during the first year.

Reasoning

Which option would most help to explain the change between the first and second year in the proportion of credit paid off on time? The apparent discrepancy in the passage that needs explaining is between the downturn in the clothing trade over the last two years and the return to prerecession rates in the proportion of credit extended to clothing retailers that was paid on time. How can the proportion this past year be similar to what it would be in a normal year? After all, one would expect retailers to have a harder time paying off credit in a recession. And what changed in the past year to bring this about? If the first year of the recession drove out of business many of the retailers who were most apt to get behind in their payments to wholesalers, then that would explain how the rate at which credit was being paid on time could be as high in the second year of the recession as it was before the recession.

(A) The fact that the absolute amount of credit that was extended to retailers went up in the second year does not help to explain why the proportion that was paid on time also went up.
(B) If anything, this would suggest that more retailers would have trouble paying their credit to wholesalers on time.
(C) Correct. This is the option that most helps to explain the phenomenon.
(D) Just because retailers tried to stimulate sales does not mean that they succeeded, and the passage tells us that the downturn in sales in the clothing trade continued into the second year.
(E) This does not change the fact that there was a downturn in sales of clothing during the first year. Furthermore, the question is why the rate of unpaid credit dropped in the second year of the recession.

GMATNinja, Could you help to explain in a simplified language? It is too complicated to visualize.

To me it was too easy so I tripled checked.
First: This is a Resolve the Paradox.

Second: The argument in very simple terms tells you that in the beginning of the economic recession the sales where higher than on the 2nd year of the recessing (by 7%). <-- SIDE A. OF THE PARADOX.
Then it follows to tell you that on the first year of the recession the paid off credit fell but on the second year it went back up. <-- SIDE B. OF THE PARADOX

In this type of problem we need to look for something that explains the 2 side (A and B) of the paradox.

I made a little drawing, because I am extremely visual, and saw that the paradox is mainly on the second year. The sales decreased but the payment of credit increased. Here is my reasoning:

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.
R: It talks about increase in extended credit to businesses from one year to another. Good for them! This is irrelevant!

(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.
R: It "could" explain why the credit was not paid off. Maybe they focused on priorities and decided to stop paying off the credit so they could pay the lighting and the actual place to sell the cloth... BUT then why did the sales fall? It doesn't explain the paradox.

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.
[b]R:[/b] Well if some stores went out of business that means that sales would fall because those stores wouldn't buy as much, but what about the increase in credit payoff? Actually, it would make sense too. "bad finance" stores are no longer "available" which means that more "good finance" stores remain. The "bad stores" are no longer affecting the percentage of paid off credit.

(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.
R: Again, talks only about PART A. OF THE PARADOX, IF it even does THAT.

(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.
R: SOOOOO OUT OF SCOPE. NO offense but who cares about the type of clothes (work)? How would that connect Para A and B of the paradox?

Premise : the past two years' broad economic recession has included a business downturn in the clothing trade
Counter Premise : that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

The argument tries to say that two years' recession resulted a downturn in the clothing trade. But, clothing wholesalers find that for first year the credit fell sharply because of recession and it came to normal in second year.

Which of the following, if true, most helps to explain the change between the first and the second year of the recession in the proportion of credit not paid off on time?

(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year. - We dont know if the increase in credit helps to explain the difference between the first and second year of recession
(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase. - This would actually increase the recession in second year
(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year. - Great. Since due to recession, some retailers were forced to close, the credit not paid would be comparatively low in second year. This is what the question intends to ask.
(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise. - Even if they discount, will the money be enough to repay. So wrong
(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession. - No connection. Out

Kudos if it helps

In the country of Veltria, the past two years' broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago. Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.

Which of the following, if true, most helps to explain the change between the first and the second year of the recession in the proportion of credit not paid off on time?


(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.
- out of scope. Who cares about the absolute number? we're concerned with addressing the CHANGE.

(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.
- how do retailer costs have anything to do with the proportion of credit wholesalers extended to them?

(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.
- correct as is. retailers couldn't pay off credit on time so they went out of business. this explains how the proportion of credit bounced back.

(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.
- out of scope. how does this relate to paying back wholesalers?

(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.
- out of scope. who cares about particular segments of the clothing trade?

Kudos please if you find this helpful

Assume: there is 100 retailer in the market and 50 of them have credit extended who paid off on time, 50/100=1/2 is the ratio.
Option C, 40 are out of business, then (50-40)/(100-40)=1/6 , sharply fell in the first year. But how to explain about the second year?

i think the key word i the argument is PROPORTION
1ST year:50% credit was returned on time
2nd year:100% credit return on time.
after 1st year,say only those people got credit,whose previous credits are clear or people who are capable of paying the debt(lanisters ,are not they?)
so in that case % of credit return will increase even though sales is less.
option C describes such a scenario where people who could not sustain the recession were out of competition and credit is extended to lesser people.

option D:
1.attempted to stimulate sale:but was it successful/was the sales enough to pay credit in time?
a lot of assumptions.

I shall give my humble input here.
1/2 is the pre-recession level.
Option C, virtually all of the remaining are forced to go out of business.Consider that out of remaining 50, 40 go out of business.
Out of the remaining 10, only 2 are able to pay off the credit at the end of first year. So, 2/10 = 1/5 is the sharp decline after the first year.(Your calculation of 1/6 is incorrect here, as it does not calculate the ratio of retailers paying their credit on time. It calculates something else )
To explain the 2nd year : During the first and the second year together, the sales of 4 retailers out of 8 increases enough that they are able to pay off their credit at the end of 2nd year. So, 4/8 = 1/2 is the ratio after 2nd year. The increase in sales during the first and second year can be attributed to the 40 retailers who went out of business during first year and subsequently their customers went to the remaining 10 retailers for purchasing their clothes.

Hi guys, Take a look

A INCORRECT – Here we are talking about the whole SUM of the money that retailers should pay to wholesalers. We do not mention PROPORTIONS. This sentence does not clarify why there was a difference between the first and the second year proportions of ON TIME paid invoices.

B INCORRECT – This means that they had less money the second year of a recession. Which could mean they will not be in time with payments to wholesalers. But the prompt says the second year the proportion got back to pre-recession state. The first year was the drop within time payments.

C CORRECT – This is exactly what we are looking for. All of those that were having financial problems = probably paying lately than agreed before. All of these businesses were forced to leave the market after the first year. What means that only financial healthy companies stayed in the market. The market got rid of not IN TIME payers and the proportion of IN TIME payments consequently got back to pre-recession times.

D INCORRECT – Discounting merchandise = could mean higher demand on those products = thus retailers could be ordering more from wholesalers. However, this doesn't mention anything about payment situation and proportion of IN TIME and NOT IN TIME payments.

E INCORRECT – Knowing that recession-proof store did not suffer any decrease in sales. This already prompts the category “recession proof“. Yes, this says the work clothes segment was probably in time with payments if it was the situation before the crisis. Because the recession does not have an impact on sales. And still do we care if there is a one segment that is recession proof and the next 20 segments that were affected by the recession? We are speaking about the whole clothing trade.