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Please rate! [#permalink] New post 06 Jul 2012, 17:42
The following appeared in the opinion section of a national newsmagazine:

“To reverse the deterioration of the postal service, the government should raise the price of postage stamps. This solution will no doubt prove effective, since the price increase will generate larger revenues and will also reduce the volume of mail, thereby eliminating the strain on the existing system and contributing to improved morale.”

The writer states that raising the price of postage stamps will simultaneously raise revenue and reduce the volume of mail, which in turn will improve morale by reducing "strain" on the system.

---

The writer's argument is flawed on a number of levels. First and foremost is the relationship between revenue and volume. The revenue of a postal system, attributed to stamped delivery is equal to Price x Quantity. The writer assumes that by raising postal rates (price) revenue will increase even though quantity will decrease. Perhaps the writer should instead state that gross margins will increase, this makes more sense since the change in revenue is dependent on both the change in the price and the drop in the volume of sales due to the change in price.

This leads us to my second point: without more information it is difficult to determine if an increase in price will, in fact, lead to a decrease in volume. For many companies and institutions (especially government institutions such as the IRS), the demand for postal services is inelastic. Meaning that the number of stamps purchased by the IRS is static, based on the number of letters it has to send out, irrespective of the cost of sending those letters out.

On the other extreme, postage stamps could be extremely sensitive to price, and a small increase in the price could lead to massive declines in demand.

The writer also states that a decrease in volume will increase morale. Again this is a dubious conclusion; studies have shown that too little work on the job can be worse for morale than too much. In fact a large drop in volume could result in massive layoffs for the postal service which would almost certainly have a negative impact on morale.

The writer is also assuming that there is a strain on the postal service. I do not believe this statement to be supported by fact. Over the last decade, the internet has taken the place of much of the volume of messages travelling through the postal system; both commercial and personal correspondences. In addition, advances in automation and changes to workplace conditions have made the postal service on the more pleasant and stress free places to work.

Finally the writer is assuming that a majority of revenue comes from the sales of stamps. These days the postal service captures a much larger portion of their revenue from other services such as courier services.

Overall, the writer does not seem to have done any research nor does he seem to have any background in basic economic theory. His statement is not provable and is most likely incorrect.
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Re: Please rate! [#permalink] New post 07 Jul 2012, 15:57
Expert's post
calleo wrote:
The following appeared in the opinion section of a national newsmagazine:

“To reverse the deterioration of the postal service, the government should raise the price of postage stamps. This solution will no doubt prove effective, since the price increase will generate larger revenues and will also reduce the volume of mail, thereby eliminating the strain on the existing system and contributing to improved morale.”

The writer states that raising the price of postage stamps will simultaneously raise revenue and reduce the volume of mail, which in turn will improve morale by reducing "strain" on the system.

---

The writer's argument is flawed on a number of levels. First and foremost is the relationship between revenue and volume. The revenue of a postal system, attributed to stamped delivery is equal to Price x Quantity. The writer assumes that by raising postal rates (price) revenue will increase even though quantity will decrease. Perhaps the writer should instead state that gross margins will increase, this makes more sense since the change in revenue is dependent on both the change in the price and the drop in the volume of sales due to the change in price.

This leads us to my second point: without more information it is difficult to determine if an increase in price will, in fact, lead to a decrease in volume. For many companies and institutions (especially government institutions such as the IRS), the demand for postal services is inelastic. Meaning that the number of stamps purchased by the IRS is static, based on the number of letters it has to send out, irrespective of the cost of sending those letters out.

On the other extreme, postage stamps could be extremely sensitive to price, and a small increase in the price could lead to massive declines in demand.

The writer also states that a decrease in volume will increase morale. Again this is a dubious conclusion; studies have shown that too little work on the job can be worse for morale than too much. In fact a large drop in volume could result in massive layoffs for the postal service which would almost certainly have a negative impact on morale.

The writer is also assuming that there is a strain on the postal service. I do not believe this statement to be supported by fact. Over the last decade, the internet has taken the place of much of the volume of messages travelling through the postal system; both commercial and personal correspondences. In addition, advances in automation and changes to workplace conditions have made the postal service on the more pleasant and stress free places to work.

Finally the writer is assuming that a majority of revenue comes from the sales of stamps. These days the postal service captures a much larger portion of their revenue from other services such as courier services.

Overall, the writer does not seem to have done any research nor does he seem to have any background in basic economic theory. His statement is not provable and is most likely incorrect.
Hi Calleo,

Overall, very good! Your points are solid, and your paragraphing is good. However, I can only give this assignment a 4.

Two major action points will get you closer to a 6. First, remember that part of the assignment is to discuss how the author could strengthen his assignment. You covered many flaws with the argument--but what could persuade you that the argument was valid? What evidence is needed to correct those flaws?

Second, you do very well pointing out reasoning flaws, but the paragraph about the strain on the postal service was misplaced. Simply saying "the author is factually wrong" or "the problem the author is citing doesn't exist" is the easy way out; it's not what the test-taker wants to see! At the most basic level, you should accept the author's underlying premises (there is strain on the postal system) and focus on the logical, reasoning flaws in the argument.

I hope this helps, and keep the essays coming!

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Re: Please rate! [#permalink] New post 08 Jul 2012, 22:50
Would you add the action points in one paragraph? Or would you address each flaw individually? Could you write in the 1/2 paragraphs that would make this a 6?
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Re: Please rate! [#permalink] New post 09 Jul 2012, 07:47
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calleo wrote:
Would you add the action points in one paragraph? Or would you address each flaw individually? Could you write in the 1/2 paragraphs that would make this a 6?

Usually, two to three sentences at the end is all you need.

For example, "The author could strengthen his argument with evidence A. Additionally, evidence B and C would fix several of the flaws in his reasoning. Unfortunately, he includes none of those thing; without such data his argument is unpersuasive."

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Re: Please rate!   [#permalink] 09 Jul 2012, 07:47
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