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# The cotton farms of Country Q became so productive that that

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The cotton farms of Country Q became so productive that that [#permalink]

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26 Dec 2005, 20:50
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Official Guide for GMAT Verbal Review, 2nd Edition

Practice Question
Question No.: 73
Page: 146
Difficulty:

The cotton farms of Country Q became so productive that that market could not absorb all that they produced. Consequently, cotton prices fell. The government tried to boost cotton prices by offering farmers who took 25 percent of their cotton acreage out of production direct support payments up to a specified maximum per farm.

The government's program, if successful, will not be a net burden on the budget. Which of the following, if true, is the basis for an explanation how this could be so?

(A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

(B) Cotton production in several countries other than Q declined slightly the year that support-payment program went into effect in Q.

(C) The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level in the base year for the program.

(D) The specified maximum per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms.

(E) Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop
[Reveal] Spoiler: OA

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26 Dec 2005, 21:23
'A' makes sense.

(A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.
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26 Dec 2005, 21:34
Vivek, could you elaborate?
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26 Dec 2005, 21:48
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TeHCM,

Government is paying farmers who can take 25% of the production land out of production, so government is spending here, if there should be no burden on government, this money should come from somewhere.

So, if the prices of cotton go up, government will anyway get revenue from taxes & hence no burden.

'A' says, if cotton prices fall, there is no profit for farms, hence no tax revenue for government. So should be correct.
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26 Dec 2005, 21:58
Another one for A. Same explanation as Vivek ....revenue / cost balance.
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26 Dec 2005, 22:15
A is what I am also supporting, although this doesn't sound like a GMATically right question.

Here's my line of thinking:

Govt wants to help farmers, but doesn't want to incur loss. Which means Payments provided to farmers - Revenues form somewhere (of course pertaining to cotton sales/prices/...) > 0

Consider:
TAX1 = Tax revenues at to current price of cotton
TAX2 = Tax revenues at new (higher) price of cotton
PMTS = Total payments provided to farmers

If the Govt is successful, then it must be true that

TAX2 - PMTS > TAX1

Also NOTE that the CR only talks about Govt's success but NOT farmers' success.
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27 Dec 2005, 09:12
Vivek, thanks for your explanation. I was confused by what answer A really meant.

OA is A.
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The cotton farms of Country Q became so productive that the [#permalink]

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12 Jul 2007, 10:57
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The cotton farms of Country Q became so productive that the market could not absorb all that they produced. Consequently, cotton prices fell. The government tried to boost cotton prices by offering farmers who took 25 percent of their cotton acreage out of production direct support payments up to a specified maximum per farm.
The government's program, if successful, will not be a net burden on the budget. Which of the following, if true, is the best basis for an explanation of how this could be so?

(A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.
(B) Cotton production in several countries other than Q declined slightly the year that the support-payment program went into effect in Q.
(C) The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level in the base year for the program.
(D) The specified maximum per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms.
(E) Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop.

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12 Jul 2007, 11:01
Between A and D I go for A. D does help but does not result in zero "net" burden
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12 Jul 2007, 14:57
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A it is . It shows a correlation how the increase in farm cotton prices will affect the government revenues. By decreasing the production the cotton prices will rise and thus the revenue , consequently making up for the deficit because of direct support programs.

~sara
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12 Jul 2007, 16:50
clear A.
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The cotton farms of Country Q became so productive that the [#permalink]

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12 May 2008, 03:51
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The cotton farms of Country Q became so productive that the market could not absorb all that they produced. Consequently, cotton prices fell. The government tried to boost cotton prices by offering farmers who took 25 percent of their cotton acreage out of production direct support payments up to a specified maximum per farm.

The government’s program, if successful, will not be a net burden on the budget. Which of the following, if true, is the best basis for an explanation of how this could be so?

(A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from
taxes on farm profits.
(B) Cotton production in several counties other than Q declined slightly the year that the support-payment
program went into effect in Q.
(C) The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level
in the base year for the program.
(D) The specified maximum per farm meant that for very large cotton farms the support payments were less
per acre for those acres that were withdrawn from production than they were for smaller farms.
(E) Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop.

----
"direct support payments up to a specified maximum per farm" MEANS?
Also, it is strengthen question, isn't it? Hard to understand clearly what does question mention.
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Re: CR: Country Q prevents cottong price. [#permalink]

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12 May 2008, 06:46
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lexis wrote:
The cotton farms of Country Q became so productive that the market could not absorb all that they
produced. Consequently, cotton prices fell. The government tried to boost cotton prices by offering farmers who took 25 percent of their cotton acreage out of production direct support payments up to a specified maximum per farm.

The government’s program, if successful, will not be a net burden on the budget. Which of the following, if
true, is the best basis for an explanation of how this could be so?

(A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from
taxes on farm profits.
(B) Cotton production in several counties other than Q declined slightly the year that the support-payment
program went into effect in Q.
(C) The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level
in the base year for the program.
(D) The specified maximum per farm meant that for very large cotton farms the support payments were less
per acre for those acres that were withdrawn from production than they were for smaller farms.
(E) Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop.

----
"direct support payments up to a specified maximum per farm" MEANS?
Also, it is strengthen question, isn't it? Hard to understand clearly what does question mention.

A is the only one that works.
We have to evaluate why government will not lose money. A says that if the cotton price depressed, then the government will lose tax money. This means that the program prevent government to lose that money; thus, net budget will remains the same for the government.
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Re: CR: Country Q prevents cottong price. [#permalink]

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12 May 2008, 07:23
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This is a paradox question. How will the government provide payments to farmers to reduce their cotton production without reducing their budget. We have to figure out a way that the government can give money to the farmers and then make that money back so there is a net zero effect on the budget.

(A) Doesn't solve the paradox and actually widens it. The government loses money when it gives it to the farmers and then loses money again from the lost tax revenu.

(B) Irrelevant because it addresses production in countries other and country Q.

(C) Correct. This proves that the program works. If The program does reduce production then cotton prices will rise and the government will make up the difference from the payments through increased tax revenues from higher cotton prices.

(D) Irrelelevant. Size of farm makes no difference.

(E) Widens paradox like A becuase if the land is not used for anything else that results in reduced revenue and therefore reduced taxes for the government.
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Re: CR: Country Q prevents cottong price. [#permalink]

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12 May 2008, 07:36
gixxer1000 wrote:
(A) Doesn't solve the paradox and actually widens it. The government loses money when it gives it to the farmers and then loses money again from the lost tax revenu.

Gixxer, I don't agree that A widens paradox. Here is A:

(A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

The question is based on the assumption that the program will be successful. A successful program is when cotton prices is NOT depressed; thus, A talks about when the program is NOT successful.
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Re: CR: Country Q prevents cottong price. [#permalink]

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12 May 2008, 08:25
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bkk145 wrote:
gixxer1000 wrote:
(A) Doesn't solve the paradox and actually widens it. The government loses money when it gives it to the farmers and then loses money again from the lost tax revenue.

Gixxer, I don't agree that A widens paradox. Here is A:

(A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

The question is based on the assumption that the program will be successful. A successful program is when cotton prices is NOT depressed; thus, A talks about when the program is NOT successful.

I could see (A) being correct but not for the reason your saying.

(A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

This would mean that the government was losing tax money due to decreased cotton prices and if the program is succesful in increasing cotton prices tax revenues will now increase as well. But it is stated that the cotton prices were high, so that's a little confusing. I originally read "meant" as "means".

We are trying to solve the paradox of how the government will not lose money by giving money to farmers with the condition that the plan IS successful.

A successful program = low cotton prices. So how will low cotton prices increase revenues for the government enough to offset the payments to farmers? Sell more cotton at lower prices.
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Re: CR: Country Q prevents cottong price. [#permalink]

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12 May 2008, 08:43
A. It explains why it wouldn't be a burden. Since the government were losing money when the price falls.
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Re: CR: Country Q prevents cottong price. [#permalink]

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12 May 2008, 08:44
gixxer1000 wrote:
A successful program = low cotton prices. So how will low cotton prices increase revenues for the government enough to offset the payments to farmers? Sell more cotton at lower prices.

To me, a successful program = increased cotton price
The government is trying to boost cotton price by implementing the program...
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Re: CR: Country Q prevents cottong price. [#permalink]

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12 May 2008, 09:02
bkk145 wrote:
gixxer1000 wrote:
A successful program = low cotton prices. So how will low cotton prices increase revenues for the government enough to offset the payments to farmers? Sell more cotton at lower prices.

To me, a successful program = increased cotton price
The government is trying to boost cotton price by implementing the program...

I got you now. I totally confused myself for a minute.

"The question is based on the assumption that the program will be successful. A successful program is when cotton prices is NOT depressed; thus, A talks about when the program is NOT successfull"

I read into this statement wrong and thought you were saying that (A) indicated that the program will not be successful.

PAST:
Low cotton prices results in reduced revenue for government.

FUTURE:
Successful program results in higher prices and increased revenue for governemnt offseting payments to farmers.
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Re: CR: Country Q prevents cottong price. [#permalink]

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12 May 2008, 11:38
A for me
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Re: CR: Country Q prevents cottong price.   [#permalink] 12 May 2008, 11:38

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