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# To protect certain fledgling industries, the government of

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21 Dec 2004, 04:39
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To protect certain fledgling industries, the government of country Z banned imports of the types of products those industries were starting to make. As a direct result, the cost of those products to the buyers, several export-dependent industries in Z, went up, sharply limiting the ability of those industries to compete effectively in their export markets.

Which of the following conclusions about country Z's adversely affected export-dependent industries is best supported by the passage?
(A) Profit margins in those industries were not high enough to absorb the rise in costs mentioned above.
(B) Those industries had to contend with the fact that other countries banned imports from country Z.
(C) Those industries succeeded in expanding the domestic market for their products.
(D) Steps to offset rising materials costs by decreasing labor costs were taken in those industries.
(E) Those industries started to move into export markets that they had previously judged unprofitable.

[Reveal] Spoiler:
When the cost of the products rose, the competitive ability of those export-dependent industries that bought them was sharply limited. This fact strongly supports the claim that those industries did not have sufficiently high profit margins to enable them to absorb the price increase, so choice A is the best answer.
Given the limitation on their competitive ability, it is unlikely that those industries would be able either to expand their domestic markets (choice C) or to enter into new export markets (choice E). The other choices relate situations that would be possible but that are not strongly supported: other countries could have continued topermit imports from Z (choice B), and the industries may have unable to decrease labor costs (choice D).

What I don't understand from the explanation was how do they know for sure the profit margin is not "high"? What if the cost of product rose in other countries as well? What if the companies sell at higher price but high quality products therefore the profit margin is still as high as before? You know what I go about this!! There is no guarantee at all about profit here reguarding to the cost if we don't contribute to other factors. Therefore, this cannot be a conclusion. What do you think? This is question 95 from OG by the way.
[Reveal] Spoiler: OA
If you have any questions
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Re: To protect certain fledgling industries, the government of [#permalink]

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21 Dec 2004, 22:02
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What I don't understand from the explaination was how do they know for sure the profit margin is not "high"? What if the cost of product rose in other countries as well? What if the companies sell at higher price but high quality products therefore the profit margin is still as high as before? You know what I go about this!! There is no guarantee at all about profit here reguarding to the cost if we don't contribute to other factors. Therefore, this cannot be a conclusion. What do you think? This is question 95 from OG by the way.

Well, first of all I would say that their response is by far the BEST response of the bunch, so it's clearly the right one. You make good points, but don't argue for any of the other responses. To answer your questions...
1. it doesn't matter if the profit margins were high or not, they weren't high enough to absorb the additional costs or their ability to compete wouldn't have been affected.
2. Again, it doesn't matter if the prices rose in other countries, because the question TELLS you that the company in question had a limited ability to compete.

I think, generally, you are missing the fact that we are told that the export-dependent firm's ability to compete was severely limited. This tells you that they incurred problems due to newly expensive inputs. All of your recovery schemes allow them to not incur problems, but we already know that they did. I hope that makes sense.
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22 Dec 2004, 04:53
Well, that makes sense better than OG. Thanks
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05 Oct 2015, 11:04
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13 Jul 2016, 03:29
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First of all this is more of an ASSUMPTION question disguised as a MOST SUPPORTED question.
Although rare, but this language might creep up to you especially if you are doing exceedingly well in test. SO Beware of such GMAT TRICKS.

Just to present a clear and easy picture of the argument, I will tell you this argument in a story form.

As the loss in the local cotton industry started increasing, Bangladesh government banned cotton from India and Egypt because INDIAN and EGYPTIAN were supplying the best cotton at a cheap price to local companies of Bangladesh.

Now there was a shirt making company in Bangladesh called "GREAT-SHIRTS". "Great-shirts" was a new startup that made superior quality lightest cotton shirts favoured by many people worldwide. Great-shirts always used either Indian or Egyptian cotton to make it's shirt. After the ban every garment making company in Bangladesh had to buy local cotton. But demand was more than supply, so the rate of Bangladesh cotton increased.

As a result of all this, great-shirts was not able to to sell his beautiful shirts all over the world.

SO NOW WE HAVE TO FIND OUT WHY GREAT-SHIRTS WAS UNABLE TO SELL SHIRTS.

(A) Profit margins in those industries were not high enough to absorb the rise in costs mentioned above.
MEANING:-Profit of GREAT-SHIRTS was NOT so high that it could afford the sudden high prices of Bangladesh cotton. May be buying cheap cotton from INDIA was the only way for the company to make profit. With that cheap cotton gone, the company was not able to maintain its world wide distributors or cost of shipping or other overseas operations

Great shirts profit was not very large. It has limited $=====> It can't buy much Bangladeshi cotton because price went high. ==> so it can't make much shirts because it does not have more$ to buy more cotton===> Since number of shirt is less and money is tight so it can't export or its export become very less===>so it's ability to compete in export market decreased.
HOPE YOU GET IT

Now you can read the original question and see how nicely it fits.

qhoc0010 wrote:
To protect certain fledgling industries, the government of country Z banned imports of the types of products those industries were starting to make. As a direct result, the cost of those products to the buyers, several export-dependent industries in Z, went up, sharply limiting the ability of those industries to compete effectively in their export markets.

Which of the following conclusions about country Z's adversely affected export-dependent industries is best supported by the passage?
(A) Profit margins in those industries were not high enough to absorb the rise in costs mentioned above.
(B) Those industries had to contend with the fact that other countries banned imports from country Z.
(C) Those industries succeeded in expanding the domestic market for their products.
(D) Steps to offset rising materials costs by decreasing labor costs were taken in those industries.
(E) Those industries started to move into export markets that they had previously judged unprofitable.

[Reveal] Spoiler:
When the cost of the products rose, the competitive ability of those export-dependent industries that bought them was sharply limited. This fact strongly supports the claim that those industries did not have sufficiently high profit margins to enable them to absorb the price increase, so choice A is the best answer.
Given the limitation on their competitive ability, it is unlikely that those industries would be able either to expand their domestic markets (choice C) or to enter into new export markets (choice E). The other choices relate situations that would be possible but that are not strongly supported: other countries could have continued topermit imports from Z (choice B), and the industries may have unable to decrease labor costs (choice D).

What I don't understand from the explanation was how do they know for sure the profit margin is not "high"? What if the cost of product rose in other countries as well? What if the companies sell at higher price but high quality products therefore the profit margin is still as high as before? You know what I go about this!! There is no guarantee at all about profit here reguarding to the cost if we don't contribute to other factors. Therefore, this cannot be a conclusion. What do you think? This is question 95 from OG by the way.

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Last edited by LogicGuru1 on 30 Aug 2016, 08:27, edited 3 times in total.
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15 Jul 2016, 22:39
I have a doubt in option B. We need to prove that export industry was adversely affected. Option B proves that just as well as A. If other countries ban country Z's exports, the export company will be impacted adversely.
Any explanation to my query pls .
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16 Jul 2016, 00:57
LogicGuru1 wrote:

First of all this is more of an ASSUMPTION question disguised as a MOST SUPPORTED question.
Although rare, but this language might creep up to you especially if you are doing exceedingly well in test. SO Beware of such GMAT TRICKS.

Just to present a clear and easy picture of the argument, I will tell you this argument in a story form.
Bangladesh cotton industry was dying because no company in their country was buying cotton from them.
Bangladesh government banned cotton from India and Egypt because INDIAN and EGYPT were supplying the best cotton at a cheap price to local companies of Bangladesh.
Now there was another company in Bangladesh called "GREAT-SHIRTS". Great-shirts was a new startup that made the best lightest cotton shirts favoured by many people worldwide. Great-shirts always used either Indian or Egyptian cotton to make their shirt. After the ban every company in Bangladesh had to buy local cotton. But demand was more than supply, so the rate of bangladesh cotton increased.
As a result of all this, great-shirts was not able to to sell his beautiful shirts all over the world.

SO NOW WE HAVE TO FIND OUT WHY GREAT-SHIRTS WAS UNABLE TO SELL SHIRTS.

(A) Profit margins in those industries were not high enough to absorb the rise in costs mentioned above.
MEANING:-Profit of GREAT-SHIRTS was NOT so high that it could afford the sudden high prices of Bangladesh cotton. May be buying cheap cotton from INDIA was the only way for the company to make profit. With that cheap cotton gone, the company was not able to maintain its world wide distributors or cost of shipping or other overseas operations
It can't buy much cotton. ==> so it can't make many shirts===> so it can't import===>so it's ability to compete in export market decreased.

HOPE YOU GET IT

Now you can read the original question and see how it fits.

qhoc0010 wrote:
To protect certain fledgling industries, the government of country Z banned imports of the types of products those industries were starting to make. As a direct result, the cost of those products to the buyers, several export-dependent industries in Z, went up, sharply limiting the ability of those industries to compete effectively in their export markets.

Which of the following conclusions about country Z's adversely affected export-dependent industries is best supported by the passage?
(A) Profit margins in those industries were not high enough to absorb the rise in costs mentioned above.
(B) Those industries had to contend with the fact that other countries banned imports from country Z.
(C) Those industries succeeded in expanding the domestic market for their products.
(D) Steps to offset rising materials costs by decreasing labor costs were taken in those industries.
(E) Those industries started to move into export markets that they had previously judged unprofitable.

[Reveal] Spoiler:
When the cost of the products rose, the competitive ability of those export-dependent industries that bought them was sharply limited. This fact strongly supports the claim that those industries did not have sufficiently high profit margins to enable them to absorb the price increase, so choice A is the best answer.
Given the limitation on their competitive ability, it is unlikely that those industries would be able either to expand their domestic markets (choice C) or to enter into new export markets (choice E). The other choices relate situations that would be possible but that are not strongly supported: other countries could have continued topermit imports from Z (choice B), and the industries may have unable to decrease labor costs (choice D).

What I don&#39;t understand from the explanation was how do they know for sure the profit margin is not "high"? What if the cost of product rose in other countries as well? What if the companies sell at higher price but high quality products therefore the profit margin is still as high as before? You know what I go about this!! There is no guarantee at all about profit here reguarding to the cost if we don&#39;t contribute to other factors. Therefore, this cannot be a conclusion. What do you think? This is question 95 from OG by the way.

This is definitely not an assumption questions, but an inference question. The prompt gives no conclusion, but just a set of facts about something going on. The task is to take the info and figure out the answer choice that must be true according to the given facts.

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19 Jul 2016, 05:20
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mjmhtjain wrote:
I have a doubt in option B. We need to prove that export industry was adversely affected. Option B proves that just as well as A. If other countries ban country Z's exports, the export company will be impacted adversely.
Any explanation to my query pls .

No, we do not "need to prove that export industry was adversely affected." The requirement is to find a statement that can be inferred from the passage (MUST BE TRUE kind). Option B MAY be one reason for the "adversely affected export-dependent industries ", but it is not necessary that the statement MUST be true (from the facts given in the passage). A ban by other countries cannot be concluded from the passage.
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Re: To protect certain fledgling industries, the government of [#permalink]

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19 Jul 2016, 10:55
LXVE wrote:
LogicGuru1 wrote:

First of all this is more of an ASSUMPTION question disguised as a MOST SUPPORTED question.
Although rare, but this language might creep up to you especially if you are doing exceedingly well in test. SO Beware of such GMAT TRICKS.

Just to present a clear and easy picture of the argument, I will tell you this argument in a story form.
Bangladesh cotton industry was dying because no company in their country was buying cotton from them.
Bangladesh government banned cotton from India and Egypt because INDIAN and EGYPT were supplying the best cotton at a cheap price to local companies of Bangladesh.
Now there was another company in Bangladesh called "GREAT-SHIRTS". Great-shirts was a new startup that made the best lightest cotton shirts favoured by many people worldwide. Great-shirts always used either Indian or Egyptian cotton to make their shirt. After the ban every company in Bangladesh had to buy local cotton. But demand was more than supply, so the rate of bangladesh cotton increased.
As a result of all this, great-shirts was not able to to sell his beautiful shirts all over the world.

SO NOW WE HAVE TO FIND OUT WHY GREAT-SHIRTS WAS UNABLE TO SELL SHIRTS.

(A) Profit margins in those industries were not high enough to absorb the rise in costs mentioned above.
MEANING:-Profit of GREAT-SHIRTS was NOT so high that it could afford the sudden high prices of Bangladesh cotton. May be buying cheap cotton from INDIA was the only way for the company to make profit. With that cheap cotton gone, the company was not able to maintain its world wide distributors or cost of shipping or other overseas operations
It can't buy much cotton. ==> so it can't make many shirts===> so it can't import===>so it's ability to compete in export market decreased.

HOPE YOU GET IT

Now you can read the original question and see how it fits.

qhoc0010 wrote:
To protect certain fledgling industries, the government of country Z banned imports of the types of products those industries were starting to make. As a direct result, the cost of those products to the buyers, several export-dependent industries in Z, went up, sharply limiting the ability of those industries to compete effectively in their export markets.

Which of the following conclusions about country Z's adversely affected export-dependent industries is best supported by the passage?
(A) Profit margins in those industries were not high enough to absorb the rise in costs mentioned above.
(B) Those industries had to contend with the fact that other countries banned imports from country Z.
(C) Those industries succeeded in expanding the domestic market for their products.
(D) Steps to offset rising materials costs by decreasing labor costs were taken in those industries.
(E) Those industries started to move into export markets that they had previously judged unprofitable.

[Reveal] Spoiler:
When the cost of the products rose, the competitive ability of those export-dependent industries that bought them was sharply limited. This fact strongly supports the claim that those industries did not have sufficiently high profit margins to enable them to absorb the price increase, so choice A is the best answer.
Given the limitation on their competitive ability, it is unlikely that those industries would be able either to expand their domestic markets (choice C) or to enter into new export markets (choice E). The other choices relate situations that would be possible but that are not strongly supported: other countries could have continued topermit imports from Z (choice B), and the industries may have unable to decrease labor costs (choice D).

What I don&#39;t understand from the explanation was how do they know for sure the profit margin is not "high"? What if the cost of product rose in other countries as well? What if the companies sell at higher price but high quality products therefore the profit margin is still as high as before? You know what I go about this!! There is no guarantee at all about profit here reguarding to the cost if we don&#39;t contribute to other factors. Therefore, this cannot be a conclusion. What do you think? This is question 95 from OG by the way.

This is definitely not an assumption questions, but an inference question. The prompt gives no conclusion, but just a set of facts about something going on. The task is to take the info and figure out the answer choice that must be true according to the given facts.

Sent from my SM-G928T using GMAT Club Forum mobile app

Good to know that you are making use of Power score bible .. (Now is that an assumption or an inference) !!!
_________________

Posting an answer without an explanation is "GOD COMPLEX". The world doesn't need any more gods. Please explain you answers properly.
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20 Jul 2016, 03:39
qhoc0010 wrote:
To protect certain fledgling industries, the government of country Z banned imports of the types of products those industries were starting to make. As a direct result, the cost of those products to the buyers, several export-dependent industries in Z, went up, sharply limiting the ability of those industries to compete effectively in their export markets.

Which of the following conclusions about country Z's adversely affected export-dependent industries is best supported by the passage?
(A) Profit margins in those industries were not high enough to absorb the rise in costs mentioned above.
(B) Those industries had to contend with the fact that other countries banned imports from country Z.
(C) Those industries succeeded in expanding the domestic market for their products.
(D) Steps to offset rising materials costs by decreasing labor costs were taken in those industries.
(E) Those industries started to move into export markets that they had previously judged unprofitable.

[Reveal] Spoiler:
When the cost of the products rose, the competitive ability of those export-dependent industries that bought them was sharply limited. This fact strongly supports the claim that those industries did not have sufficiently high profit margins to enable them to absorb the price increase, so choice A is the best answer.
Given the limitation on their competitive ability, it is unlikely that those industries would be able either to expand their domestic markets (choice C) or to enter into new export markets (choice E). The other choices relate situations that would be possible but that are not strongly supported: other countries could have continued topermit imports from Z (choice B), and the industries may have unable to decrease labor costs (choice D).

What I don't understand from the explanation was how do they know for sure the profit margin is not "high"? What if the cost of product rose in other countries as well? What if the companies sell at higher price but high quality products therefore the profit margin is still as high as before? You know what I go about this!! There is no guarantee at all about profit here reguarding to the cost if we don't contribute to other factors. Therefore, this cannot be a conclusion. What do you think? This is question 95 from OG by the way.

Correct answer is A. Production cost rises sharply hence the selling cost. Due to which the export dependent countries sold the product at much higher rates, and there were certain countries who were selling the product at lower rates and they directly competed with the industries in Z. To provide support to above reasoning, A is best alternative.
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20 Jul 2016, 05:05
chetan2u
could you pls explain the answer using numbers? Thank you
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20 Jul 2016, 11:29
rahulkashyap wrote:
chetan2u
could you pls explain the answer using numbers? Thank you

Suppose company Ez is a car manufacturer in country Z. It manufactures and exports cars. In order to manufacture cars, Ez requires gear boxes. It used to import gearbox from a company Ey, which is in country Y, for a cost of C1 (10) per gearbox.

The total cost for producing a car was C (100) = C1 (10) + C2 (90), where C2 = all costs other than the cost of gear box.
The selling price for the car was S (105) and hence company Ez used to make a profit of S-C (105-100= 5).

Now the law prohibited import, hence company Ez is now compelled to buy gear boxes from a local company Fz ( a "fledging company" whom the government is supporting) at higher cost of C1 + d (10+ 6 = 16)

Now the total cost of producing a car becomes Ch = C1 +d + C2 (16 + 90 = 106)

Now profit is S - C1-d-C2 (105 - 106 = -1, negative)

Now option A states "Profit margins in those industries were not high enough to absorb the rise in costs mentioned above.", i.e. S - C1 - C2 (5 ) is not enough that the rise in cost d (6) can be observed. In other words,

S-C1-C2 (5) is not high enough that further subtracting d (6) from the profit would result in a positive profit. i.e.

S-C1-C2-d < 0 (5-6<0)
or S-C1-C2 < d (5<6)
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Re: To protect certain fledgling industries, the government of [#permalink]

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30 Oct 2016, 01:44
Is it talking about raw material and final product kind of business? I understood it as lets say country A has mobile manufacturing companies so it has banned import of mobiles , if so how price of mobile is increased considering option A as right answer choice?

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30 Oct 2016, 14:38
gmat4varun wrote:
Is it talking about raw material and final product kind of business? I understood it as lets say country A has mobile manufacturing companies so it has banned import of mobiles , if so how price of mobile is increased considering option A as right answer choice?

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Consider that group A consists of the industries that the government is protecting. Industry group A manufactures product aa. Another group of industry (say group B) buys aa and produces bb, which is then exported. (aa is the raw material and bb the finished product for B)

Banning import of aa increase the price of aa, in turn increasing the cost of producing bb and thereby reducing profit margin of the group B industries.
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31 Oct 2016, 03:28
I was able to understand by example where raw material and final product industry is associated.But does it only applicable in these type of cases? Do we have any clue that incates any relationship between two industries , one whose import was banned and the other one?

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31 Oct 2016, 10:58
gmat4varun wrote:
I was able to understand by example where raw material and final product industry is associated.But does it only applicable in these type of cases? Do we have any clue that incates any relationship between two industries , one whose import was banned and the other one?

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"As a direct result, the cost of those products to the buyers, several export-dependent industries in Z, went up"...this part explicitly states the relation between the two industries.
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Re: To protect certain fledgling industries, the government of [#permalink]

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27 Nov 2016, 14:59
I agree with all the explanations given above, but can someone guide me as to why E is not the best answer here? I am hanging between A & E.
The premise states that " as a result.........................sharply limiting the ability of those industries to compete effectively in their export markets." Now, any company would logically try different markets, albeit they deemed those markets unprofitable at first.
Am i assuming too much?
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Re: To protect certain fledgling industries, the government of [#permalink]

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01 Dec 2016, 05:39
colorblind wrote:
I agree with all the explanations given above, but can someone guide me as to why E is not the best answer here? I am hanging between A & E.
The premise states that " as a result.........................sharply limiting the ability of those industries to compete effectively in their export markets." Now, any company would logically try different markets, albeit they deemed those markets unprofitable at first.
Am i assuming too much?

Nothing in the passage confirms that those industries actually moved to a different market. For a conclusion question a MUST TO BE TRUE condition should be satisfied. It is possible that those industries did not move to new markets.
Re: To protect certain fledgling industries, the government of   [#permalink] 01 Dec 2016, 05:39
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