Although sales of luxury goods sharply decreased immediately

Question

Although sales of luxury goods sharply decreased immediately following the stock market crash, sales of such goods have since doubled. If the market for luxury goods is to return to its original pre-recession state, retailers must offer significant discounts on luxury goods for recession-wary consumers.

If the statements above are true, which of the following can be inferred?

A. The increase in luxury purchases can most likely be attributed to recent improvements in the state of the economy. 
B. After the stock market crash, consumers were afraid to make major purchases, especially of luxury goods. 
C. Retailers of luxury goods are currently offering no discounts on their products.
D. The stock market crash resulted in an over 50 percent decrease in sales of luxury goods. 
E. The economy would be more stable if all retailers offered additional discounts on their products during economic recessions.

sudhir18n · Accepted Answer

mba4viplav · Answer

Hmm...Very good question. I took 4.22 minutes to complete this and got the answer right

My reasoning is as follows: Fact 1: Sales of Luxury Goods decreased immediately after the stock market crash Fact 2: Sales of Luxury Goods doubled since the immediate decrease Fact 3: To return to pre-recession rate, retailers must offer significant discounts on Luxury Goods for recession-wary consumers. In "Fact 2", the author mentions that the sales of Luxury Goods have since doubled. He means, the sales have doubled from the "time immediately after the stock-market crash". The author is not comparing the sales with pre-market-crash period. Option (A) : No relevance Option (B) : Even though, this option looks like an answer, it doesn't talk about sales at all Option (C) : No relevance Option (D) : This option rightly answers our concerns about Fact 1, Fact 2 and Fact 3 Option (E) : This option states a generic statement which cannot be strongly inferred from the argument above. So, the correct answer is Option (D)

amit2k9 · Answer

consumer sales = x
after recession = 0.5x

doubling post recession 0.5x *2 = x
but it has not reached pre recession value.
Hence, k*x *2 = x where k <0.5

D is clear here.

gurpreetsingh · Answer

Awesome question.

"If the market for luxury goods is to return to its original pre-recession state, retailers must offer significant discounts on luxury goods for recession-wary consumers."
=> there is still a gap, which could be filled by giving the discounts.
Even after doubling the sales, the sales have not reached the initial level => the sales actually decreased more than 50% post market crash.

But What is wrong with B?

metallicafan · Answer

+1 D

Let's suppose that the sales of luxury goods before recession is 100.
The argument mentions that although the sales after the stock market crash has doubled, the sales has not reached the amount before that crash (100).

In this sense, the sales inmediately after tha crash must has decreased in a 51% or more. If they have decreased in 50% or less, the current sales must be 100 again. Let me illustrate it:

Before the crash: 100
Inmediately after the crash: 50
Recovery: 50 x 2 = 100 again.

D is the winner.

sowragu · Answer

Luxury goods sharply decreased and double but yet it didnt reach the pre-recession value.
For example -> L.G trading at 100 and during stock crash it falls to 51 and it doubled means its trading at 102 which is Greater than pre-recission value.
hence D is the option. Only when it falls over 50% it shouldnot hav reached the pre recission value.

umg · Answer

I have nothing new to add except that Option C is such an Obvious Trap that you should see it coming from a mile away. :wink:

Rocket7 · Answer

Guys

Can anyone provide a better reasoning why B is wrong? Is B wrong just because D makes more sense? If option D was not in the answer choices then could we still infer B from the argument?

Thanks for the input.

MRE2510 · Answer

If option D was not in the answer choices, in my opinion option B would still be wrong, the argument does not talk about why people stopped making luxury goods purchases, so one option could be  consumers were afraid to make major purchases  another option might be they lost the money for luxury goods with the recession or any other reason so option B isn't necessarily true. Therefore, for an inference question to be correct it must be always true, the only option that provides that is option D.

Hope it helps!

rishabtaneja · Answer

Hi 
I have a query regarding option D. Lets say the pre-crash price with 100, after crash it came down to 40 and sales doubled so the price is now 80. But, if the retailer offers significant discount then wouldnt it decrease the price further rather than returning to its original price of 100?

CrackverbalGMAT · Answer

Hi Rishabh

The option (D) assumes a commonly used rule in economics - decrease in price leads to an increase in demand.

Firstly, the question stem does not speak about prices of individual products but of "sales". This could refer to one of two cases:

i) Number of units of luxury products sold (in other words, volume). In this case, reduction in price directly leads to increase in "sales".
ii) Value of products sold. In this case, it is possible that reduction in price leads to disproportionate in volume such that total "sales" increases to pre-recession levels.

In either case, option (D) can be inferred from the facts given in the stimulus.

Hope this clarifies.

YashYashkratos · Answer

Definitely not a good gmat question answer D can be the option but is not certain

Posted from my mobile device

VerbalBot · Answer

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Although sales of luxury goods sharply decreased immediately

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