An industry analyst asserted in his recent report that the relative sc

Question

An industry analyst asserted in his recent report that the relative scarcity of housing in a particular market leads to larger than normal increases in price. During the late 1990s, according to the analyst's report, occupancy rates-a measure of the percentage of housing occupied at a given time-in crowded urban markets such as New York and San Francisco hovered around 99.5%. During the same period, housing prices increased by as much as 100% per year, compared to more normal past increases in the range of 5% to 15% per year. Which of the following is an assumption that supports the analyst's assertion?

A. In the housing market, there generally must be at least five buyers per seller in order to cause larger than normal increases in price.

B. Increases in demand often reflect an influx of new buyers into the marketplace or an unusual increase in buying power on the part of the customer.

C. The U.S. housing market showed a larger than average increase in the 1990s across the country, not just in crowded urban areas.

D. Price increases do not cause people to withhold their houses from the market in the hopes that prices will increase even further in the future.

E. A significant rise in housing prices in a specific area may cause some potential buyers to relocate to other, less pricey areas.

Harley1980 · Accepted Answer

Hello  Radhika11

In this question we have cause and effect situation: scarcity of selling houses lead to price increase. 
Usually when we have such cuase-effect situation in argument, we should find an assumption that ensure that effect doesn't cause "cause" or that effect doesn't have another cause.
In this argument possible another scenario: prices go up and people with houses decide not to sell them and this lead to deficit of houses. And this is ruin conclusion of analytic:  "analyst asserted that the relative  scarcity  of housing  leads  to larger than normal  increases in price. "  
Answer D ensure that this variant doesn't has place in our situation.

Answer C is wrong because it says that in other regions, which  doesn't have scarcity , prices go up to. So this answer weaken conclusion of analytic, because there is another reason why prices go up.

jugglerG2 · Answer

Cause and Effect analysis of the argument states that Scarcity causes rise in Price. Now if the assumption in option D is negated, the situation becomes Price rise causes scarcity and the argument falls flat. D should be the answer.

shriramvelamuri · Answer

Tough call between B and C. Will go with C.

Celerma · Answer

I posted answer to this question yesterday , but I do not see my post.

Radhika11 · Answer

Can someone explain why C is wrong here ?
OA is D

souvik101990 · Answer

The question stem asks you to determine the answer choice that damages the city council's plan. Since the conclusion states that the city's finances are not negatively affected, we know that in the right answer, the city's finances MUST be negatively affected in some way. This is seen in 'C'. So you have to look at the conclusion.

NinetyFour · Answer

TOUGH question, it really makes you think.

A) not sure how this is relevant
B) this is simply a definition of demand. This does not help our argument.
C) We're talking about particular markets not the entire housing market.
D) CORRECT. The issue in the stem is whether it is truly a scarcity that is causing the price to increase. What if there wasn't a scarcity of housing and home owners were just unwilling to sell that caused the supply to drop and the price to increase? This answers that concern.
E) irrelevant

Pas4867 · Answer

This one is really tough, it took me quit a while. A didn’t take long to eliminate, of course, since it is completely irrelevant. B isn’t an assumption at all, its just the definition of demand. C introduces additional information, we are not talking about the US housing market. E is also irrelevant. So, D is the correct answer. The weakness in the original argument is that there is another reason, besides scarcity, that could cause the price increase. People might just not be selling their houses. D, however, tells us that is not the case. This removes a potential ambiguity.

adarsh1993 · Answer

Analyst assumes scarcity as the cause of price increases of properties but for this to happen one of the assumptions can be that people are not intentionally occupying the properties to boost up the prices higher that is assumption is effect is not leading to the cause and hence option D is correct

Elite097 · Answer

KarishmaB  pls explain B

A_Nishith · Answer

To support the analyst's assertion, we must identify an assumption that helps explain why scarcity drives such large price increases.
Analyzing Each Option:
(A) In the housing market, there generally must be at least five buyers per seller in order to cause larger than normal increases in price.

Analysis: This option provides a potential ratio of buyers to sellers necessary to cause price increases, but the argument is about general scarcity rather than a specific ratio. The ratio of buyers to sellers is not discussed, and this option introduces new information that is not critical to the argument.
Conclusion: This is not necessary.

(B) Increases in demand often reflect an influx of new buyers into the marketplace or an unusual increase in buying power on the part of the customer.

Analysis: This option explains a potential cause of the increase in demand. However, the argument is not focused on the cause of increased demand but rather on the relationship between scarcity (high occupancy rates) and price increases. This does not directly support the analyst’s claim about scarcity causing price increases.
Conclusion: This is not necessary.

(C) The U.S. housing market showed a larger than average increase in the 1990s across the country, not just in crowded urban areas.

Analysis: This option introduces information about a broader trend in the U.S. housing market. However, the argument focuses on specific urban markets, and the national trend does not affect the relationship between scarcity and price increases in those crowded areas.
Conclusion: This is not necessary.

(D) Price increases do not cause people to withhold their houses from the market in the hopes that prices will increase even further in the future.

Analysis: This option addresses the potential effect of price increases on seller behavior. If homeowners withheld their houses from the market in anticipation of future price increases, the scarcity would worsen, and prices could rise even more. For the analyst's assertion to hold, it is assumed that price increases do not trigger a withholding of houses that would further affect market dynamics.
Conclusion: This is necessary. The assumption that sellers are not withholding houses is important for the price increases to be purely driven by scarcity, rather than speculative behavior.

(E) A significant rise in housing prices in a specific area may cause some potential buyers to relocate to other, less pricey areas.

Analysis: This option suggests that price increases could drive buyers away, reducing demand in the original area. While this could be relevant to understanding long-term market shifts, it does not directly support the analyst’s assertion that scarcity leads to large price increases. Instead, it discusses the potential consequences of such increases.
Conclusion: This is not necessary.

Correct Answer: (D) 
Explanation:  The assumption that price increases do not cause people to withhold their houses from the market is essential for the analyst's assertion that scarcity directly drives larger-than-normal price increases. If people were withholding their houses in anticipation of further price increases, it would affect the supply and demand dynamics differently, potentially invalidating the analyst's claim.  Therefore, (D) is the assumption that supports the assertion.

akshatv45 · Answer

Cause and Effect type question.

Few things to check:
1. Cause => Effect and vice versa is not true.
2. Cause does not happen then Effect does not happen.
3. Data used to make causal statement is accurate or eliminate the gap in data that could weaken the conclusion.

In this question:

Relative Scarcity => Larger than normal increase in price (Cause => Effect)

Keeping above checks in mind, we can easily eliminate A, C, E.

Now only contenders and B and D.

Negate these options. You will see B has no effect on the Cause/Effect relationship.

D however will break the argument. If people have houses and they are withelding from letting out these properties then the scarcity is not real.

Hence the answer will be D.

VerbalBot · Answer

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