Premises:
If the reviewer knows the city well, she must see that the writer knows the city as well as the reviewer to trust the author and the tale. This maker her enjoy a good novel more.
Lee's second novel is set in SF and in this novel too, as in his first, he passes the reviewer's test - i.e. he knows the city in which the tale is set as well as the reviewer.

(A) The book reviewer enjoys virtually any novel written by a novelist whom she trusts
No. If she trusts the author, she trusts the tale which increases her enjoyment of a GOOD tale. If the tale is not good, she may not like it - we don't know.

(B) If the book reviewer trusts the novelist as a storyteller, the novel in question must be set in a city the book reviewer knows well
The argument doesn't tell us what she does in case she herself doesn't know the city. So we cannot infer this.

(C) Peter Lee's first novel was set in San Francisco
Not given in the argument.

(D) The book reviewer does not trust any novel set in a city that she does not know well
Again, the argument doesn't tell us what she does in case she herself doesn't know the city. So we cannot infer this.

(E) The book reviewer does not believe that she knows San Francisco better than Peter Lee does
Since Lee passes the test with flying colors, it means he knows SF as well as the reviewer. So the reviewer does not believe that she knows SF better than Lee. This is correct. We can infer this.

Answer (E)
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Hi

Let us try to understand the argument first:

Let A = Book reviewer knows the city well
B = novel shows that the story teller knows the city as much as the Book reviewer does.

CASE 1: If A AND B-> take the story teller seriously -> trust the story teller & trust the tale -> increase enjoyment level of a good novel

CASE 2: If A AND NOT B -> do not trust the story teller

The book reviewer uses the above to test story tellers. It should be noted that the test does not address anything about scenarios where the book reviewer does not know a city well.

Lets analyze the last statement: Peter Lee's second novel is set in San Francisco, in this novel, as in his first, Lee passes my test with flying colours.
This means that Peter Lee wrote 2 novels. The second book is set in San Francisco. Lee passes the book reviewer's test in both first and second book.

This means:
Book 2: Set in San Francisco. Passes book reviewer's test (i.e. CASE 1). Therefore, the book reviewer knows San Francisco. The story teller knows San Francisco as much as the Book reviewer does.
Book 1: Set in some city. Passes book reviewer's test (i.e. CASE 1). Therefore, the book reviewer knows the city. The story teller knows the city as much as the Book reviewer does.

With this understanding, let us evaluate the options:

(A) The book reviewer enjoys virtually any novel written by a novelist whom she trusts
The book reviewer says "This trust increases my enjoyment of a good novel".
1. "this trust" talks about the particular trust that is gained when the story teller demonstrates that he knows the city as much as the book reviewer does.
2. "good novel" implies that the above trust -> increase enjoyment level when the novel is good. The statement does not address the scenario where the book reviewer does not consider a novel as good.
So cant infer Option A

(B) If the book reviewer trusts the novelist as a storyteller, the novel in question must be set in a city the book reviewer knows well.
The option confuses necessary & sufficient conditions. The book reviewer says "When a novelist demonstrates the required knowledge, I trust the story teller". It does not say that Only when the novelist demonstrates the knowledge does he trust the story teller.
If X-> Y, we cant say that if Y occurs then X must have occured unless there is no other factor Z-> Y

(C) Peter Lee's first novel was set in San Francisco
Wrong interpretation. Book reviewer knew the city but that does not mean that it has to be San Francisco.

(D) The book reviewer does not trust any novel set in a city that she does not know well
Cannot be inferred.
If X-> Y, we cant say that if X has not occurred Y will not occur since some other factor Z -> Y

(E) The book reviewer does not believe that she knows San Francisco better than Peter Lee does
Correct answer. Peter's second novel that is set in San Francisco passes the book reviewer's test (i.e. CASE 1 - A AND B). Therefore B has occurred i.e. The story teller knows the city as much as the book reviewer does. Therefore, the book reviewer does not believe that she knows San Francisco better than Peter does.

Solved it in less than a minute.
If you read between lines, Options A, B and D are extreme options.
Look for the words 'ONLY', 'ANY' etc.
Generally, the extreme statements are not correct in GMAT.
Option C is picked from the argument. (remember it's an inference question).

Hence, option E is correct.

Story teller knows the city as much as Reviewer knows the city----> Trust the story Teller & Story---->Enjoy reading the Novel.
Fake Story Teller -------------> No trust in the story teller.

Among the given options only (E) flows from the passage...
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but the reviewer only say Lee knows the city as well as he does. it can't be inferred that he knows the city less than Lee.
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Consider the highlighted part carefully here -



If Knowledge of Lee > Knowledge of Reviewer
If Knowledge of Lee < Knowledge of Reviewer
If Knowledge of Lee = Knowledge of Reviewer

So, you see the scenario gets restricted to only the 3rd scenario, any any deviation from it can not be inferred...

Check option (E)

Option (E) negates the possibility of scenario 2 , hence this clearly follows from the stimulus and we can correctly infer this....

Hope this helps !!
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Book Review: When I read a novel set in a city I know well, I must see that the writer knows the city as well as I do if I am to take that writer seriously. If the writer is faking I know immediately and do not trust the writer. When a novelist demonstrates the required knowledge, I trust the story teller, so I trust the tale. This trust increases my enjoyment of a good novel. Peter Lee's second novel is set in San Francisco, in this novel, as in his first, Lee passes my test with flying colours.

Which one of the following can be properly inferred from the passage?