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# Consumers in California seeking personal loans have fewer

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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08 Mar 2016, 23:13
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The argument states that the banks in California charge a higher rate of interest to consumers because of a dearth of banks in California. Hence the reason stated is the lack of competition among banks. Answer choice stating any other factor for the same can be the answer."A" states a different reason altogether. The reason is the higher wages banks need to pay qualified workers which is completely different from the reason stated in the argument. Hence "A" is the answer.
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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24 Mar 2016, 23:46
A - try to weaken the conclusion "shortage of competition among banks explains (X) why interest rates on personal loans in California are higher than in any other region(Y)" by giving alternative - high wage for employees (Z) gets the bank to charge the higher % for Deposits (K) and it may also necessitate to increase % (Y) not only lack of competition(X).

X not - >Y but ? K may also -> Y

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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18 Jun 2016, 01:07

Explanation :- As I have said again and again in all my critical reasoning post. The success to critical reasoning depends on isolating the premise and conclusion. Depending on what the question is asking, we then evaluate the options, based solely upon premise or conclusion.
This is a weaken question and we will evaluate the answer choices based only on the Conclusion of the argument.

Lets quickly identify and isolate the premise and conclusion
Premise 1) Only a small number of banks in California gives personal loans to people.
Premise 2) Because of small number of banks there is no competition among these banks.
Conclusion) Since there is no competition the bank charge higher interest rate.

So as we can see according to the reasoning of the argument:- Higher interest rate are because of lack of competition in California.. Now if we want to weaken this argument then we will have to show that higher interest rate are not because of lack of competition but higher interest rate are because of some other reason.

The answer choice that will show another reason for higher interest rate will be correct

Consumers in California seeking personal loans have fewer banks to turn to than do consumers elsewhere in the United States. This shortage of competition among banks explains why interest rates on personal loans in California are higher than in any other region of the United States.
Which of the following, if true, most substantially weakens the conclusion above?

(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of me services they offer
HOLD IT .. SOUNDS VAGUE BUT RELATED TO OUR OBJECTIVE (OUR OBJECTIVE IS TO SHOW THAT THERE IS ANOTHER REASON FOR HIGH INTEREST)

(B) Personal loans are riskier than other types of loans, such as home mortgage loans, that banks make.
WRONG:- This is just telling us that some loans are riskier than other. It is not mentioning competition or high interest rate. DISCARD THIS OPTION

(C) Since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the United States, they are no less secure than deposits elsewhere.
WRONG:- This is strengthening the argument. If all back have same security , then all bank should follow similar banking practise. It is not showing why the interest rate is higher. DISCARD THIS OPTION

(D) The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States.
WRONG:-Some guys may chose it as a correct answer but remember this is out of scope. It does not talk about how competition or lack of it affects interest rates. It is not addressing our conclusion. DISCARD THIS OPTION

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors
WRONG:- This is contradicting the premise and conclusion both by saying interest rate are lower and competition is less DISCARD THIS OPTION

so we are left with option A
Now lets recheck it quickly
(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of me services they offer
RIGHT :- Now we can see why this choice is right. This options tells us that because California bank pay more to their employee, they charge their customers more for everything; not only personal loans but for every service. California bank charge more for locker, more for saving account, more for credit card annual fees, more for car loans, more for education loans. AND THIS OPTION ALSO TELL US THAT CALIFORNIA BACK CHARGE MORE NOT BECAUSE OF LACK OF COMPETITION BUT BECAUSE ITS EMPLOYEES ARE THE BEST IN BUSINESS AND THEY BANK HAD TO PAY THEM MORE MONEY THAN BANKS IN OTHER AMERICAN CITIES.

Essentially this option destroys the conclusion by telling not only personal loans but all baking services charge more and that the reason for it is not the lack of competition

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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21 Jun 2016, 06:19
My ans. A , below is the explanation :

What to weaken : Shortage of competition among banks explains why interest rates on personal loans in California are higher than in any other region of the United States.

Lets check whcih option fails to weak this conclusion

(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of me services they offer
seems reasonable why banks in california charge more depositors for many of their services . Lets keep this option

(B) Personal loans are riskier than other types of loans, such as home mortgage loans, that banks make.

General and Out Of Scope . Doesn't expalin any reason why specifically bank in california charges more interset for Personal loans. eliminate this

(C) Since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the United States, they are no less secure than deposits elsewhere.
This doesn't expalin the difference between charges of banks in US or california. eliminate this

(D) The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States.

This strengthen the conclusion and doesn't weaken . eliminate this

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

It doesn't explain the situation in hand ( why California bank charges more interset on personal loans). It explains the out of scope situation that why califonia banks providing less interest to depositors. eliminate this

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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24 Jul 2016, 03:40
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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24 Jul 2016, 04:23
VeritasPrepKarishma
keeping in mind the conclusion, shortage of competition for me B looked out of scope
am I right?

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Re: Consumers in California seeking personal loans have fewer [#permalink]

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25 Jul 2016, 00:51
paidlukkha wrote:
VeritasPrepKarishma
keeping in mind the conclusion, shortage of competition for me B looked out of scope
am I right?

Yes, it is out of scope. It is something that affects all banks. So it does nothing to differentiate between California banks and other banks.
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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25 Jul 2016, 00:51
This topic have been merged with: http://gmatclub.com/forum/topic-97871.html

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28 Sep 2017, 00:46
Consumers in California seeking personal loans have fewer banks to turn than do consumers elsewhere in the US. This shortage of competition among banks explains why interest rates on personal loans in California are higher than in any other region of the US.
Which of the following, if true, most substantially weakens the conclusion above?

(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of the services they offer.
(B) Personal loans are riskier than other types of loans, such as home mortgage loans, that banks make.
(C) Since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the United States, they are no less secure than deposits elsewhere.
(D) The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States.
(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

Can some one explain option b's accuracy?

Last edited by broall on 28 Sep 2017, 00:53, edited 1 time in total.
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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10 Oct 2017, 05:30
Ravindra.here wrote:
Consumers in California seeking personal loans have fewer banks to turn than do consumers elsewhere in the US. This shortage of competition among banks explains why interest rates on personal loans in California are higher than in any other region of the US.
Which of the following, if true, most substantially weakens the conclusion above?

(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of the services they offer.
(B) Personal loans are riskier than other types of loans, such as home mortgage loans, that banks make.
(C) Since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the United States, they are no less secure than deposits elsewhere.
(D) The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States.
(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

Can some one explain option b's accuracy?

Hi Ravindra.here,

For this question, you do not need to worry about (B)'s accuracy because it just says that everyone getting a personal loan is riskier than those getting home mortgages. But the question never compares the two, so it is out of scope and cannot be the answer. To answer any GMAT question, you shouldn't bring in any outside information. For example, if the paragraph says the sky is pink, we now know for that question the sky is pink. It is not blue in that case.

Does this help?
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Re: Consumers in California seeking personal loans have fewer [#permalink]

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10 Oct 2017, 06:27
Between A and D , A gives clear alternative solution.
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Re: Consumers in California seeking personal loans have fewer   [#permalink] 10 Oct 2017, 06:27

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