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Consumers in California seeking personal loans have fewer

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Consumers in California seeking personal loans have fewer banks to turn to than do consumers elsewhere in the US. This shortage of competition 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 US, 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 US.

(E) interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the US because in California there is less competition to attract depositors.
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Re: Consumers in California seeking personal loans have fewer  [#permalink]

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wolver123 wrote:
Consumers in California seeking personal loans have fewer banks to turn to than do consumers elsewhere in the US. This shortage of competition 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. This tells us that the banks in california charge more for some of their services because costs incurred by them are higher than those incurred by banks elsewhere. Thus it gives us a valid alternate reason for higher interest rates.

b) personal loans are riskier than other types of loans, such as home mortgage loans, that banks make. This just tells us that personal loans are riskier in general. If it stated that personal loans are specifically riskier in california then it would've been a contender. Cannot weaken the argument since it provides us with no alternate reason as to why interests rates in california are higher.

c) since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the US, they are no less secure than deposits elsewhere. This talks about deposits whereas we are interested in loans. It doesn't even try to relate the two. Not valid due to scope shift.

d) the proportion of consumers who default on their personal loans is lower in California than in any other region of the US. Could be a contender but the reasoning is indirect and doesn't tell us that a lower defaulting rate is directly responsible for higher interest rates on loans. Not valid because reasoning is weak in comparison to choice A.

e) interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the US because in California there is less competition to attract depositors. Again this talks of depositors whereas we are concerned with personal loans. In addition, the reasoning might even strengthen the argument by stressing on the fact that competition is an important factor in deciding interest rates. Not valid because of partial scope shift and partial strengthening of main conclusion.

Explanations please.



Hope this helps.

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

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New post 23 Jul 2010, 23:29
The biggest fallacy in this argument is it is causal. X -> Y shortage of competition (X) leads to higher (Y) interest rates on personal loans. If there is a reverse trend. i.e. X leads to Negative (Y) then the argument goes for a toss.

The interest rates in CA is not higher than other regions of the US because ......

Perhaps the depositors get lower interest rates since there is lack of competition. The trend reverses and weakens the argument substantially. E is correct.
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Re: Consumers in California seeking personal loans have fewer  [#permalink]

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New post 24 Jul 2010, 04:33
nusmavrik wrote:
The biggest fallacy in this argument is it is causal. X -> Y shortage of competition (X) leads to higher (Y) interest rates on personal loans. If there is a reverse trend. i.e. X leads to Negative (Y) then the argument goes for a toss.

The interest rates in CA is not higher than other regions of the US because ......

Perhaps the depositors get lower interest rates since there is lack of competition. The trend reverses and weakens the argument substantially. E is correct.


Hi nusmavrik..
I am somehow not be able to understand this ..pls explain it again ...regards
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Re: Consumers in California seeking personal loans have fewer  [#permalink]

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New post 24 Jul 2010, 06:46
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My bad :wink: . Sorry.

The passage uses a single premise to base the judgement that CA banks have a higher interest rates than those of the banks in most parts of US.
Premise: Lack of competition.
Conclusion : X leads to Y. Lack of competition (X) leads to higher (Y) interest rates on personal loans.

E says there is lack of competition to attract the customers in CA hence interest rates paid by banks to depositors are lower than by banks in other parts of US. Argument is about interest rates on personal loans NOT savings account. Irrelevant.

A says that since the wages of qualified customers in CA are high the banks charge more fee. A is an alternate explanation to Y (high interest rates on personal loans). Z -> Y. This weakens the main conclusion.

Answer should be A.

gauravnagpal wrote:
Hi nusmavrik..
I am somehow not be able to understand this ..pls explain it again ...regards
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Re: Consumers in California seeking personal loans have fewer  [#permalink]

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New post Updated on: 15 Oct 2010, 07:19
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A for me
CDE are just out of scope or they strengthen the argument, but the tricky part is choose between A and B
The conclusion of the argument states that Shortage of banks ---> higher interest rates. This is cause and effect

A says that there is another cause for the higher interest; They have to pay higher wages in California -----> higher interest rates (so it shows another cause for the issue, and that's what we want)

B says personal loans are riskier...so what? B at the least strengthen the argument, because it says other things constant the interest rates are still higher in California compared to interest rates in any other state.
A is the best
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Originally posted by elevinty on 15 Oct 2010, 00:31.
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Re: Consumers in California seeking personal loans have fewer  [#permalink]

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New post 05 Nov 2010, 04:27
I don't understand the OA. What's the relationship between high depository fee and high interest rate on personal loans? I cannot see any positive correlation here. Please help explain. Tks
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Re: Consumers in California seeking personal loans have fewer  [#permalink]

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New post 19 Nov 2010, 08:18
phamduyha wrote:
I don't understand the OA. What's the relationship between high depository fee and high interest rate on personal loans? I cannot see any positive correlation here. Please help explain. Tks


We need to weaken the conclusion in the question. What is the conclusion?
- Interest rates on personal loans in California are higher than in any other region of the US because of shortage of competition.

Option (A) says that California banks pay higher wages than others to attract qualified workers. So they charge depositors more than other banks. Could it also be the reason why interest rates on personal loans are higher? If banks have to pay higher wages, their expense is more and hence, they may be charging more from their customers. So shortage of competition may not be the reason of higher interest rates. Remember, I only need to weaken my conclusion. I don't need to prove it invalid. This information has weakened my conclusion.

Option (B) personal loans are riskier for all banks. Why then do California banks charge higher interest? The reason could very well be lack of competition. So it does not weaken my conclusion.
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Re: Consumers in California seeking personal loans have fewer  [#permalink]

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New post 03 Feb 2016, 19:30
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IMO A,

I guess we are pretty certain why B and C are wrong. Lets take the other options

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 option simply suggests that this is one of the reasons why banks should not charge higher rate of interests on personal loans, since their debtors or defaulters are much less (in proportion) as compared to other regions in the country. Even though this may be luring, this is NOT WEAKENING the conclusion at all. It just points one reason why banks should not over charge customers.

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
This option is actually out of context for current argument. The argument talks about interest rates on personal loans and NOT ON DEPOSITS made in the bank. Even if we try to relate it somehow to the argument, to my understanding this is in fact strengthening the argument by demonstrating a separate event with same reasoning or trend.

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
Now, 'A' suggests that operating cost of banks in California is higher than elsewhere because they must pay to attract qualified workers. Since the operating cost is higher, to make profits, they may need to charge higher interest rates to customers. 'A' clearly gives an alternate reason why banks are charging higher interest rates to customers.

Hope this helps.
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Re: Consumers in California seeking personal loans have fewer  [#permalink]

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New post 08 Mar 2016, 22:13
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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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New post 18 Jun 2016, 00:07

The answer is A


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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New post 21 Jun 2016, 05:19
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

Hence answer is A :)
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Re: Consumers in California seeking personal loans have fewer  [#permalink]

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New post 24 Jul 2016, 03:23
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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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New post 24 Jul 2016, 23:51
paidlukkha wrote:
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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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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?

Originally posted by Ravindra.here on 27 Sep 2017, 23:46.
Last edited by broall on 27 Sep 2017, 23:53, edited 1 time in total.
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Re: Consumers in California seeking personal loans have fewer  [#permalink]

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New post 10 Oct 2017, 04:30
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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New post 01 Sep 2018, 06:55
There are fewer banks in California that offer personal loans than there are elsewhere in the US. The author has linked this fact with a general finding that this shortage of banks has lead them to charge high interest rates as they know that anyways those seeking personal loans have fewer options hence they will be ready to pay whatever we charge.
We need to weaken this line of reasoning i.e. we need to find an answer choice that clearly says that there is some other reason for the high interest rates that the banks charge.
Option A clearly addresses the question at hand by giving an alternate reason for the finding observed. Option A says that the reason banks charge high interest rates is not because there are so few of them and that they want to take an undue advantage of the situation rather to provide high quality service they need to hire the best available people and to keep the best people with them they need to be pay masters.
Option B on the other hand might seem tempting but is irrelevant because if personal loans are riskier than other types of loans then is true not just in California but in other places as well and this is no reason for the interest rates on personal loans to be higher than in other parts of the US.
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Re: Consumers in California seeking personal loans have fewer  [#permalink]

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New post 05 Sep 2018, 06:35
Consumers in California seeking personal loans have fewer banks to turn to than do consumers elsewhere in the US. This shortage of competition explains why interest rates on personal loans in California are higher than in any other region of the US.

Boil it down - This shortage of competition explains why interest rates on personal loans in California are higher than in any other region of the US.
Type- weakens

(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. - Correct - this provides us with an alternate cause (high wages in CA)

(B) personal loans are riskier than other types of loans, such as home mortgage loans, that banks make. - Out of scope - other types of loans are beyond the scope

(C) since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the US, they are no less secure than deposits elsewhere - Irrelevant

(D) the proportion of consumers who default on their personal loans is lower in California than in any other region of the US. - Strengthener. In general, if more people default on repayment of a loan, then the rate of interest on loans will increase.

(E) interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the US because in California there is less competition to attract depositors. - Irrelevant

Answer A
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