Country Y uses its scarce foreign-exchange reserves to buy scrap iron

Question

Country Y uses its scarce foreign-exchange reserves to buy scrap iron for recycling into steel. Although the steel thus produced earns more foreign exchange than it costs, that policy is foolish. Country Y’s own territory has vast deposits of iron ore, which can be mined with minimal expenditure of foreign exchange.

Which of the following, if true, provides the strongest support for Country Y’s policy of buying scrap iron abroad?

(A) The price of scrap iron on international markets rose significantly in 1987.

(B) Country Y’s foreign-exchange reserves dropped significantly in 1987.

(C) There is virtually no difference in quality between steel produced from scrap iron and that produced from iron ore.

(D) Scrap iron is now used in the production of roughly half the steel used in the world today, and experts predict that scrap iron will be used even more extensively in the future.

(E) Furnaces that process scrap iron can be built and operated in Country Y with substantially less foreign exchange than can furnaces that process iron ore

egmat · Accepted Answer

Hi Roopika, We have to find an option statement that supports Country Y policy of importing scrap iron instead of mining domestically available iron ore. Now, what is the reason given in favor of mining iron ore over importing iron scrap? The reason is that it will save foreign exchange that is being spent in buying iron scrap from abroad. (Since iron ore resources are domestically available, mining them is not going to use foreign exchange) Now, what would support Country Y in the face of such reasoning? Let's prethink, which is what we do a lot at e-GMAT

Prethinking means thinking of an answer or structure of an answer before moving over to the option statements. Now, what can Country Y say, in response to above criticism? Country Y's response to the above criticism "Dude, you are right. I can save foreign exchange if I mine iron ore than import iron scrap. But you seem to forget one thing: we don't build houses using either iron ore or scrap iron. We need to process these raw materials to make them usable. And you know what. Processing iron ore will consume much more foreign exchange than processing scrap iron, so much so that the overall foreign exchange required for a similar quantity of scrap iron would be lesser than the same required for iron ore (considering both the stages of purchase of raw material and processing of this raw material into final product). Now, the best you can do is shut up your mouth".

Well, this is what option E is suggesting, although in a polite way

Hope this helps. Let me know if you have any further queries. -Chiranjeev

gurpreet07 · Answer

TomB
The option D shows that scrap iron is currently used in the production of half the steel used in the world.
ok thats right, but the option doesn't shows as to why the iron ore within the country Y's own territory is not usefull in producing steel, since the author has already mentioned in the argument that the iron ore can be mined with minimal foreign exchange expenditure..

Or in other words and simply putting my viewpoint, option D focuses on only one element of the argument and it doesn't throw any light on the other part(i.e iron ore within the country Y's own territory)

Now lets come to answer choice E, which is the right answer. Since the furnaces that process scrap iron can be built and operated in country Y with substantially less foreign exhange, this means that further the steel that is produced will earn more foreign exchange... so it actually strengthens the argument of country Y's policy to buy iron scrap abroad.

roopika2990 · Answer

Can anyone explain why E is right... can't understand form the explanantions given ...

semwal · Answer

Country Y uses its scarce foreign-exchange reserves to buy scrap iron for recycling into steel. Although the steel thus produced earns more foreign exchange than it costs, that policy is foolish. Country Y’s own territory has vast deposits of iron ore, which can be mined with minimal expenditure of foreign exchange.

The following is inferred from the question stem- --- 
1. Foreign-exchange reserves used to buy scrap iron. However steel thus produced earns more foreign exchange than it costs. Hence no loss to country Y foreign-exchange reserves, infact it increases every time it buys scrap iron for recycling into steel.

2. Country Y’s can mine OWN deposits of iron ore with minimal expenditure of foreign exchange.

We have to prove that 1. above is better than 2. Lets check the answers.

(A) The price of scrap iron on international markets rose significantly in 1987.   So what? may be expenses with respect to processing own iron ore also increased during the period .  hence wrong.
(B) Country Y’s foreign-exchange reserves dropped significantly in 1987.   Since Foreign-exchange reserves increases every time country Y buys scrap iron AND recycles into steel, this would not make a difference. Further we know nothing of what happened to processing own iron ore during the period.    hence wrong.
(C) There is virtually no difference in quality between steel produced from scrap iron and that produced from iron ore.   we are not talking of quality but expenses  . hence wrong.
(D) Scrap iron is now used in the production of roughly half the steel used in the world today, and experts predict that scrap iron will be used even more extensively in the future.   How much is used is not our concern. Only expences please...   hence wrong.
(E) Furnaces that process scrap iron can be built and operated in Country Y with substantially less foreign exchange than can furnaces that process iron ore. Right answer.   SINCE COST OF PROCESS IS MUCH LESS WITH SCRAP IRON WITH RESPECT TO FOREIGN EXCHANGE INFERENCE 1. , AS ABOVE IS A BETTER OPTION.

tusharkhatri18 · Answer

Hi Reachnaidu,
From the premise we see that there are two mediums by which country Y can produce steel. First is by buying scrap iron from other countries and then converting it to steel. The second way is to mine own iron ores and then converting them to steel. Although the profit is coming by both the methods,
costs associated with mining < costs associated with buying.
But now our aim is to support the latter. So for this we have to pick a factor that would anyhow support the step that buying scrap iron is beneficial.
Option E properly supports that by saying that
Operating costs associated with scrap iron < operating costs associated with iron ore
As far as your explanation is concerned, that is “it is not mentioned about the cost of buying the scrap where as iron ore is readily available without foreign costs”
When you said iron ore is readily available, you are thinking that it’s freely available anywhere. But in the passage it’s given that iron ore has to be mined and you have consider the costs associated with mining too.
See the sentence in the premise – “Country Y’s own territory has vast deposits of iron ore, which can be mined with minimal expenditure of foreign exchange”.
I hope this clears your confusion.

Gauriii · Answer

Hi Experts
Can you please tell in detail if option A and B, Have any impact on the conclusion? In my opinion, both have no impact on the conclusion , as my thought process- "So what if something happened in 1987??? We donot know what is the timeline today and if that effect of 1987 continued today or vanished??"
Please let me know if this understanding is correct.
Thanks in advance.

MartyTargetTestPrep · Answer

Your reasoning makes sense.

Furthermore, the passage states as fact that  the steel thus produced earns more foreign exchange than it costs . So, even if (A) or (B) were still affecting conditions today, that affect and the choice would make no difference. Regardless of what (A) says, Country Y is spending less than it is making, and regardless of what (B) says, Country Y is able to carry on this operation and is increasing its foreign exchange reserves by doing so.

Sneha2021 · Answer

Hi Experts,
 VeritasKarishma   GMATNinjaTwo   GMATNinja

I agree that E strengthens better than D, but I am not able to find a convincing reason to reject D

Question stem: Support policy of buying scrap iron abroad. Firstly, this question never asked us to support that buying scrap iron abroad is better than iron ore. I agree that one way to prove buying scrap iron is good is by comparison with iron ore. But overall we need to support that buying scrap iron from abroad is good.

Now if we try to understand D
(D) Scrap iron is now used in the production of roughly half the steel used in the world today, and experts predict that scrap iron will be used even more extensively in the future.
Scrap iron is used worldwide right now and will be used more even in the future indicates that scarp iron is good. So it increases my belief in the policy of buying scrap iron. For D, I don't see a negative impact or no impact on the given question stem. Can you please help how to arrive at no impact?

GMATNinja · Answer

The problem with (D) is that we don’t know why scrap iron is used worldwide and will be used more extensively in the future. It’s possible, as you suggest, that this is because it’s more beneficial to use scrap iron. But it’s also possible that other factors are driving the increased usage of scrap iron.

Perhaps iron ore is only widely available in Country Y and other countries are using scrap iron out of necessity. Iron ore could still be the better option, but other countries may be forced to use scrap iron. For that reason, (D) does not necessary support the policy of buying scrap iron abroad, and we can eliminate it.

I hope that helps!

agrasan · Answer

Hi  KarishmaB   GMATNinja   MartyTargetTestPrep

I am a bit confused with option C, why is it not correct?

Can we say that it is also a strengthener but not as strong as option E
OR
Option C is rather an assumption in the argument instead of a strengthener i.e. argument assumes that quality is the same and hence says that one approach is better than the other due to other reasons.

My thinking is - that if there is no difference between the quality of steel produced from scrap iron and that produced from iron ore then it does support country Y's method of importing scrap iron and making steel out of it, hence, confidence is increased.

Please let me know your thoughts on option C and also if there is something wrong with my thinking.

VerbalBot · Answer

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Country Y uses its scarce foreign-exchange reserves to buy scrap iron

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Country Y uses its scarce foreign-exchange reserves to buy scrap iron

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