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

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
_________________

This is E.

The argument says that:
To reserve foreign money, Y should stop buying international scrap iron because Y can produce steel from its iron ore.
We want to weakens the argument, and one way to do that is to show why it is impractical to use the country's iron ore compare with the scrap iron.

E does that perfectly by saying that if Y uses its iron ore, then it needs to import substantial equipment for its furnaces; This is impractical because it goes against the purpose of saving foreign reserve.

Even though it may be lame but yeah E can be used to support the policy.

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

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.

!	TomB - consider posting a more descriptive subject that will help others find and identify this question in the future.

_________________

E is the right answer because D is simply out of scope. The fact that scrap is used to produce half of the world's steel and will be used more for the future does not explain why Country Y should use scrap despite it being cheaper to use the ore to pruduce steel.

IMO E, as option D does not reason out sufficiently that why country Y should continue its policy of buying scrap iron and is clearly out of scope.

D is out of scope.

But E effectively explains why buying scrap metal is a better alternative, hence strengthen the argument.

If somebody else is using it, doesn't mean that it is the right option.

E clearly points out why it is useful to use indigenous iron.

Summary: Y use foreign-exchange (FE) reserves to buy scrap iron (SI) for recycling in to steel. (1).
Although the steel thus earn more FE than its cost, (1) is foolish
Y have vast SI ->mined with minimal foreign-exchange.

(E) SI was used in production with the cost < cost of expenditure from FE
_________________

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.

(E)Wins

(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.
doesn't strengthens the conclusion;though the scrap steel is popular worldwide, how it can benefit the Country Y?
(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.
cheaper operation, cheaper product manufacturing cost-correct

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

I have a stupid query related to this problem:

To buy Scrap iron = $ x
Processing of Scrap iron = $ y

Steel produced from above process EARNS more FE than it COSTS.

Let the steel earns = $ z

and from the problem we know that $ z > $ x

Mining of IRON ore with minimal expenditure = $ a
Processing of IRON ORE = $ b
Option (E)

$ y <<< $ b....... (1)

Total expenditure in case (1). $x + $ y
Total expenditure in case (2). $a + $ b

Since (1). we have a relation between $ y and $ b. However , we have no relation between $x and $a.

Plz advise !

Hi TGC,

General advice first. Remember that you have about 90 seconds to do this sort of question - including reading it.

It is unlikely you will be need to do the sort of analysis that you have done, given the time constraints....

To answer your specific question you do have a relationship stated between the cost of ore and scrap iron

Country Y’s own territory has vast deposits of iron ore, which can be mined with minimal expenditure of foreign exchange.

And given the scarcity of forex in the country, this is enough of a barrier to make it clearly better to do the project with lower FOREX required.

Hence why E is the correct answer as it shows that the cost of the project for Scrap Iron could be lower OVERALL, despite the higher FOREX it needs for raw materials.

James

Hi plumber,

Thanks for your advise.

I did the analysis on my second attempt to the question to know where I went wrong.But still the first attempt didn't took me exact 90 seconds , it took me approx 2:10

I know what is the OA to this question. However, it would be great full if you can pour your thoughts on my analysis in the previous post.

Thanks in advance !

Hi Chiranjeev,

Thanks for the post here.
However one of the answer choices confused me a little bit and i would like you to throw some light on that.
The passage states that "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. "
I thought it this way that using the limited foreign exchange they try and maximize their profit ( comes from the line - Although the steel
thus produced earns more foreign exchange than it costs) , hence this policy is useful.
This can only be useful if the quality of steel produced from processing scrap iron is same as from processing from iron ore as if it would be inferior then even though the company might benefit in short term it might lose in the long term.
Can you let me know what is wrong in my thinking.

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. [b]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.