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# Due to a sharp rise in the price of gasoline, commuters who

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Due to a sharp rise in the price of gasoline, commuters who [#permalink]

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22 May 2010, 03:23
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Due to a sharp rise in the price of gasoline, commuters who drive to work in the center of the city are facing a large increase in transportation expenses that will limit the funds they have available to spend in other areas. In order to forestall a slowdown in the local economy, the city council has decided that fares on all forms of public transportation will be suspended for the next three months. Clearly, if commuters can get to work more cheaply, they will have more money left over to spend in other sectors of the economy, and the city’s finances on the whole will not be negatively affected by higher gasoline prices.

If all of the statements above are true, which of the following is most likely to be damaged by the city council’s plan?

A local chain of service stations, which will see fewer customers during the daily commute.
Members of the bus drivers’ union, who will be forced to add more routes and work longer hours.
The city council’s budget, which will be unbalanced after receiving no revenue from transit fares for three months.
Commuters who already use public transportation daily and who will face crowded conditions and travel delays.
Commuters who do not live near public transportation routes and will not be able to take advantage of the suspended fares.
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22 May 2010, 04:21
Question is asking which can most likely to be damaged by the plan:
1. City economy treasury
2. Auto business outfits such as car acessories stores, gas stations, auto services stations/garage
3. Paid/salaried drivers for private auto

Argument says - NO FARES for 3 months. So, I will look for case (1) in the following choices.

dimitri92 wrote:
Due to a sharp rise in the price of gasoline, commuters who drive to work in the center of the city are facing a large increase in transportation expenses that will limit the funds they have available to spend in other areas. In order to forestall a slowdown in the local economy, the city council has decided that fares on all forms of public transportation will be suspended for the next three months. Clearly, if commuters can get to work more cheaply, they will have more money left over to spend in other sectors of the economy, and the city’s finances on the whole will not be negatively affected by higher gasoline prices.

If all of the statements above are true, which of the following is most likely to be damaged by the city council’s plan?

A local chain of service stations, which will see fewer customers during the daily commute. [Close contender 2]
Members of the bus drivers’ union, who will be forced to add more routes and work longer hours.
The city council’s budget, which will be unbalanced after receiving no revenue from transit fares for three months. [Close contender 1. Correct]
Commuters who already use public transportation daily and who will face crowded conditions and travel delays.
Commuters who do not live near public transportation routes and will not be able to take advantage of the suspended fares.

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Last edited by ykaiim on 22 May 2010, 21:22, edited 1 time in total.
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22 May 2010, 15:15
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A. It's the most objective answer there in more ways than one. The rest are irrelevant or based on a lot of subjective reasoning. My reasoning:
dimitri92 wrote:
Due to a sharp rise in the price of gasoline, commuters who drive to work in the center of the city are facing a large increase in transportation expenses that will limit the funds they have available to spend in other areas. In order to forestall a slowdown in the local economy, the city council has decided that fares on all forms of public transportation will be suspended for the next three months. Clearly, if commuters can get to work more cheaply, they will have more money left over to spend in other sectors of the economy, and the city’s finances on the whole will not be negatively affected by higher gasoline prices.

If all of the statements above are true, which of the following is most likely to be damaged by the city council’s plan?

A local chain of service stations, which will see fewer customers during the daily commute. This is to me a good answer. We know that there was a sharp rise in gas prices... clearly that came about for some logical reason. Let's say it's tied to the price of oil (hypothetically ). Service stations aren't there to take advantage of margins, they are price takers, not price setters. If you do something that robs them of business, especially in a time when its likely that their costs are high... you're hurting them. Badly. (Plus, they're local so they don't have a larger company to borrow against to ride the 3 months out or anything like that). I can't stick with this answer without rejecting all the others soundly, so let's take a look.

Members of the bus drivers’ union, who will be forced to add more routes and work longer hours. Nowhere does it say that there will be more routes added nor longer transit hours. This is a pretty big assumption. Let's say it's true thought! Maybe the bus drivers' union benefits from the extra work by having a greater sense of social duty or something. This is too wobbly to back up. Next.

The city council’s budget, which will be unbalanced after receiving no revenue from transit fares for three months. We know nothing about the current state of the city's budget so it's not possible to predict how this will affect it. This move could create all sorts of positive externalities that help the budget for all we know.

Commuters who already use public transportation daily and who will face crowded conditions and travel delays. How do we know how "damaging" a more crowded bus will be to people? We don't. And if there are less cars on the road, it stands to reason that delays due to the surge in bus commuters (an assumption that is weak to begin with) would be balanced out by this. Similar to B, we don't have enough information to reasonably predict any damage to commuters.

Commuters who do not live near public transportation routes and will not be able to take advantage of the suspended fares. Essentially: who cares? They weren't using it anyway. They are unaffected.
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22 May 2010, 16:39
I never said "completely!"

I'm hesitant in C because we know zippo about the budget. Nothing at all except the lack of transit fare revenue. We don't know how leveraged the city is, where it's investments lie, what its industry ties are. The city could have been running a huge surplus for years and can easily absorb the "damage"

But for A, we know that these are local service stations. We know that service stations make all their money from gas sales (pretty much all peripheral sales are made from people also buying gas). Sure, there will be some people who drive anyway... the cost of using public transportation (inconvenience, smelly, whatever) outweighs the high price of gas. Fine for them. But it is not much of a leap to assume that there will be a large chunk of people who do decide to leave the car at home. It is not a leap to assume the local service stations will lose business.

Yes, the fare revenue is tied to the city budget. But gasoline sales are tied to the overall sustainability of a service station in a critical way. I'm sure the city won't go bankrupt from the temporary revenue drop. I'm not so sure about the service stations who might not be able to weather the drought as well as their national competitors.
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22 May 2010, 19:25
But the question asks you to state what you think is "most likely" to be damaged. So you sort of have to project scenarios in order to assess the probability. All things told, in my mind the gas sellers will suffer more than a city when demand for gas drops.

I really don't this is a valid thing to assume at all - we don't know enough about the city. However it is perfectly reasonable to assume that the gasoline sales are related to the success of the service stations in a very critical way - we know enough about what a service station does. That juncture is a major deciding factor for me. Yeah, it's an assumption, but a solid one. Without some sort of projection into the unknown you could call the ambiguity card on all the answers. To me, A has the least amount of ambiguity in that the damage will be most prominent.

I don't think your three scenarios for the gas station have equal probability at all. (1) is almost a 0 probability (obviously they wont lose ALL business), and we can quibble over the spread between (2) and (3) though I don't see how it is possible that the city's move wont affect them at all.

As for the city, remember what the overarching goal is? To stave off the microrecession it anticipates if the gas price issue is not dealt with. So they're literally doing what they are doing in order to try and IMPROVE or at least stabilize local business overall. Since the question tells us that we can assume everything in the opener is true, it's actually quite likely that the sacrifice in transport revenues will be made up for in terms of a better overall economy!

Sometimes it's good to take a more objective approach like you're suggesting, and try to find the answer that has the least amount of ambiguity. But in this case I don't think that's necessary since enough stated and implied and inferable facts exist to make the case that direct sellers of gas will be the most affected (aka damaged).

But I have been grossly wrong before, and I suppose the OA will settle it. Watch it be D or something
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22 May 2010, 20:08
Another, more analytic way to approach it could go like this:

(also I've reread the question, and it DOES NOT say that we can assume anything in the opener is true, but it does say ASSUME ALL THE STATEMENTS are true. This is interesting since it means the bus union folks WILL be adding routes and the commuter delays WILL happen and the budget WILL be unbalanced and the gas stations WILL lose customers - basically my first post here has to go in the garbage.. but I still think it comes down to A, C and maybe D... ).

So we're debating on who gets a rougher deal, local gas shops or the city (and now again the bus people and the commuters).

We do not have either entity's financial statements so we must create checklists of what we do know about them an how they operate business:

City:

- Fact: It's big enough to need a transportation system.
- Assumption: It probably runs its finances like any other largish city. That is to say it has a diversified portfolio and stakes in many other businesses, government loans/bonds, bank notes, etc.
- Assumption: The city has the financial flexibility to be able to forgo transport fee revenue for three months. Otherwise, they wouldn't be able to do it.
- Fact: It will "damage" them in terms of the council budget balance.
- Likely Consequences: budgets become unbalanced all the time, especially with large entities like cities. but overall, what's going to happen to the city council? Are the members going to go hungry? Lose their jobs? Over a deficit? From a movement aimed at helping the economy (and environment too, if you think about it)? I really doubt there will be any lasting or even noticeable "damage" done. They're too diversified, and any city that relies on transport fees as a significant source of revenue (as opposed to say, property tax...) is a city doomed to failure anyway.

Service Stations

- Fact: They're a local chain, so they have no national reserves or back up
- Fact: The MAIN driver of revenue, and the largest one is gas sales.
- Fact: Gas prices are abnormally high
- Fact: Service stations are price takers. Typically one service station cannot charge so much as a tenth of a cent more than a proximate competitor without losing a serious amount of business.
- Assumption: Taking the last two facts together, we can assume that gas prices are not high because services stations are jerks. Obviously their costs have gone up dramatically as well. If they didn't raise the price they'd be losing money.
- Fact: They will see fewer customers during the daily commute.
- Fact: This is going to directly impact their bottom line. Less gas is being sold. Most revenue comes from selling gas (close to all of it, probably)
- Assumptions: They might fail to make enough money to cover the rising costs.
- Likely Consequences: They might have to shut down for the three months if the national gas station chains are able to offer a price 3 tenths of a cent less because of their nationalized infrastructure, or just because it's cheaper to be closed than to be open. These are palpable dangers. The likelihood is unknown, but it is not zero. The likelihood of the city shutting down is very close to zero.

I think we have ignore absolute measurements of financial impact and focus on relative ones, because the city can probably take a millions dollar hit, but John's pizza shop down the road goes under if he loses \$20,000 in a year. Obviously the millions was more absolute money but John suffered more damage, relatively.

In light of my rereading the question I have to reconsider my reasoning for B and D's rejections.

B: It might be stressful for the bus folks to work longer and make new routes, but they are unionized so you know they are getting compensated for it. No real damage there.

D: Collectively, the social/physical/emotional stress of the delays and crowding is very real. But it's not really possible to assess damage. It's not like it's a unheard of situation for humans to be in. The commuters will adapt. Maybe a store clerk gets fired for being late. I still think a chain of gas stations facing a serious threat to cash flow is more evident of damage.

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23 May 2010, 04:49
I agree with C

Whats the OA?
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23 May 2010, 07:26
OA is
[Reveal] Spoiler:
C

Good work all of you guys
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23 May 2010, 07:49
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dimitri92 wrote:
OA is
[Reveal] Spoiler:
C

Good work all of you guys

Welp, I stand corrected (multiple times)!

After going over all the reasons you guys gave for the right answer, I still can't convince myself of it. So I'll have to try and go back and poke holes in my own reasoning.

The simplest way of looking at it I guess is that we can't measure the gas stations' loss of business but we can be sure that the city council budget will be off balance (says so right in the statement). And if you stop there it seems fine. But what I can't get over is that point of absolute vs relative damage, namely: how do you justify that the unbalancing is more damaging that even a 1% decline in business to the service stations? You can't, so you have to make a judgement call. OA and you guys see it being C, and I'd love a really good breakdown of why it isn't A.

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25 May 2010, 18:52
I narrowed it to C and E...can someone explain why E is wrong.
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25 May 2010, 19:19
A and B are irrelevant. D and E seem logical in the real world... but they require new info not found in the stimulus (we don't know the capacity of public transportation/we can't judge whether it's easier to drive to public transportation or drive into the city).

Only thing for sure in the stimulus is that public transportation will now be free, and in the past there was a fare = lost money.
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25 May 2010, 19:31
seekmba wrote:
I narrowed it to C and E...can someone explain why E is wrong.

They weren't using it in the first place so they are virtually unaffected.
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25 May 2010, 21:02
dalmba wrote:
seekmba wrote:
I narrowed it to C and E...can someone explain why E is wrong.

They weren't using it in the first place so they are virtually unaffected.
Narrowed down to C and E. Didn't strike the obvious that "They weren't using it in the first place at all"
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26 May 2010, 12:39
mrik wrote:
Didn't strike the obvious that "They weren't using it in the first place at all"

Well it says that they don't live near the routes... and for that reason they can't take advantage of it.

It's the same reason why a sale on apples in a store 500 miles away from me doesn't impact me because... well, I wouldn't have been able to do anything about it anyway.
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26 May 2010, 13:00
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dalmba wrote:
Another, more analytic way to approach it could go like this:

- Fact: The MAIN driver of revenue, and the largest one is gas sales.
- Fact: Service stations are price takers. Typically one service station cannot charge so much as a tenth of a cent more than a proximate competitor without losing a serious amount of business.

- Fact: They will see fewer customers during the daily commute.
- Fact: This is going to directly impact their bottom line. Less gas is being sold. Most revenue comes from selling gas (close to all of it, probably)

I think you are taking as facts too many assumptions.
Especially the one that says: they WILL see fewer customers. What if the commuters, despite the hike in fuel prices and the opportunity to use free transportation, decide to continue to use their cars, for any reasons?
I don't know how their business work, what is the largest sales, who sets their prices. The passage doesn't say it.
However, in favor of C, we know for a fact that according to the plans of the administration, the budget will be affected: there won't be income from local transportation for 3 months.
How much the gas stations will be affected, we don't really know, we can assume. But we know how much the city administration will be affected. Is it greater damage? That's the question, and we still can't quantify it. But I hope this helps a little to consider between the 2 options.
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26 May 2010, 14:34
cano wrote:
I think you are taking as facts too many assumptions.
Especially the one that says: they WILL see fewer customers. What if the commuters, despite the hike in fuel prices and the opportunity to use free transportation, decide to continue to use their cars, for any reasons?
I don't know how their business work, what is the largest sales, who sets their prices. The passage doesn't say it.
However, in favor of C, we know for a fact that according to the plans of the administration, the budget will be affected: there won't be income from local transportation for 3 months.
How much the gas stations will be affected, we don't really know, we can assume. But we know how much the city administration will be affected. Is it greater damage? That's the question, and we still can't quantify it. But I hope this helps a little to consider between the 2 options.

Yes, I think the main point must be the fact that C) actually noted some sort of consequence. I really don't think my assumed facts are really that farfetched, but I have to remember to stay within the confines of the question and its answers! Thank you
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13 Jun 2010, 23:40
great discussion folks...but the last statement mentions that "the city’s finances on the whole will not be negatively affected by higher gasoline prices." which in a way implies that there is no major impact on the economy. Cant I eliminate C with this as a basis?
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26 Dec 2010, 11:00
i dont see why C is the best.
could anybody please elaborate a bit more?
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27 Dec 2010, 18:54
I to disagree with C as the answer choice.

The question asks : If the ABOVE statements are true, which of the following are most likely to be damaged by the move to suspend transportation fares.

Rule #1 of CR - NEVER assume anything outside the argument (unless it's a which of the following if true question)

As per the ABOVE argument, no where are we told that the states budget is impacted by the transportation fares. Yes it is a real world scenario but using that concept in CR is suicidal.

If i use the logic in C, then i can also state that the states budget may be more hurt if by the lack of sales tax that they lose out on should consumers continue to spend more on their commutes and cut back on spending.

A on the other hand states that the service stations will lose out on customers. How does that not seem to be the more likely scenario? In fact, it is a 100% certainty that the service station will see FEWER customers.

Even if 1 regular service station customer decides to skip using his car in favor of public transport , A becomes the correct answer because the word used is FEWER in choice A.
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29 Dec 2010, 08:54
ravish wrote:
I to disagree with C as the answer choice.

The question asks : If the ABOVE statements are true, which of the following are most likely to be damaged by the move to suspend transportation fares.

Rule #1 of CR - NEVER assume anything outside the argument (unless it's a which of the following if true question)

As per the ABOVE argument, no where are we told that the states budget is impacted by the transportation fares. Yes it is a real world scenario but using that concept in CR is suicidal.

If i use the logic in C, then i can also state that the states budget may be more hurt if by the lack of sales tax that they lose out on should consumers continue to spend more on their commutes and cut back on spending.

A on the other hand states that the service stations will lose out on customers. How does that not seem to be the more likely scenario? In fact, it is a 100% certainty that the service station will see FEWER customers.

Even if 1 regular service station customer decides to skip using his car in favor of public transport , A becomes the correct answer because the word used is FEWER in choice A.

I will also go with A for the same reason because it is clearly mentioned in the last line that the state budget will not be in loass as a whole. Not able to understanf why C is the OA as when compared between A & C,A is the better answer. Does anybody have better evidence to support answer C.
Re: gasoline   [#permalink] 29 Dec 2010, 08:54

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