Hi minionbaba,Your reading of the two product types is sharp, and you've actually put your finger on the exact assumption the argument leans on. The fix is to see that the economist is treating coffee as
one supply pool, not two sealed markets.
Here's the chain, slowed down:
- Fair-trade buyers pay a premium, so the
average price a grower can get for coffee goes up.
- A higher average price is a signal to
grow more coffee - and farmers respond to the price they
could get, not to a label decided in advance.
- But consumers only buy so much coffee at the fair-trade premium. The extra coffee that doesn't sell as fair-trade doesn't vanish - it gets sold as
ordinary (non-fair-trade) coffee.
- That surplus floods the non-fair-trade side, and
more supply at unchanged demand pushes the non-fair-trade price down. Lower price means lower profit for those farmers.
So the answer to your "the NFTC farmers' price hasn't risen" point is: it hasn't risen, but their market is where the
overflow lands. They're hurt not by a price rise, but by everyone else's incentive to overproduce - extra beans spilling into their pool. The distinction you're drawing (FTC vs. NFTC as separate worlds) is exactly the link the economist quietly assumes away: coffee is coffee once it's grown, and unsold "fair-trade" beans become non-fair-trade supply.
One more thing worth separating: this is an
Evaluate question, so you don't need the causal chain to be airtight - you only need to judge how strong it is. That's why
B wins. The conclusion is "hurts
more farmers than it helps" - a head-count. To test it, you need to know how many farmers are on each side: if only a few grow fair-trade (helped) and most grow non-fair-trade (hurt), the economist is right; if most grow fair-trade, the argument collapses. B hands you exactly that proportion.
Answer: Bminionbaba
Hi
KarishmaB,
GMATNinja,
egmatCan you please take a look at my below query & help? Your help will be much appreciated. Thank you!
My confusion:
Before that, note: FTC = fair-trade coffee; NFTC = Non-fair-trade coffee
What's mentioned in the passage:
1. The prices of FTC rise due to premium it commands
2. Question mentions "
because they receive a higher price for the FTC they grow". So it seems that there are two types of coffees that can be grown "FTC" & "NFTC"
Confusion:
1. The question loosely states that "
By raising average prices for coffee, it encourages more coffee to be produced" & then goes onto say that "
This lowers prices for non-fair-trade coffee and thus lowers profits for non-fair-trade coffee farmers."
[Here I understand he's talking about supply & demand. The prices will go down for a product when there is over supply of it.]
2. However, what I don't understand is the chain of thoughts of the author to conclude abobe?
How I see is, why will a rise in the prices of FTC lead to a rise is price of NFTC thus over production of NFTC & thus reduction in prices of NFTC?
The farmers that manufacture NFTC know the prices for THEIR product is not risen but the prices of FTC has risen.
3. In one place the question explicitly mentions "
FTC they grow" & makes a distinction between FTC & NFCT & then goes on to loosely make a casual claim about coffee in general?
I understand that option B is correct & this is an "E
valuate" question, but even with using information from option B, it does not help resolve this apparanet inconsistency in the question, unless the author has made some extremely deep unstated assumptions.
Thanks!