Economist: The law of demand predicts that as the price of a good goes

Question

Competition Mode Question

Economist: The law of demand predicts that as the price of a good goes down, demand for that good will increase, and vice-versa. In a recent experiment, economists gave coupons for rice to families in a province of China, where it is a staple food. The coupons effectively lowered the cost of rice, and should have led the families to buy more of it. Instead, households given the coupons purchased less rice than a control group who did not receive coupons.

Which of the following, if true, most helps to explain the amount of rice purchased by families who received coupons?

(A) Chinese families spend an unusually high proportion of their income on rice.
(B) The prices of staple goods, including foodstuffs such as rice, do not fluctuate as much as those of non-necessary goods, such as consumer electronics.
(C) In the months before and after the experiment, the average per-family consumption of rice in the Chinese province steadily decreased.
(D) Many of the families given coupons discovered that they could sell the coupons on the black market.
(E) The availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice.

Bunuel · Accepted Answer

OFFICIAL EXPLANATION

Answer: E

This is an explanation question. The apparent paradox is that, while the price of rice effectively declined, rice consumption also declined. Consider each choice in turn, looking for a reason why this might occur:

(A) This doesn't tell us anything about the effect of the coupons.

(B) The amount of fluctuation is outside the scope; we're concerned with the effect of lowering the price of rice.

(C) That the average consumption of rice declined is not important; the study described in the passage included a control group, to which the households given coupons were compared.

(D) This choice suggests that some families did not purchase rice with their coupons; however, this doesn't explain why they would also purchase less rice.

(E) This is correct.  If these families had money to purchase preferable rice substitutes, they may have increased or kept constant their consumption of rice and rice substitutes, but shifted some of their consumption from rice to substitutes because of the coupons.

unraveled · Answer

Economist: The law of demand predicts that as the price of a good goes down, demand for that good will increase, and vice-versa. In a recent experiment, economists gave coupons for rice to families in a province of China, where it is a staple food. The coupons effectively lowered the cost of rice, and should have led the families to buy more of it. Instead, households given the coupons purchased less rice than a control group who did not receive coupons.
Which of the following, if true, most helps to explain the amount of rice purchased by families who received coupons?

Coupons for rice is not used for purchasing more rice than must have been used to for other purpose. Among the choices only D and E are close.
D shows why coupons were not used for buying rice. 
E on the other hand says that families with coupons had more disposable money to spend on other things. But even if that's the case they should have purchased rice given that they had the coupons with them all the time. The coupons could not have been used for other purchases.

(A) Chinese families spend an unusually high proportion of their income on rice.
(B) The prices of staple goods, including foodstuffs such as rice, do not fluctuate as much as those of non-necessary goods, such as consumer electronics.
(C) In the months before and after the experiment, the average per-family consumption of rice in the Chinese province steadily decreased.
(D) Many of the families given coupons discovered that they could sell the coupons on the black market.
(E) The availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice.

IMO Answer D.

eakabuah · Answer

I will go with E.

Premise: The law of demand predicts that as the price of a good goes down, demand for that good will increase, and vice-versa.
Premise: In a recent experiment, economists gave coupons for rice to families in a province of China, where it is a staple food.
Premise: The coupons effectively lowered the cost of rice, and should have led the families to buy more of it.
Surprise outcome/Paradox: Instead, households given the coupons purchased less rice than a control group who did not receive coupons.

From the information above, we have a situation where we expect that when coupons are provided to households it will lead to increased consumption of rice of that household. On the contrary, the consumption of rice rather went down. We need an answer choice which resolves the paradox by explaining the drop in household consumption even though these same households have been given coupons which makes the cost of rice cheaper.

Scanning through the answer choices, only option E appropriately resolves this paradox. Option E says that the availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice. From E, we know that the households who received the coupons will spend less on the same quantity of rice than they did previously. This means that these families now have excess income that can be spent on other items  including more expensive substitutes for rice.  So if these households now spend part of their excess incomes on other more expensive food substitutes, then their consumption of rice will naturally go down.

The only contender for E is option D. D says that many of the families given coupons discovered that they could sell the coupons on the black market. So many of the families sold the coupons on the black market, we have no idea what they spent the money realized from the illegal sale of the coupons on. Assuming the money wasn't spent on other foods apart from rice, then they may still have to buy the same quantity of rice they bought prior to the receipt of the coupons. In such a situation, we don't expect rice consumption should not go down for the beneficiary households. Since this possibility exists with option D, it is inferior to option E.

The best answer in my view is E.

abhishek001 · Answer

D for me as it states that if people sold the coupon that group wouldnt have used it for buying rice which in turn solves the paradox

Posted from my mobile device

gvij2017 · Answer

Here we have to specifically explain the amount of rice purchased by families who received coupons. Why less amount of rice purchased by consumers who received coupons.

D and E are good contenders. 
D doesn't tell about rice purchase pattern.

But E answers why. Consumers spends coupons on other things.

E seems best answer to me.

exc4libur · Answer

ARGUMENT
  law of demand predicts that lowering prices will increase demand;
  families who received coupons should have bought more rice, since prices decreased;
  why did those given coupons consume less rice than those not-given.

(A) irrelevant;
(B) irrelevant;
(C) out of scope;
(D) trap: they discovered that they could sell the coupons, but, why didn't they have spent the extra money on extra rice? also, by discovering that coupons could be sold, this doesn't necessarily mean that they were sold!

Ans (E)  those given coupons could spend more money one rice substitutes, rather than rice itself, whereas those not-given couldn't spend elsewhere and had to consume the same amount of rice as before.

chaitralirr · Answer

Economist: The law of demand predicts that as the price of a good goes down, demand for that good will increase, and vice-versa. In a recent experiment, economists gave coupons for rice to families in a province of China, where it is a staple food. The coupons effectively lowered the cost of rice, and should have led the families to buy more of it. Instead, households given the coupons purchased less rice than a control group who did not receive coupons.

Stimulus : The stimulus states that even though the families were given coupons they did not buy as much rice as the other group with coupon.

An alternative cause for not buying rice even though the price was less needs to be searched for

Which of the following, if true, most helps to explain the amount of rice purchased by families who received coupons?

(A) Chinese families spend an unusually high proportion of their income on rice.  Irrelevant 
(B) The prices of staple goods, including foodstuffs such as rice, do not fluctuate as much as those of non-necessary goods, such as consumer electronics. Irrelevant 
(C) In the months before and after the experiment, the average per-family consumption of rice in the Chinese province steadily decreased.  Irrelevant because the control group consumption is still higher than the coupon group 
(D) Many of the families given coupons discovered that they could sell the coupons on the black market.  even though they sold the coupons in market they would still need rice. this does not help to resolve the paradox that though price was less the consumption was not high  
(E) The availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice.  This explains that the family substituted their rice. hence the demand for rice did not decrease

Archit3110 · Answer

IMO E: 
The availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice.

Economist: The law of demand predicts that as the price of a good goes down, demand for that good will increase, and vice-versa. In a recent experiment, economists gave coupons for rice to families in a province of China, where it is a staple food. The coupons effectively lowered the cost of rice, and should have led the families to buy more of it. Instead, households given the coupons purchased less rice than a control group who did not receive coupons.

Which of the following, if true, most helps to explain the amount of rice purchased by families who received coupons?

(A) Chinese families spend an unusually high proportion of their income on rice.
(B) The prices of staple goods, including foodstuffs such as rice, do not fluctuate as much as those of non-necessary goods, such as consumer electronics.
(C) In the months before and after the experiment, the average per-family consumption of rice in the Chinese province steadily decreased.
(D) Many of the families given coupons discovered that they could sell the coupons on the black market.
(E) The availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice.

mcrea · Answer

I think answer choice E is flawed.

"Economists gave  coupons for rice   to families in a province of China."

To me, it means that coupons cannot be used to purchase rice substitutes, thus E is wrong.

D might be more correct because if people receiving coupons sell them in the black market, there might be people purchasing it in the balck market would buy more rice than people who sold those coupons. However, also in this case we do not know if these people are part of the said control group.

VerbalBot · Answer

Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.

Economist: The law of demand predicts that as the price of a good goes

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Critical Reasoning (CR) Questions

Economist: The law of demand predicts that as the price of a good goes

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards