Escalating worldwide demand for corn has led to a sharp : GMAT Critical Reasoning (CR)
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# Escalating worldwide demand for corn has led to a sharp

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VP
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Escalating worldwide demand for corn has led to a sharp [#permalink]

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09 Feb 2005, 07:45
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Escalating worldwide demand for corn has led to a sharp increase in the market price of corn, and corn prices are likely to remain high. Corn is extensive used as feed for livestock, and because profit margins are tight in the livestock business, many farmers are expected to leave the business. With fewer suppliers, meat prices will surely rise. Nonetheless, observers expect an immediate short-term decrease in meat prices.

Which of the following, if true, most helps to justify the observersâ€™ expectation?

A. The increase in corn prices is due more to a decline in the supply of corn than to a growth in demand for it.
B. Generally, farmers who are squeezed out of the livestock business send their livestock to market much earlier than they otherwise would.
C. Some people who ate meat regularly in the past are converting to diets that include little or no meat.
D. As meat prices rise, the number of livestock producers is likely to rise again.
E. Livestock producers who stay in the business will start using feed other than corn more extensively than they did in the past.
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09 Feb 2005, 08:39
(B)

Haven't we discussed it before or have I remembered it wrong?
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09 Feb 2005, 10:38
I believe (B) is the answer. It ties the decrease in the meat price with the farmers leaving the bisuness early. Many famers anticipate and leave the business and there will be a flood of cattle into the market. So the meat price will come down.
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13 Feb 2005, 03:49
err....

D also means a flood of meat into the market will happen.

How to refute D?
thanks.
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13 Feb 2005, 06:02
but.. here u are assuming that since more livestock producers are there, they will send more livestock in the market.
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13 Feb 2005, 12:00

in the first part the stem says that due to increased demand of corns the price of corns have seen a sharp rise.

at the same time the second part says that

because profit margins are tight in livestock business many farmers are expected to leave the business.

well how can this be possible; my reasoning is that, when the prices are rising, the profit margin which used to be tight would become more and the farmers will get more profit ,and hence more farmer will enter in the livestock business.

i guess i have misunderstood this stem.

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13 Feb 2005, 12:35
dipaksingh wrote:

in the first part the stem says that due to increased demand of corns the price of corns have seen a sharp rise.

at the same time the second part says that

because profit margins are tight in livestock business many farmers are expected to leave the business.

well how can this be possible; my reasoning is that, when the prices are rising, the profit margin which used to be tight would become more and the farmers will get more profit ,and hence more farmer will enter in the livestock business.

i guess i have misunderstood this stem.

Assume a farmer makes 20% profit on the livestock. Now because corn prices have gone up the the profit decreases to say 5%. It does not make sense to run a livestock business anymore. So the farmers would quit livestock business and send thier cattle to the meat market. I believe the farmers are not going to wait till they start making minimal profits. They will just fear and close the shop. So it results in the flood of cattle to the market.
13 Feb 2005, 12:35
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