For several years, per capita expenditure on prescription : GMAT Critical Reasoning (CR)
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# For several years, per capita expenditure on prescription

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For several years, per capita expenditure on prescription [#permalink]

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07 Aug 2009, 05:31
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For several years, per capita expenditure on prescription drugs in Voronia rose by fifteen percent or more annually. In order to curb these dramatic increases, the ministry of health prohibited drug manufacturers from raising any of their products’ prices. Even though use of prescription drugs did not expand after this price freeze, per capita expenditure for prescription drugs continued to increase by a substantial percentage each year.

Which of the following, if true, most helps to explain why the ministry’s action did not achieve its goal?

A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products
B. The population of Voronia rose steadily throughout the period
C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze.
D. In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions
E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia.

I cannot get my head round the reasonings of the OA. No matter how I look at it, D seems the best answer. If D is true, wouldn’t per capita expenditure of drugs increase?
[Reveal] Spoiler: OA

Last edited by WoundedTiger on 29 Jul 2014, 22:00, edited 1 time in total.
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07 Aug 2009, 10:29
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I would go with A.

Although manufacturers did not increase price of their existing products, but they replaced existing ones with new medications, which cost more. Even though there is no expansion in use of prescription drugs, still per capita expenditure for prescription drugs continued to increase by a substantial percentage each year.

In D, if doctor’s prescribe generic drugs which are cheaper than expensive brand-names then how would it justify the increase in per capita expenditure for prescription drugs. It will in fact decrease per capita expenditure for prescription drugs.
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07 Aug 2009, 10:34
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A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products - this has no effect on per capita expenditure

B. The population of Voronia rose steadily throughout the period - this would decrease per capita expenditure

C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze. - nothing to do with increase in per capita expenditure

D. In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions
- people would have started to buy less expensive generic medicine and per capita expenditure would have gone done, therfore government's action would have worked. BUt the q is why government's action didn't work.

E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia. - as the usage of prescription drug didn't change, people would have started to buy these drugs outside voronia and pay additional shipping costs eventually rising the per capita expenditure. So the governmet's action didn't work.

Whats OA ?
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15 Jun 2011, 18:03
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Expert's post
@Onell: Here is the explanation.

The question says
"Which of the following, if true, most helps to explain why the ministry’s action did not achieve its goal?"

Think like a detective here:
The point is that there is a price freeze. Use of the drugs is not increasing either (more medicine is not being sold). Then why the heck is per capita expenditure increasing? What information would help you make sense of the situation?
If you come to know that manufacturers are introducing newer products to replace the existing ones, could that provide a possible explanation (notice the use of "could" not "will")? Yes, it could.. It does explain if the newer medication is introduced at higher prices. So it COULD help...

Can any of the other options help? No.
E doesn't help. All E says is that some expensive foreign medication is not marketed here anymore. People could be using domestic cheaper products in place of the foreign ones or they could get their medication from neighboring countries which could be cheap (per capita expenditure comes down) or expensive (per capita expenditure stays as before since foreign products were also expensive). It doesn't explain why the per capita expenditure increases.
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14 Nov 2010, 03:43
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A it is

This was an easy one but others are really hard.
CR is the most difficult in verbal
i get only 40% correct answers.
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14 Nov 2010, 07:02
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sly:)... they found the loophole.

Law says: you can't increase the price.

Businessman: ok. I will manufacture a new product (with slight changes) and put it in the market and charge a high price to begin with - then the price ceiling can't stop me from charging the price I want.
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14 Jan 2012, 08:58
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gmat1011 wrote:
sly:)... they found the loophole.

Law says: you can't increase the price.

Businessman: ok. I will manufacture a new product (with slight changes) and put it in the market and charge a high price to begin with - then the price ceiling can't stop me from charging the price I want.

+1.

This is a relatively easy question, mainly due to the other answer choices sort of "suck" for lack of a better word.

We are desperately searching for why? Why is per capita spending still increasing? Whyyyyy?

A. New product doesn't mean price increase. An increase inherently means something exists, then increases. A new product can be set at any price. So, hypothetically, we could have the same number of people, now purchasing new and more expensive products. Hence, per capita spending is still increasing. These basta*** are getting rid of the old products and then creating replacements that are more expensive. Ding Ding Ding - sounds pretty logical, boys and girls...but let's move on.

B. B states population rose, but the stimulus mentions that usage didn't increase. So, who cares and I am still confused.

C. Whoop de doo for these businesses. We are trying to find out why per capita expenditure on these drugs are increasing, even though the usage isn't increasing, nor is the price of the current drugs. But, I will entertain this bull****. Let's assume the costs of the businesses went down from these new manufacturing processes. Terrific. So, these businesses' profits increase! Yay, P = R - C. Yay MBA stuff. So, presumably, we have lower costs, higher profits, but same price. So, uhhhh, why did the spending per capita increase? And why do I care about businesses' profits? I don't. C = irrelevant - leave me alone.

D. This furthers the confusion. So, usage doesn't go up - per the stimulus. And apparently, drugs are now cheaper. However, per capita spending is still increasing. WHAT IS THIS MADNESS?!?!

E. Well isn't this terrific. This answer choice causes me to waste 10 seconds of my test-taking life. Stimulus states: usage doesn't increase. Stimulus also states prices of current drugs do not increase. This answer choice is weak on several levels. What if these foreign manufacturers of drugs NEVER actually sold any of their drugs? Meaning, if they stopped marketing, who gives a sh**? Their products were never purchased in the first place, in other words, their products never had ANY affect on per capita spending! Laugh at this answer choice, roll your eyes, select A and mock the GMAT gods for trying to fool you.

Not. This. Time.

This is a great example of active vs. passive reading. Whenever you read a stimulus, try and attack its holes - rather than read, and hope an answer choice will make sense. I rarely read the question stem prior to the stimulus, yet again, I was an LSATter. It is a waste of time to read something twice . I feel if you attack CR with an active mind, you will perform beautifully. And, have fun with it!

HTH
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Re: For several years, per capita expenditure on prescription [#permalink]

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07 Aug 2009, 19:56
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IMO A..

If the Gov froze the prices only for certain drug then this holds....
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07 Aug 2009, 23:32
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A for me.
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08 Aug 2009, 23:11
A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products
B. The population of Voronia rose steadily throughout the period - per capita comparision so doesnt make a difference
C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze. -- talking abt expenditure and not profit
D. In addition to imposing a price freeze, the government encouraged doctors to prescribe generic versions of common drugs instead of the more expensive brand-name versions - how does this explain the rise in per capita.
E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia. - out of scope
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09 Aug 2009, 01:26
I will vote for E.
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09 Aug 2009, 02:18
IMO...E, according to learner's explanation.

'A' would have been the answer if it was stated that the new medicines are more expensive than those currently existing in the market. 'B' and 'D' would decrease the per capita expenditure, and c is irrelevant, leaving us with 'E'. However, 'E' needs too much assumptions.

What is the OA?
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09 Aug 2009, 05:44
OA is A...

Can't believe we are bullied into taking A as an answer...

It's not convincing (to me at least)...
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09 Aug 2009, 18:18
What is the source? I am also not convinced with 'A' being the answer.
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09 Aug 2009, 20:19
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10 Aug 2009, 00:02
getMBA already gave nice explanation for A.

Total drugss sold same.
per capita increased ==> cost of drugs increased
price of old drugs, drugs already existed in the market, not increased

How is that possible? New drugs have the higher prices than older ones reulting in per-capita expense on drugs to increase.
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10 Aug 2009, 01:05
Nowhere it was specifically mentioned that the new drugs will be more expensive....so I was confused with A.
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08 Sep 2009, 12:45
eresh wrote:
Nowhere it was specifically mentioned that the new drugs will be more expensive....so I was confused with A.

In fact, is not necessary that the new drugs are more expensive. What it matters here is that are new drugs--> more expenditure.
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01 Nov 2009, 10:16
Quite a challenging question.

I picked initially D, but when saw the OA was very confused.

good reasoning is provided by MGMAT staff here:

http://www.manhattangmat.com/forums/for ... t2413.html
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02 Nov 2009, 08:42
Would go with A..
Re: For several years, per capita expenditure on prescription   [#permalink] 02 Nov 2009, 08:42

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