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For several years, per capita expenditure on prescription drugs in Vor

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New post 13 Mar 2012, 04:06
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Per capita expenditure = (Price x Volume)/ Population

So, for per capita expenditure to rise, any of 3 things have to happen
1) Price increases,
2) Volume increases,
3) Population decreases

Now, let's look at the choices

A) Will come back to this last.

B) Population increased. My formula tells me population can't increase. NOT B

C) High profit levels. Who gives a shit. NOT C

D) Generic drugs. Which means lower prices. My formula tells me prices need to increase. NOT D

E) No more marketing. Who gives a shit. NOT E.

A) That leaves us with A. Simple elimination. Now it could be possible that the new medications were more expensive. Higher prices. Satisfies my formula. Or the medications were not more expensive, but you don't know for sure. So, A is the "best" answer because all other choices are clearly wrong
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Re: For several years, per capita expenditure on prescription drugs in Vor [#permalink]

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New post 13 Mar 2012, 04:17
DJK wrote:
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


This is an interesting way to think through the problem in the heat of the GMAT! +1
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New post 15 Mar 2012, 01:18
A is the best choice,
agree with some wonderful explanations :twisted: above.
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New post 10 Apr 2012, 00:06
Is this a Weaken or resolve the paradox question?

It seems to me that it is a resolve since we have two contradicting sets of facts. But what makes this a possibility for a weaken question is that it has a conclusion.

Any help to explain what question type this is?

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Re: For several years, per capita expenditure on prescription drugs in Vor [#permalink]

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New post 11 Apr 2012, 10:56
Lstadt wrote:
Is this a Weaken or resolve the paradox question?

It seems to me that it is a resolve since we have two contradicting sets of facts. But what makes this a possibility for a weaken question is that it has a conclusion.

Any help to explain what question type this is?


It is a 'resolve the paradox' question. There is a paradox here:
There is price freeze and more medicine is not being sold. Still, per capita expenditure is increasing.
You have to explain the paradox.
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New post 02 Jul 2012, 11:32
"the ministry of health prohibited drug manufacturers from raising any of their products’ prices."

That one word, "raising", hold the key to this question. They can't RAISE the price, but they can make new ones at a higher price.
Thus, answer choice A.
Sneaky b@$t@rd$.

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New post 02 Jul 2012, 11:47
Govt.banned the price hike on(say 100 ) medicines ....manufacturers found that the sales will not give them a substantial profit margin which has been around 15% every year SO, THEY STARTED manufacturing new medicines, not listed in those 100 medicines list and hence the per capita expenditure on prescription kept increasing.
+1 for (A)
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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.

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Assume, there were 100 different types of medicines available in the market on which govt. froze the prices(that a particular drug will cost $X, and no chemist or druggist can charge more than the fixed price on the drug).It is also mentioned that the consumption of drugs stayed constant.Then how can the per capita expenditure for prescription drugs continued to increase by a substantial percentage each year?

May possible that the drug manufacturers started making more variety of drugs.(The listed drugs were 100 now 150; 50 new varieties are in market , and govt is unaware of those 5o drugs but the chemists are charging more and more for those new medicines.)hence per capita expenditure for prescription drugs continued to increase by a substantial percentage each year.
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oh i get it. So the gov only restricted the price increase for 'current' drugs produced by the drug company. So technically the drug company could produce 'new' drugs and charge however much they want for it?
Thanks thevenus

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naruphanp wrote:
oh i get it. So the gov only restricted the price increase for 'current' drugs produced by the drug company. So technically the drug company could produce 'new' drugs and charge however much they want for it?
Thanks thevenus


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New post 10 Aug 2012, 07:28
well E can be a good option but required farther leap than a . if foreign manufactureres charged less than domestic for these drugs then after they went out, avg prices could increase . in A it is nowhere mentioned that the regulation was for existing drugs only but the newer ones might be costlier than existing ones, this also requires a further leap than what is mentioned . .

The point i want to make is that in such ques on CR where two answers are possible both require a further leap from whats stated, how to select the correct answer ?? is there any strategy ? expert reply will be higly appreciated .
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New post 12 Aug 2012, 00:22
thevenus wrote:
Assume, there were 100 different types of medicines available in the market on which govt. froze the prices(that a particular drug will cost $X, and no chemist or druggist can charge more than the fixed price on the drug).It is also mentioned that the consumption of drugs stayed constant.Then how can the per capita expenditure for prescription drugs continued to increase by a substantial percentage each year?

May possible that the drug manufacturers started making more variety of drugs.(The listed drugs were 100 now 150; 50 new varieties are in market , and govt is unaware of those 5o drugs but the chemists are charging more and more for those new medicines.)hence per capita expenditure for prescription drugs continued to increase by a substantial percentage each year.


How is the price of drug and expenditure related?
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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.

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A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products - Only when costler drugs are released into the market and the older drugs are ceased from market will the per capita expenditure increase - Correct
B. The population of Voronia rose steadily throughout the period. - It is stated that use of prescription drugs did not expand after price freeze which nullifies the account of population increase - Incorrect
C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze. - Profits on drugs to the manufacturers is irrelevant - Incorrect
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 - If this is the case, the per capite expenditure on drugs should fall - Incorrect
E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia. - Irrelevant - Incorrect

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New post 22 Aug 2012, 01:49
A. After price increases were prohibited, drug manufacturers concentrated on producing new medications to replace existing products ----- This is one way commercial corporations can survive and keep their profits steady. Since new drugs do not suffer price control. Drug manufactures make merry and hay while the sun shines. That is the reason govt. controls most of the times bite the dust


B. The population of Voronia rose steadily throughout the period. ---- Per capita takes into account of the fluctuations and then evens out.

C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze. ----improvements are not part of the agenda in this topic. We naturally believe that all the possible improvements are already in place. No company will keep improvements at bay, waiting for the price controls to arrive. Using generic versions, should bring down the cost and help reduce per capita prescription drugs figure.

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 – The discussion is about expenditure of branded prescription products This is also antithetical, since any use of generic versions, should then help bring down the per capita figure rather than raise

E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia. availability of expensive or inexpensive drugs do not decide the per capita figure. It is the usage. Hence not relevant.

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New post 22 Aug 2012, 04:16
Arbitrageur wrote:
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.


Per capita expenditure on PD increased annually --> Led govt. to prohibit DMs to raise their product prices.

Though PD did not increase, per capita exp. on PD continued to rise

Possible reasons could be other products that were not banned were introduced in order to make money

Or manufacturers left Voronia and now it had to import the expensive drugs

Maybe their generic drugs were limited and do not meet the needs of its populations.

Looking at the options...only A seems to be the closest to explaining the argument.

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New post 22 Aug 2012, 11:59
Thanks for the explanations guys. But doesn't answer choice A assume that the government's price prohibition only applies to existing medications, as opposed to new ones that are introduced? From reading the stimulus, I don't see how we can make that assumption since it says that the prohibition applies to ANY of the drug makers' products.

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New post 22 Aug 2012, 12:09
Arbitrageur wrote:
Thanks for the explanations guys. But doesn't answer choice A assume that the government's price prohibition only applies to existing medications, as opposed to new ones that are introduced? From reading the stimulus, I don't see how we can make that assumption since it says that the prohibition applies to ANY of the drug makers' products.


I agree to your logic and this was also the reason I eliminated option A when I started doing the question.

However, after going through all the options, A seems to be the best of the lot (barring the loophole you pointed out).

While I am writing this post, it struck me. How can there be a price increase on new products ? You can set price for the new products and since there is no regulation mentioned regarding the price of new products, it is a possible explanation.

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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
Any of the existing products cannot have increased price. But if there were more new products introduce, then perhaps these contributed to the increase in per capita presc. drug prescription. Sneak manufacturers! CORRECT!

B. The population of Voronia rose steadily throughout the period.
Since it is about the per capita, then the total population doesn't matter. And say this increase are non-prescription users, then that would not explain the increase in per capita...

C. Improvements in manufacturing processes enable drug manufacturers to maintain high profit levels on drugs despite the price freeze.
Profits are irrelevant.

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
This should decrease rather than increase...

E. After price increases were prohibited, some foreign manufacturers of expensive drugs ceased marketing them in Voronia.
This should decrease rather than increase

Answer: A
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Re: For several years, per capita expenditure on prescription drugs in Vor   [#permalink] 02 Feb 2013, 04:26

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