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For similar cars and comparable drivers, automobile

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For similar cars and comparable drivers, automobile [#permalink]

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Question Stats:

86% (01:10) correct 14% (01:07) wrong based on 2064 sessions

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For similar cars and comparable drivers, automobile insurance for collision damage has always cost more in Greatport than in Fairmont. Police studies, however, show that cars owned by Greatport residents are, on average, slightly less likely to be involved in a collision than cars in Fairmont. Clearly, therefore, insurance companies are making a greater profit on collision damage insurance in Greatport than in Fairmont.

In evaluating the argument, it would be most useful to compare

(A) the level of traffic congestion in Greatport with the level of traffic congestion in Fairmont
(B) the cost of repairing collision damage in Greatport with the cost of repairing collision damage in Fairmont
(C) the rates Greatport residents pay for other forms of insurance with the rates paid for similar insurance by residents of Fairmont
(D) the condition of Greatport's roads and streets with the condition of Fairmont's roads and streets
(E) the cost of collision-damage insurance in Greatport and Fairmont with that in other cities

OG2017 CR 570 P518
[Reveal] Spoiler: OA

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New post 03 Aug 2012, 16:28
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This argument assumes that the cost of insurance alone determines the profit a car insurance company stands to make. Specifically, the argument contends that an insurance company in Greatport that charges more than one in Fairmont will be more profitable, especially if drivers in Greatport are less likely than those in Fairmont to get into an accident.

However, there could be another factor besides cost of insurance and the likelihood of a collision that determines how much profit an insurance company stands to make. (B) provides a compelling alternative explanation: if car repairs are significantly more expensive in Greatport than in Fairmont, then Greatport insurance companies will not be more profitable than those in Fairmont. Thus in evaluating the argument we need to know the cost of car repairs.

Hope that helps!
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Re: For similar cars and comparable drivers, automobile [#permalink]

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New post 04 Aug 2012, 02:19
(B) tells us that the post collision issue should be related to the insurance company's main job which depends on ;
* the cost of repairing collision damage in Greatport with the cost of repairing collision damage in Fairmont.
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Given:
Car insurance in Greatport > Car insurance in Fairmont

(A) the level of traffic congestion in Greatport with the level of traffic congestion in Fairmont - Infomation on the traffic congestion in two cities does not provide information why there is difference in insurance costs - Incorrect
(B) the cost of repairing collision damage in Greatport with the cost of repairing collision damage in Fairmont - If the cost of repairing in Great port is greater than in fairmont, it is highly likely for the insurance companies to charge more for the car insurance - Correct
(C) the rates Greatport residents pay for other forms of insurance with the rates paid for similar insurance by residents of Fairmont - Out of scope - Incorrect
(D) the condition of Greatport's roads and streets with the condition of Fairmont's roads and streets - No direct relation between insurance costs and road conditions. Scope missing - Incorrect
(E) the cost of collision-damage insurance in Greatport and Fairmont with that in other cities - Irrelevant information - Incorrect

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Re: For similar cars and comparable drivers, automobile [#permalink]

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New post 09 Jul 2016, 03:30
For similar cars and comparable drivers, automobile insurance for collision damage has always cost more in Greatport than in Fairmont. Police studies, however, show that cars owned by Greatport residents are, on average, slightly less likely to be involved in a collision than cars in Fairmont. Clearly, therefore, i insurance companies are making a greater profit on collision damage insurance in Greatport than in Fairmont.
In evaluating the argument, it would be most useful to compare

(A) the level of traffic congestion in Greatport with the level of traffic congestion in Fairmont

(B) the cost of repairing collision damage in Greatport with the cost of repairing collision damage in Fairmont
CORRECT:- Lets assume Greenport is a rich town and everyone only have BMW, Rolls ROYCE , Jaguar and Ferrari and such pensive cars that need only authorised serve at authorised company showrooms. Even though Greatport has less accident (say 30 accidents) compared to (fairmont say 50 accident), The cost of repair in Greatport is 200$, thus insurance company will have to pay 30*200=6000$.
Now Fairmont is a coal mining town where people drive, trucks, Honda, Prius, Ford and other cheap cars that can be repaired by a local mechanic at a small cost. If the cost of repair in Fairmont is 40$, then Insurance company will have to pay 50*40=2000$.

So despite higher Insurance rate, the company is actually spending 4000$ more in Greeenport than in freemont.


(C) the rates Greatport residents pay for other forms of insurance with the rates paid for similar insurance by residents of Fairmont

(D) the condition of Greatport's roads and streets with the condition of Fairmont's roads and streets

(E) the cost of collision-damage insurance in Greatport and Fairmont with that in other cities
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For similar cars and comparable drivers, automobile [#permalink]

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For similar cars and comparable drivers, automobile insurance for collision damage has always cost more in Greatport than in Fairmont. Police studies, however, show that cars owned by Greatport residents are, on average, slightly less likely to be involved in a collision than cars in Fairmont. Clearly, therefore, insurance companies are making a greater profit on collision damage insurance in Greatport than in Fairmont.

In evaluating the argument, it would be most useful to compare

(A) the level of traffic congestion in Greatport with the level of traffic congestion in Fairmont
(B) the cost of repairing collision damage in Greatport with the cost of repairing collision damage in Fairmont
(C) the rates Greatport residents pay for other forms of insurance with the rates paid for similar insurance by residents of Fairmont
(D) the condition of Greatport's roads and streets with the condition of Fairmont's roads and streets
(E) the cost of collision-damage insurance in Greatport and Fairmont with that in other cities

OG2017 CR 570 P518


Automobile Insurance
 
Step 1: Identify the Question

The words evaluating the argument in the question indicate that this is an Evaluate the Argument question.

Step 2: Deconstruct the Argument

Ins prices: G>F
Collisions: G<F
© Profits G>F

Step 3: Pause and State the Goal

On Evaluate questions, the answer is something that would be important to know in order to determine whether the conclusion is valid. The argument presents information on two factors that likely influence profits (prices and the likelihood of accidents). Are there any other factors that could be important?

Step 4: Work from Wrong to Right

(A) The amount of traffic congestion does not directly affect the profits of insurance companies. There could be indirect effects (e.g. more traffic congestion could influence accident severity), but the correct answer should have a clear link to the conclusion, not an indirect one that would require several additional assumptions.
(B) CORRECT. The relative cost of repairing damage in the two cities directly influences profits. If repairs cost more in Greatport than Fairmont, this information would WEAKEN the conclusion. If repairs in Greatport cost the same as or less than repairs in Fairmont, the conclusion would be STRENGTHENED.
(C) The conclusion is about the profits on collision damage insurance; information about other types of insurance is not relevant.
(D) The road conditions do not have a clear connection to profits. Road conditions could influence driving behavior (e.g. slower driving speeds) or accidents (e.g. greater damage) but the connection is not clear.  On Evaluate questions, correct answer should directly relate to the conclusion without the need for additional information.
(E) The argument focuses on a comparison between Greatport and Fairmont. Comparisons to other cities are not important to this conclusion.
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Re: For similar cars and comparable drivers, automobile [#permalink]

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New post 28 Jun 2017, 19:12
yeah, in this question, ones can see that the assumption turn out to be also the outside knowledge.
It is because for a person who has never heard of anything of insurance before, he or she still finds the right answer.

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Re: For similar cars and comparable drivers, automobile [#permalink]

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New post 25 Oct 2017, 13:07
Let the cost of insurance in Greatport be 150 and that of Fairmont be 100.(more is unspecific and hence we can take a median value for Greatport)
Let the number of cars involved in accidents be 90 in Greatport and 100 in Fairmont. (slightly less, lets take a conservative value for Greatport)

In Greatport, Profit(A) = 150 - 90(G) where G is cost to fix those 90 cars. (Profit = SP-CP)
and similarly in Fairmont, Profit(B) = 100-100(F) where F is cost to fix those 100 cars.

Hence to evaluate whether Profit(A) is indeed > Profit(B), we need the values of G and F. This is exactly what choice B gives us.
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Re: For similar cars and comparable drivers, automobile   [#permalink] 25 Oct 2017, 13:07
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