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How to improve AWA?

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Joined: 26 Nov 2016
Posts: 4

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Location: India
Schools: Molson '19
GMAT 1: 620 Q43 V33
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WE: Engineering (Other)
How to improve AWA? [#permalink]

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New post 27 Mar 2017, 01:08
I am unable to figure out exactly how I am doing in AWA and what improvements i need. Following is an essay I wrote in my MGMAT CAT. Could someone help crtique it/

ESSAY QUESTION:
The following appeared in the personal finance section of a popular magazine:

“The average price of an acre of land in the United States is now 50 times what it was in 1970, and nearly 200 times what it was in 1920. The nation’s population is projected to keep increasing, even as the amount of land remains constant. Therefore, people who are approaching retirement should invest heavily in real estate in order to ensure their financial security.”

YOUR RESPONSE:
The author's statement " People who are approaching retirement should invest heavily in real estate in order to ensure their financial security" is flawed. In making this statement the author not only fails to take into consideration inflation, alternate sources of investment but also bases the conclusion of a flawed supply and demand relationship.

The only reason that the author cites for increasing prices of land is increasing population and constant supply of land. In doing so the author fails to consider whether inflation or decreasing interest rates have impacted the prices of land. Even though the prices have increased 200 times since 1920, it does not mean the value of 1$ in 1920 is the same as the value of 1$ today. The actual increase therefore may not be 200 times.

The population is projected to increase yes, but the use of the vague word 'increase" makes the argument ambiguous. Has the population also increased 200 times which has lead to an increase in the price of the land 200 times? What if the population increases by only 5 times over the next 100 years. That would then result in an increase of land price only by 5 times. In the meantime however, other financial instruments may yield returns of more than 40 times. Thus is exact cause and effect relationship needs to be established by defining the exact increase in population which has lead to increase in the price of land.

The author says people who are approaching retirement should invest heavily in real estate. Firstly, if a person is approaching retirement he may not be able to reap the benefits of his investment because the author states that real estate will make money only in the long term. Assuming an age of 58-60 years as the age of retirement and considering a life expectancy of even 80 years, given the logic that since 1970 until today i.e over a period of 50 years, the price of land has increased 50 times. It is no where mentioned whether this increase was proportionate over time or prices were constant over a period of 45 years and only shot up in the last few years. Thus, given the authors logic, a peron at retirement would have to wait until he is 110 years old to enjoy the benefits of his investment in real estate. Rather, the argument should have stated, every person who makes money should invest in real estate.

Lastly, the author also fails to mention whether prices everywhere have increased 200 times or is it just in the popular cities. If a person buys land in a far away village, he may not get as much returns as 200 times. Thus the author needs to specify clearly as to investing where in real estate would make money for the investor.

The argument could have been made full proof by citing comparable returns in other financial instruments, stating specific examples of locations which have actually made 200 times the money and stating how much increase in population has lead to how much increase in the price of land. Most importantly, the author should mention not only people who are approaching retirement but also people from all walk of life, a child for example if invests in real estate at the ae of 10, would make 50 times the money when he is 60 as per the authors logic. He may be able to enjoy the fruits of his investment and be financially secure but not a retiree who will make money only at the age of 110 years and has no financial security until then.

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New post 27 Mar 2017, 11:33
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Hi rutu1991,

You might get more of a response if you post this to the AWA Forum here:

https://gmatclub.com/forum/analytical-w ... t-awa-144/

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Re: How to improve AWA?   [#permalink] 27 Mar 2017, 11:50
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