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If there is a drought that ruins the wheat crop of a large

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If there is a drought that ruins the wheat crop of a large  [#permalink]

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New post 12 Jul 2011, 19:32
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If there is a drought that ruins the wheat crop of a large wheat exporting county resulting in higher international wheat prices, domestic wheat prices in free-trading countries such as England will increase as well, regardless of how much wheat, if any, that country imports.

If the statement concerning wheat supply is true, which of the following policies in a free-market nation is most likely to reduce the long-term economic impact on that nation of steep and unexpected increases in international wheat prices?

A) Maintaining a large wheat reserve sufficient to meet demand for several months.

(B) Increasing domestic production of wheat for the following year.

(C) Contracting with new wheat exporting nations.

(D) Increasing the number of wheat imports.

(E) Reducing domestic consumption of wheat by switching to alternative grains where possible.
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Re: Economic impact of wheat price increases  [#permalink]

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New post 12 Jul 2011, 20:45
IMO A. how can reducing consumption help comtrol the impact of the steep changes in the international prices of the wheat. Can you please post the explanation of this answer?
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Re: Economic impact of wheat price increases  [#permalink]

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New post 12 Jul 2011, 21:50
i dont agree with E either, the question asks what will the country do for the long term if the case (of wheat price increases) occurs. E is one of the alternative way to meet the problem.

it should be A.
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Re: Economic impact of wheat price increases  [#permalink]

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New post 12 Jul 2011, 22:41
Knewton's Answer:
Quote:
The passage asserts that, in international markets, wheat price increases in one place affect prices in every place that is open to the global economy, whether a country imports all or none of its wheat. Thus, ceasing wheat importation will not reduce wheat prices within a country, as we might expect.

So how does a country deal with high wheat prices? The alternative is simply to stop using expensive wheat wherever possible. Choice E states precisely this and is therfore correct.

The question asks about mitigating "long-term" economic impact. Choice A is at best a temporary solution, so it is incorrect. Choice B will increase supply, but we can't say if that increase will drive down prices, so it is not correct. Choices C and D suggest that buying more wheat is a way to address the problem. This will increase the amount of available grain, but won't change the price, so the country will still suffer from expensive wheat. Choices C and D are thus incorrect.


I too went A.

Here are my thoughts:

  • I consider this question quite strange as it seems to assume some ECON101 knowledge.
  • E is clearly not wrong – if you don't purchase the wheat, then obviously you will not face an impact from price rises, as you won't be buying it.
  • But to me, A is not wrong either – countries actually do this!. Now whether this will work in the long-term is an economic debate that you can have, but it seems to be going above and beyond the clear logic I would expect in a CR question.
  • I can see how the 'long-term' thing does tilt ultimately in E's favor. But it seems we are making some extraneous assumptions to get there. Who is to say that having a surplus to control price doesn't work in the long term? What is the long term? Is a couple of months long term? How long does the price increase last for? How sustainable is switching out wheat to alternative grains? Is this really a long term solution?
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Re: Economic impact of wheat price increases  [#permalink]

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New post 12 Jul 2011, 23:16
The only way to reduce dependence is to reduce consumption. If you don't consume wheat, then you are not tied to what's happening in the international market.

The answer is E. There is a very similar question with oil imports in USA in the Verbal Review 2nd Edition.
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Re: Economic impact of wheat price increases  [#permalink]

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New post Updated on: 12 Jul 2011, 23:27
I go with E as well.
The key word is 'long term economic impact'
Maintaining a large wheat reserve - is short term way to stabilize the prices not long term.
The only way we can in future and over the course years stabilize the prices is to have lesser dependence on wheat - reduce consumption- this will in turn reduce the dependence on higher international prices.
If we are self sufficient ( becasue of reduction in consumption), we are not dependant on imports and on higher international prices.

Originally posted by sudhir18n on 12 Jul 2011, 23:24.
Last edited by sudhir18n on 12 Jul 2011, 23:27, edited 1 time in total.
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Re: Economic impact of wheat price increases  [#permalink]

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New post 12 Jul 2011, 23:26
gijoedude wrote:
The only way to reduce dependence is to reduce consumption. If you don't consume wheat, then you are not tied to what's happening in the international market.

The answer is E. There is a very similar question with oil imports in USA in the Verbal Review 2nd Edition.


Obviously the only way to reduce dependence on something is to stop consuming it!

However, the question doesn't refer to dependence, it refers to reducing the long-term economic of price increases.

I.e.
You are dependent on oil, you stop consuming oil.

You want to reduce the long term economic impact of oil price increases. Stopping consumption is one option (but incredibly difficult to achieve), I would suggest stock piling oil is another (not perfect, but you can control the market at certain poitns through increasing local supply)
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Re: Economic impact of wheat price increases  [#permalink]

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New post 12 Jul 2011, 23:31
pike wrote:
gijoedude wrote:
The only way to reduce dependence is to reduce consumption. If you don't consume wheat, then you are not tied to what's happening in the international market.

The answer is E. There is a very similar question with oil imports in USA in the Verbal Review 2nd Edition.


Obviously the only way to reduce dependence on something is to stop consuming it!

However, the question doesn't refer to dependence, it refers to reducing the long-term economic of price increases.

I.e.
You are dependent on oil, you stop consuming oil.

You want to reduce the long term economic impact of oil price increases. Stopping consumption is one option (but incredibly difficult to achieve), I would suggest stock piling oil is another (not perfect, but you can control the market at certain poitns through increasing local supply)


Hi Pike , looks st this

suppose counrty A requires 100 kgs of wheat every year, they produce only 70 kgk @ 5$ per kg
but international prices are 8 . so imported wheat to meet the demand is 30*8 = 240
total 350+240 = 590

E: if we reduce our consumption from 100 to 70kgs , we are self sufficient , we dont need to import wheat .
so the total amount will only be $ 350.
this is the only option that reduces long term economic impact on the nation because of higher international prices.
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Re: Economic impact of wheat price increases  [#permalink]

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New post 13 Jul 2011, 00:23
pike wrote:
I thought this was an interesting question from a Knewton CAT I took:

If there is a drought that ruins the wheat crop of a large wheat exporting county resulting in higher international wheat prices, domestic wheat prices in free-trading countries such as England will increase as well, regardless of how much wheat, if any, that country imports.


If the statement concerning wheat supply is true, which of the following policies in a free-market nation is most likely to reduce the long-term economic impact on that nation of steep and unexpected increases in international wheat prices?

A) Maintaining a large wheat reserve sufficient to meet demand for several months.

(B) Increasing domestic production of wheat for the following year.

(C) Contracting with new wheat exporting nations.

(D) Increasing the number of wheat imports.

(E) Reducing domestic consumption of wheat by switching to alternative grains where possible.



"The domestic wheat-price increases despite almost no import."

It was quite easy for me to rule out C and D because those options deal with importing and hence are subjected to high international trading price of the wheat.

A and B are different from E in that these talk about relatively short term plans. One talks about mitigating the impact for few months and the other for an extra year. No good!!! Should the free-trading countries want to mitigate the impact for "LONG TERM", they would have to resort to an alternative that's not short-lived. "E" gives a feeling that it's a long term plan. Don't know how feasible is the plan, but it is best among the options if can be implemented effectively.

Question should have added: "If it is practically possible to incorporate each of the plans below, then which one should they choose"

Ans: "E"
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Re: Economic impact of wheat price increases  [#permalink]

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New post 13 Jul 2011, 00:32
Quote:
I consider this question quite strange as it seems to assume some ECON101 knowledge.


I see what you are saying. This passage would be more complete if it mentioned the following fact.

It is a well known fact in economics that price of a commodity is directly proportional to its demand and inversely proportional to the supply.
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Re: Economic impact of wheat price increases  [#permalink]

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New post 13 Jul 2011, 07:33
E. Good question, tries to trick you. The similar question in Verbal OG is simpler in its wording.
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Re: If there is a drought that ruins the wheat crop of a large  [#permalink]

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New post 10 Mar 2015, 05:00
A) Maintaining a large wheat reserve sufficient to meet demand for several months. we are concerned with long term not just months

(B) Increasing domestic production of wheat for the [size=150]following year.
Just one year won't help, long term

(C) Contracting with new wheat exporting nations. Still international prices will be the same

(D) Increasing the number of wheat imports. Useless

(E) Reducing domestic consumption of wheat by switching to alternative grains where possible.Exactly. ie less dependencies on IMPORTS[/size]
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Re: If there is a drought that ruins the wheat crop of a large  [#permalink]

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New post 11 Mar 2015, 02:23
Answer should be E. As E provides solution for long term.
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Re: If there is a drought that ruins the wheat crop of a large  [#permalink]

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New post 14 Mar 2015, 01:23
pike wrote:
If there is a drought that ruins the wheat crop of a large wheat exporting county resulting in higher international wheat prices, domestic wheat prices in free-trading countries such as England will increase as well, regardless of how much wheat, if any, that country imports.

If the statement concerning wheat supply is true, which of the following policies in a free-market nation is most likely to reduce the long-term economic impact on that nation of steep and unexpected increases in international wheat prices?

A) Maintaining a large wheat reserve sufficient to meet demand for several months.

(B) Increasing domestic production of wheat for the following year.

(C) Contracting with new wheat exporting nations.

(D) Increasing the number of wheat imports.

(E) Reducing domestic consumption of wheat by switching to alternative grains where possible.



Understanding and Pre-thinking- the argument-

If ( Conditional clause)there is a drought

that ruins the wheat crop of a large wheat exporting county (Restriction imposed; All droughts are NOT included;Only those droughts which ruin the wheat crop of a large wheat exporting country;What is a Large wheat exporting country?We are not told)

resulting in higher international wheat prices,

domestic wheat prices ( we are just concerned about domestic prices not international prices)

in free-trading countries ( we are only bothered about Free-trading countries)such as England

will increase as well (Result of the whole damn thing....),

regardless of how much wheat, if any, that country imports.(Even if the free trading country does not import, prices will increase ....) This is a TALL CLAIM !!!!!!!!

So all in all what one thing can be done to protect against price rise in the LONG RUN even though we have no control over prices........even if we stop importing.....

Hmmm.....JUST STOP USING THE DAMN THING.....in this case stop consuming the wheat

A) Maintaining a large wheat reserve sufficient to meet demand for several months.

We are concerned with LONG TERM measures. This is straight out because it is just a SHORT TERM measure.

(B) Increasing domestic production of wheat for the following year.

This is equivalent to saying that ITS OK TO BE EXPOSED TO HIGH PRICES FOR ONE YEAR because we may be able to reduce the prices next year.BUT the arguments says that even if we DONOT import , we are still exposed to the price shock...So this option is wrong because even if we did manage to increase production thinking that we can reduce prices, we will still not be able to lower prices because of the RESTRICTION in the argument.

(C) Contracting with new wheat exporting nations.

But the country will still be exposed to price rise...So out goes this option.

(D) Increasing the number of wheat imports.

This is funny. Doing what option D is suggesting, will make the country even more dependent on wheat and hence more exposed to the price changes....

(E) Reducing domestic consumption of wheat by switching to alternative grains where possible.

This is similar to answer in the pre-thinking approach.This option is solid because it suggests that the country should reduce consumption and hence not be dependent on wheat. Moreover, the country should switch over to alternative grains......SO IF THE COUNTRY IS NOT DEPENDENT THEN IT WILL NOT BE EXPOSED TO PRICE CHANGES....


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Re: If there is a drought that ruins the wheat crop of a large  [#permalink]

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New post 14 Mar 2015, 04:00
Thank you for a such a nice question; but, on a serious note, I dont like the language of the sentence. I see several grammatical mistakes in argument, such as.

1. If there is a drought.... (Correct form should be If there 'were' a drought)....

2. Regardless is being used as a conjunctive adverb. ; Regarless, etc.

It took me time to figure out where exactly the thought in the sentence is beggining. This 100% not GMAT like question.

But really like the question. Thank you.


pike wrote:
If there is a drought that ruins the wheat crop of a large wheat exporting county resulting in higher international wheat prices, domestic wheat prices in free-trading countries such as England will increase as well, regardless of how much wheat, if any, that country imports.

If the statement concerning wheat supply is true, which of the following policies in a free-market nation is most likely to reduce the long-term economic impact on that nation of steep and unexpected increases in international wheat prices?

A) Maintaining a large wheat reserve sufficient to meet demand for several months.

(B) Increasing domestic production of wheat for the following year.

(C) Contracting with new wheat exporting nations.

(D) Increasing the number of wheat imports.

(E) Reducing domestic consumption of wheat by switching to alternative grains where possible.

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Re: If there is a drought that ruins the wheat crop of a large  [#permalink]

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New post 22 Aug 2015, 22:55
Hi,

The argument says that the domestic wheat prices are impacted regardless of the international wheat prices.It means that there must be an alternate explanation or such surprising increase in prices.One such explanation could be that the dread o drought has compelled the consumers of wheat in store but since we are talking about the long term economic impact,a concrete figure for increase in supply cannot be arrived at.So Option E

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Re: If there is a drought that ruins the wheat crop of a large  [#permalink]

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New post 05 Apr 2018, 07:12
agdimple333 wrote:
i dont agree with E either, the question asks what will the country do for the long term if the case (of wheat price increases) occurs. E is one of the alternative way to meet the problem.

it should be A.


Several months is not long-term I think
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Re: If there is a drought that ruins the wheat crop of a large  [#permalink]

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New post 05 Apr 2018, 13:57
Here is my thought process.

If there is a drought that ruins the wheat crop of a large wheat exporting county resulting in higher international wheat prices, domestic wheat prices in free-trading countries such as England will increase as well, regardless of how much wheat, if any, that country imports.

If the statement concerning wheat supply is true, which of the following policies in a free-market nation is most likely to reduce the long-term economic impact on that nation of steep and unexpected increases in international wheat prices?

A) Maintaining a large wheat reserve sufficient to meet demand for several months. - Not a long term plan.

(B) Increasing domestic production of wheat for the following year. - OUT -as stmt says "resulting in higher international wheat prices, domestic wheat prices in free-trading countries such as England will increase as well"

(C) Contracting with new wheat exporting nations. - OUT as statement clearly says "regardless of how much wheat, if any, that country imports"

(D) Increasing the number of wheat imports. - OUT as statement clearly says "regardless of how much wheat, if any, that country imports"

(E) Reducing domestic consumption of wheat by switching to alternative grains where possible. - Works, Reducing consumption and alternating with other grains doesn't affect wheat prices, as the wheat reserve is "always" maintained. Long term.
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