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.....J
UST STOP USING THE DAMN THING.....in this case stop consuming the wheatA) 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....
Kudos if you like the above explanation.
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