sayan640 wrote:
seongbae wrote:
In 1960, 10 percent of every dollar paid in automobile insurance premiums went to pay costs arising from injuries incurred in car accidents. In 1990, 50 percent of every dollar paid in automobile insurance premiums went toward such costs, despite the fact that cars were much safer in 1990 than in 1960.
Which of the following, if true, best explains the discrepancy outlined above?
(A) There were fewer accidents in 1990 than in 1960.
(B) On average, people drove more slowly in 1990 than in 1960.
(C) Cars grew increasingly more expensive to repair over the period in question.
(D) The price of insurance increased more rapidly than the rate of inflation between 1960 and 1990.
(E) Health-care costs rose sharply between 1960 and 1990.
Also, in general, what does it mean when price of something increased more rapidly than the rate of inflation?
Although I chose E ,
VeritasKarishma generis GMATNinja Can you please explain why option D is incorrect and what is meant by "The price of insurance increased more rapidly than the rate of inflation between 1960 and 1990. " ?
"Inflation" is the general increase in prices over time, or a decrease in what you can buy for the same amount of money. For instance, in 1940 you could buy a coke for 5 cents, whereas now it costs $1.50.
The "rate of inflation" is the average rate at which prices are increasing. Let's say that, between 1960 and 1990, the price of goods doubled due to inflation (for example, a rubber ducky that cost $1 in 1960 cost $2 in 1990, and a toilet plunger that was $15 is now $30). If the price of something increases more rapidly than the rate of inflation, it means the price is
even higher than it would be if only inflation played a role. So in this case, car insurance that was $20 per month could be $100 per month, instead of the expected $40 per month.
Going back to the question: we need to explain the discrepancy in the passage, which has to do with the
percent of automobile insurance spent on healthcare increasing, despite cars becoming safer. The information in answer choice (D) tells us that the cost of car insurance has increased above the rate of inflation -- so, people spent more money on car insurance in 1990 than they spent in 1960. If healthcare costs are 50% of this increased amount versus only 10% of the previous lower amount, it just deepens the discrepancy in the passage. Why was so much more money spent on healthcare costs in 1990, despite cars becoming safer? (D) does not provide an explanation, so it is not the correct answer.
I hope that helps!
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