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# In January there was a large drop in the number of new

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SVP
Joined: 28 May 2005
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In January there was a large drop in the number of new [#permalink]

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17 Dec 2005, 12:39
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In January there was a large drop in the number of new houses sold, because interest rates for mortgages were falling and many consumers were waiting to see how low the rates would go. This large sales drop was accompanied by a sharp rise in the average price of new houses sold.
Which of the following, if true, best explains the sharp rise in the average price of new houses?
(A) Sales of higher-priced houses were unaffected by the sales drop because their purchasers have fewer constraints limiting the total amount they pay.
(B) Labor agreements of builders with construction unions are not due to expire until the next January.
(C) The prices of new houses have been rising slowly over the past three years because there is an increasing shortage of housing.
(D) There was a greater amount of moderate-priced housing available for resale by owners during January than in the preceding three months.
(E) Interest rates for home mortgages are expected to rise sharply later in the year if predictions of increased business activity in general prove to be accurate.
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VP
Joined: 06 Jun 2004
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17 Dec 2005, 13:26
Given:

Avg price = Total price/Total # of new houses sold

Large drop in Total # of new houses sold
Avg price of new houses sold increased sharply ==> Total price didn't change much

(A) Sales of higher-priced houses were unaffected by the sales drop because their purchasers have fewer constraints limiting the total amount they pay. ==> Correct!

(B) Labor agreements of builders with construction unions are not due to expire until the next January. ==> Out of scope

(C) The prices of new houses have been rising slowly over the past three years because there is an increasing shortage of housing. ==> Makes sense but the question asks for the sharp increase that occured in January. Out

(D) There was a greater amount of moderate-priced housing available for resale by owners during January than in the preceding three months. ==> Moderate-priced housing available for resale would not account for a sharp increase in avg. price

(E) Interest rates for home mortgages are expected to rise sharply later in the year if predictions of increased business activity in general prove to be accurate. ==> Out of scope

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Senior Manager
Joined: 03 Nov 2005
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Location: Chicago, IL

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17 Dec 2005, 21:49
Number of houses sold decreased+average price for the house sold increase==> the larger number of more expensive houses were sold during that period.

Option A links evidence and conclusion
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SVP
Joined: 28 May 2005
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Kudos [?]: 481 [0], given: 0

Location: Dhaka

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19 Dec 2005, 04:46
very good job TehcM.

OA is A.
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19 Dec 2005, 04:46
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# In January there was a large drop in the number of new

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