SudiptoGmat wrote:
Project CR Butler:Day 42:Critical Reasoning (CR2)
For all CR butler Questions Click HereIn 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
Always identify the paradox.
Here it's
"Even though the demand for houses dropped, the AVERAGE sale price of houses rose sharply"Answer choice A explains how could such a scenario could occur.
Let's say that, in a typical January, 10 houses are sold.
The sale prices are typically, $100K, $100K, $100K, $100K, $200K, $200K, $200K, $200K, $900K, and $900K, for an AVERAGE sale price of $300K
Answer choice A says that the rich people continued to buy houses while the other potential buyers (who might buy the $100K and $200K houses) waited to see what happened with mortgage rates.
So, of the 10 houses what would typically sell, only the expensive $900K houses sold.
So, if the two $900K houses sold, the AVERAGE house price would increase sharply from $300K to $900K
Answer: A
Cheers,
Brent
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Brent Hanneson – Creator of gmatprepnow.com
