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# In most cases, the price of a commodity is directly proportionate to i

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Senior RC Moderator
Joined: 02 Nov 2016
Posts: 4136
GPA: 3.39
In most cases, the price of a commodity is directly proportionate to i  [#permalink]

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19 Jan 2019, 12:20
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Difficulty:

25% (medium)

Question Stats:

82% (01:30) correct 18% (01:35) wrong based on 80 sessions

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In most cases, the price of a commodity is directly proportionate to its scarcity in the marketplace; however, there is one notable exception. Worldwide diamond production tripled between 1986 and 1996; in that time, however, the average price of a diamond increased by more than 50 percent.

Which of the following, if true, would explain the diamond’s rise in price despite its abundance?

A. The price of precious gems such as sapphires and opals is at an all-time high.

B. The number of contractors whose sole job is the cutting and polishing of raw diamond ore has doubled.

C. Newly established stable governments in African nations have encouraged foreign investment and helped diamond mines flourish.

D. Per capita diamond consumption is much higher in North America than it is in Asia.

E. A powerful cartel that controls more than 90 percent of the world’s diamonds releases them into the market depending on conditions in the world economy.

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Joined: 15 Feb 2018
Posts: 372
Re: In most cases, the price of a commodity is directly proportionate to i  [#permalink]

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20 Jan 2019, 19:27
1
Average price decrease with supply, but NOT for diamonds. Find a supporting reason why.

A. The price of precious gems such as sapphires and opals is at an all-time high.
Not great. Maybe indicates that all precious stones have increased, but there are many other reasons (e.g. sapphire and opal supply have decreased).

B. The number of contractors whose sole job is the cutting and polishing of raw diamond ore has doubled.
This is support for why supply increased, but not for why price increased

C. Newly established stable governments in African nations have encouraged foreign investment and helped diamond mines flourish.
This is support for why supply increased, but not for why price increased

D. Per capita diamond consumption is much higher in North America than it is in Asia.
Tells us nothing. If it said something about how it has increased that would be good. It could be that demand in both has decreased, but demand in Asia has decreased more. We're getting desperate as A is rubbish but B, C, and D have been more rubbish.

E. A powerful cartel that controls more than 90 percent of the world’s diamonds releases them into the market depending on conditions in the world economy.
Perfect! Commodity supply has increased, but that supply has not been passed on to the consumer market. From the consumer perspective it's as if supply hasn't increased at all (in fact, it may have dropped). This stranglehold on supply, a monopoly, allows the cartel to increase prices.
E

This question is sub-600 if you read the news and have heard of De Beers!
Re: In most cases, the price of a commodity is directly proportionate to i   [#permalink] 20 Jan 2019, 19:27
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