In the past year, there has been a large drop in the number of new car

Question

In the past year, there has been a large drop in the number of new cars sold, due to harsh economic conditions in the marketplace and high taxes. At the same time, the average price paid for a new car has risen dramatically.

Which of the following, if true, best explains the increase in the average price of a new car?

(A) The price of used cars has climbed steadily over the past ten years.
(B) There will be a tax reduction later in the year which is expected to aid moderate and low income families.
(C) The market for expensive car has been unaffected by the current economic conditions.
(D) Economic conditions are expected to get significantly worse before the end of the year.
(E) Low demand for trucks and vans has led to lower production in the factories.

PTD1995 · Accepted Answer

Answer C

A)  No connection. Claims that prices have climbed "steadily" whereas the stimulus states that price has risen "dramatically" - reject

B)  If consumers are expecting tax reduction at the end of the year, they would wait for the tax reduction to buy. Hence, the price would not increase now. Here you go  Akshaywastaken

C)   Correct 
Example: Suppose that
Last year : 5000 cars were sold (4500 low price , 500 high price)
This year : 1000 cars are sole (500 low price, 500 high price ], meaning that the market for expensive cars is not affected.
Consequently, the average price will increase

D)  Does not explain why new cars will continue to be expensive

E)  Stimulus has to do with cars. Not vans or trucks

2111100005 · Answer

e is not the answer because the author is talking about car not van and truck

ankur_23 · Answer

I don't get it, how can the unaffected price of expensive cars result in increase in the Average price of all cars

Posted from my mobile device

slk00 · Answer

Consider option C which says the price is unaffected. Let price of the expensive car be 1000$, and inexpensive car be 500$. 
There's a drop in the number of cars sold, but the average has increased.

If 5 of these 1000$ expensive cars are sold, then the average stays 1000$. But if you consider 4 inexpensive cars (500$) 1 expensive car, the average drops to 600$.

(Also a point you can think about, unrelated - only the lower-middle class ppl would normally be affected by the harsh economic conditions. High class people are normally not affected. They would probably continue to buy their expensive cars regardless of the economic conditions, but the inexpensive cars market would sell less numbers, reducing the overall number sold. Just a thought. Not saying it's the right thing to think 😅)

Maybe people are only buying the expensive cars, whose market value has not reduced. That would solve the paradox!

Dbrunik · Answer

It should say “expensive cars”, plural. Because of this error, this is a low quality question and should be disregarded.

Posted from my mobile device

VerbalBot · Answer

Automated notice from GMAT Club VerbalBot: 

A member just gave Kudos to this thread, showing it’s still useful. I’ve bumped it to the top so more people can benefit. Feel free to add your own questions or solutions.

 This post was generated automatically.

In the past year, there has been a large drop in the number of new car

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Critical Reasoning (CR) Questions

In the past year, there has been a large drop in the number of new car

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards