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Letter to the editor: Our city plans to allow major commerci

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Re: Letter to the editor: Our city plans to allow major commerci  [#permalink]

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New post 10 Oct 2018, 22:05
Letter to the editor[/u]: Our city plans to allow major commercial development along the south waterfront and, in so doing, to increase its tax revenue. But, to succeed commercially, the development would inevitably create far more road traffic than the existing roads to the waterfront can handle, causing serious traffic congestion. Providing enough roads or public transportation to the area would cost far more than the city could gain from the increased tax revenue.

Which of the following, if added to the city’s plan, would be most likely to help solve the problem the letter describes?

(A) Funding construction of new roads to the waterfront with a system of tolls on the new roads to the waterfront

(B) Allowing residential development along the waterfront so that there will be waterfront residents who can walk to the commercial development

(C) giving tax breaks to developers of businesses along the waterfront to offset any tax levied on them for construction of roads or public recreation

(D) Evaluating the net benefits that the commercial development would bring to the city in terms of improved quality of life for the city’s residents rather than its financial terms

(E) Allowing commercial development in other city neighborhoods whose roads are not seriously congested with traffic[/quote]
Dear Rock750,
I'm happy to help. This is a great question. :-)

So, the problem is --- tax revenue from waterfront development won't pay for fixing all the problems caused by this development. The city will wind up with horrible traffic and no financial plan for dealing with it. That's the problem we need to address.
(A) Funding construction of new roads to the waterfront with a system of tolls on the new roads to the waterfront
Toll roads! That magic form of income! Yes, this would have the advantage that more traffic leads to more money, so as long as traffic is a problem, there's money coming in that can solve the problem. Brilliant! This works as a correct answer.

(B) Allowing residential development along the waterfront so that there will be waterfront residents who can walk to the commercial development
Hmmm. Not satisfying. Those residents would still have to drive home and park, adding to traffic, and folks who live elsewhere would still have to drive there. It doesn't sound as if this would do much to solve the problem. This is incorrect.

(C) giving tax breaks to developers of businesses along the waterfront to offset any tax levied on them for construction of roads or public recreation
If the city gives tax breaks, that's even less money coming into the city's coffers, and that exacerbates the problem. This is incorrect.

(D) Evaluating the net benefits that the commercial development would bring to the city in terms of improved quality of life for the city’s residents rather than its financial terms
Hippie cop-out. If the current plan involves tons of traffic, then nobody is a fan of that. This is very weak. This is incorrect.

(E) Allowing commercial development in other city neighborhoods whose roads are not seriously congested with traffic
Hmm. This could create even more traffic elsewhere in the city, so the entire city would be in gridlock. That certainly doesn't sound like something that makes the problem better. This is incorrect.

Does all this make sense?
Mike :-)[/quote]

Hi mikemcgarry, GMATNinja
I need help in understanding how we could eliminate A & C

I was stuck between A and C This is what was going in my mind when i did hold on to these two options

The way the argument is constructed (not argument since no conclusion)
Aim: to increase tax revenue
PLan: Commercial Development along South waterfront.
Road Block: Increased traffic that road can't handle and cost of providing any roads or transport would cost far more than it would gain from increased tax revenue


Now Option A says Funding road with collection of toll : But aren't we told that proving for roads would offset any increased in tax revenue ( Yes because of the increased traffic and toll you would have revenue but still you would initially pay out of revenue which is far more than you would gain from increased tax revenue)

While option C says : give tax benefits for developers who provide road on that rout. ( now locally its plan for increased revenue would be achieved since it doesn't have to spend out of their revenue to fund roads, and they would earn because commercial development would still attract more traffic)

Now the only difference in A & C is in the long term Plan A would get them more revenue. But we aren't sure how long since its mentioned that proving roads would cost city far more than city would gain from the increased tax revenue

So why not C? You are meeting your goal to increase tax revenue immediately

What am i missing ?
Probus[/quote]


Hey Probus!
Think of it this way:
Problem: plan will cost more than it makes in revenue.
We are looking to solve this problem - i.e. something that ensures that revenue will in fact be greater than expenses.
(C) does the opposite - giving tax breaks is forgoing revenue, giving up money - this means revenue will be smaller, which will only make the problem worse!
(A) on the other hand provides an additional revenue stream (tolls), which should increase the overall revenue

Does this help?[/quote]


Hi David, DavidTutorexamPAL,

Thanks for your reply.
But i do want to understand one thing since we are given below information
Aim: to increase tax revenue
Plan: Commercial Development along South waterfront.
Road Block: Increased traffic that road can't handle and cost of providing any roads or transport would cost far more than it would gain from increased tax revenue

Now as per Choice 'A' apart from tax revenue city will also get toll revenue
Yes they do get toll revenue , but last line of the question stem "Providing enough roads or public transportation to the area would cost far more than the city could gain from the increased tax revenue. '

So does't this defeat our aim.
Will the city get increase tax revenue . Yes but this goes against the last line mentioned in the question stem.

This is where i am stuck on my thinking . When the stem mentions that cost of providing for roads would be far more than gains from increased tax revenue .

and in Choice 'C' the city in effect looses money because of tax benefits given (only for construction roads)
But if you look other way round , The city doesn't have to invest money for roads ( we are already told that this investment was too high and would be more than the city would gain from increased revenue) , and we are just giving tax benefits to developers of roads. So we get roads without using city funding and city earns by the original plan as the roads can handle increased traffic volume and they receive increased tax revenue form people coming to waterfront).

(I agree this we don't have information about tax benefits . would it be more than cost for providing roads or less , since we don't know what kind of benefit) plus it will not receive the toll flow , but in Choice C alt least it earns revenue from Day 1, while in option A city has to first wait to recover the cost incurred for funding roads , then will it earn revenue.

This is where i am stuck.

Generally, ( not always true) in most developing countries, the general scenario is is to give tax befits for developer to construct roads. Which is called BOOT Model.

Probus
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Re: Letter to the editor: Our city plans to allow major commerci  [#permalink]

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New post 11 Oct 2018, 03:29
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Probus - Please see if my reasoning can help you
Quote:
Providing enough roads or public transportation to the area would cost far more than the city could gain from the increased tax revenue
To overcome this financial problem, we are considering additional option i.e toll system as stated in A.
Quote:
(A) Funding construction of new roads to the waterfront with a system of tolls on the new roads to the waterfront.
We can't consider that poor people will not go to commercial places etc due to high toll prices which will lead to decrease in tax revenue . We don't know these numbers. Maybe they are less or maybe more So we can't consider this.

Similar with option C.
Quote:
(C) Giving tax breaks to developers of businesses along the waterfront to offset any tax levied on them for construction of roads or public recreation

We don't know what might happen in long term but we know that if we give tax breaks to the developers, we are hurting the plan of increasing tax revenue.
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Re: Letter to the editor: Our city plans to allow major commerci  [#permalink]

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New post 11 Oct 2018, 09:57
Since the question asks which of the following will help to solve the problem which is related to the cost of construction of roads , option A will definitely help by increasing the revenue generated from toll tax.

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Re: Letter to the editor: Our city plans to allow major commerci  [#permalink]

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New post 12 Oct 2019, 00:14
VeritasKarishma please help with opt B and C.

conclusion - is to increase tax revenue

opt B - if residential development allowed then traffic may reduce to some extent (could be large or small)....since resident will walk upto offices... so this option may or may not solve the problem....

opt C - in opt C the increased revenue will not be as much as it is in opt A... but problem is solved as developers of roads are given tax breaks... that's why it is incorrect right ?
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Re: Letter to the editor: Our city plans to allow major commerci   [#permalink] 12 Oct 2019, 00:14

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