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# New home buyers are all financially protected against bankruptcy of th

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Re: New home buyers are all financially protected against bankruptcy of th [#permalink]
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If we negate the statement, that buyers are not able to select the contractors they hire in terms of security, then the conclusion breaks down as they can select the contractor on the basis of the criteria mentioned.

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Re: New home buyers are all financially protected against bankruptcy of th [#permalink]
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Quote:
New home buyers are all financially protected against bankruptcy of the contractor because of a law requiring the contractor to get bank backing to insure all individual investments. An economist argues that this insurance is partly responsible for the high rate of bankruptcies among contractors, since it removes from buyers any financial incentive to find out the financial status of the contractor they are hiring. If buyers were more selective, then contractors would need to be secure in order to compete for buyers.

The economist's argument makes which of the following assumptions?

A. Bankruptcy is caused when contractors default on loan repayments to their banks.
B. A significant proportion of contractors use the services of sub-contractors to do the bulk of the work.
C. The more a homebuyer has to invest in a house he or she is building, the more careful he or she tends to be in selecting a contractor.
D. The difference in the payment schedules to contractors is not a significant factor in bankruptcies.
E. People looking for a contractor to build their houses are able to determine which contractors are secure against bankruptcy.

ARGUMENT
[con] if buyers were more selective, then contractors would need to be secure to compete for buyers;
[prem] insurance is partly responsible for bankruptcies among contractors, since buyers don't bother screening for them;
[asum] if contractors weren't insured, buyers could rationally choose the most secure contractors.

A. irrelevant;
B. if this was true, the argument would fall;
D. out;

Answer (E): if they weren't able to determine which are secure, then the argument falls.
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Re: New home buyers are all financially protected against bankruptcy of th [#permalink]
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The answer is option E in my opinion.

Conclusion: If buyers were more selective, then contractors would need to be secure in order to compete for buyers.

Premise: Buyers are financially protected against the bankruptcy of contractors as a legal requirement.
Counter-argument: This legal requirement is partly to blame for the high bankruptcy of contractors since it removes from buyers any financial incentive to find out the financial status of the contractor they are hiring.

From the conclusion, the economist is suggesting that buyers have the capability to verify the financial standing of a contractor before they can engage their services. What will be the essence of all the verification that a home buyer can undertake if they don't have the ability or the capacity to determine the financial standing of a contractor?

Option E states that the economist assumed that people looking for a contractor to build their homes are able to determine which contractors are secure against bankruptcy. If this is true, sure, then it strengthens the conclusion of the economist. However, if it is rather based on the fact that a home buyer cannot determine which contractor is secure against bankruptcy that informed the enactment of the law, then the economist's argument is flawed. Therefore option E has to be the answer in my view.
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Re: New home buyers are all financially protected against bankruptcy of th [#permalink]
New home buyers are all financially protected against bankruptcy of the contractor because of a law requiring the contractor to get bank backing to insure all individual investments. An economist argues that this insurance is partly responsible for the high rate of bankruptcies among contractors, since it removes from buyers any financial incentive to find out the financial status of the contractor they are hiring. If buyers were more selective, then contractors would need to be secure in order to compete for buyers.

Stimulus: The stimulus states that because of the insurance the investors do not really check whether the contractor is capable or not as the money they are investing is safe. The Argument assumes that when an investor has to pay more money he/she will be more cautious in selecting the contractor.

The economist's argument makes which of the following assumptions?

A. Bankruptcy is caused when contractors default on loan repayments to their banks.
B. A significant proportion of contractors use the services of sub-contractors to do the bulk of the work.
C. The more a home buyer has to invest in a house he or she is building, the more careful he or she tends to be in selecting a contractor. This option correctly highlights that money will make the investor carefully check the contractor.
D. The difference in the payment schedules to contractors is not a significant factor in bankruptcies.
E. People looking for a contractor to build their houses are able to determine which contractors are secure against bankruptcy.
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Re: New home buyers are all financially protected against bankruptcy of th [#permalink]
New home buyers are all financially protected against bankruptcy of the contractor because of a law requiring the contractor to get bank backing to insure all individual investments. An economist argues that this insurance is partly responsible for the high rate of bankruptcies among contractors, since it removes from buyers any financial incentive to find out the financial status of the contractor they are hiring. If buyers were more selective, then contractors would need to be secure in order to compete for buyers.

Law states that contractors must have bank backup as insurance for the buyer. Economist said that this is the cause of bankruptcies among contractors, because buyers will just get any contractors without checking their profile throughout. Economist assume that if buyer look for contractor more carefully, then contractors will be better of in order to get the customer.

The economist's argument makes which of the following assumptions?

A. Bankruptcy is caused when contractors default on loan repayments to their banks. -- unrelated not fact
B. A significant proportion of contractors use the services of sub-contractors to do the bulk of the work. -- not mention; irrelevant
C. The more a homebuyer has to invest in a house he or she is building, the more careful he or she tends to be in selecting a contractor. --the amount invest is not relating with the selecting of contractor
D. The difference in the payment schedules to contractors is not a significant factor in bankruptcies. -- correct, the economist assumes that the only factor contractors tend to bankrupt is since the beginning; not being "secure" as mention. But in fact payment schedules from buyer can set contractors bankrupt as well
E. People looking for a contractor to build their houses are able to determine which contractors are secure against bankruptcy. -- the economist doesn't say so

Therefore, D
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Re: New home buyers are all financially protected against bankruptcy of th [#permalink]
Bunuel wrote:

Competition Mode Question

New home buyers are all financially protected against bankruptcy of the contractor because of a law requiring the contractor to get bank backing to insure all individual investments. An economist argues that this insurance is partly responsible for the high rate of bankruptcies among contractors, since it removes from buyers any financial incentive to find out the financial status of the contractor they are hiring. If buyers were more selective, then contractors would need to be secure in order to compete for buyers.

The economist's argument makes which of the following assumptions?

A. Bankruptcy is caused when contractors default on loan repayments to their banks.
B. A significant proportion of contractors use the services of sub-contractors to do the bulk of the work.
C. The more a homebuyer has to invest in a house he or she is building, the more careful he or she tends to be in selecting a contractor.
D. The difference in the payment schedules to contractors is not a significant factor in bankruptcies.
E. People looking for a contractor to build their houses are able to determine which contractors are secure against bankruptcy.

Official Explanation

The best answer is E. The economistâ€™s assumption is that what he is proposing can be implemented. If those people looking for a contractor are unable to determine which ones are secure against bankruptcy, then buyers do not have the option of being more selective in their choice of contractor.
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Re: New home buyers are all financially protected against bankruptcy of th [#permalink]
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Re: New home buyers are all financially protected against bankruptcy of th [#permalink]
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