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# Oil analysis predict that if the price of oil fails by half,

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Senior Manager
Joined: 05 May 2003
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Oil analysis predict that if the price of oil fails by half, [#permalink]

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Updated on: 27 Sep 2017, 00:37
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75% (00:59) correct 25% (01:04) wrong based on 184 sessions

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Oil analysis predict that if the price of oil fails by half, the consumer's purchase price for gasoline made from this oil will also fall by half.

Which one of the following, If true, would cast the most serious doubt on the prediction made by the oil analysts?

(A) Improved automobile technology and new kinds of fuel for cars have enabled some drivers to use less gasoline.

(B) Gasoline manufacturers will not expand their profit margins.

(C) There are many different gasoline companies that compete with each other to provide the most attractive price to consumers.

(D) Studies in several countries show that the amount of gasoline purchased by consumers initially rises after the price of gasoline has fallen.

(E) Refining costs, distribution costs, and taxes, none of which varies significantly with oil prices. constitute a large portion of the prices of gasoline.

Source: LSAT

Originally posted by Geethu on 19 Aug 2004, 12:18.
Last edited by broall on 27 Sep 2017, 00:37, edited 3 times in total.
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Re: Oil analysis predict that if the price of oil fails by half, [#permalink]

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19 Aug 2004, 12:24
E would be my choice - states that gasoline prices are not diectly proportional to oil prices and that there are several other costs besides the oil price factor.
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Re: Oil analysis predict that if the price of oil fails by half, [#permalink]

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19 Aug 2004, 18:46
E with the crowd
In a simple scenario, if oil price is 10\$ and taxes are at 5\$, consumer will pay 15\$
If oil price drops to 5\$ but taxes remain at 5\$, then consumer pays 10\$ which is not half of 15\$
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Re: Oil analysis predict that if the price of oil fails by half, [#permalink]

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19 Aug 2004, 19:17
Why not (B). If the company expands its profit margin, then consumer wil pay more even if the oil prices drop.

In (E), even though the manufacturing cost varies with oil prices, it is still subjected to the assumption that the oil company does not want to expand its profit.
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Re: Oil analysis predict that if the price of oil fails by half, [#permalink]

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20 Aug 2004, 09:32
E.

B actually strengthens the argument. If the manufacturers do not expand profit and keep the same profit margin then we can reasonably conclude that the gasoline price will fall with oil prices

Actually B says that "will not expand". I think, ywilfred you read it otherwise.
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Re: Oil analysis predict that if the price of oil fails by half, [#permalink]

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20 Aug 2004, 09:34
Lets go with some numbers here

Assume price of gasoline = price of oil + taxes/other costs + profit margins. Let me put some numbers here...

so we have 100 = 50 + 25 + 25 - Margin is 50%(25 = 50% of 50)

New No.s as per B would be = 25+ 12.5 + 12.5 = 50 (12.5= 50% of 25 )

New No.s as per E would be = 25 + 25 + 12.5 = 62.5

Hence E.
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Re: Oil analysis predict that if the price of oil fails by half, [#permalink]

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14 Aug 2013, 04:38
ywilfred wrote:
Why not (B). If the company expands its profit margin, then consumer wil pay more even if the oil prices drop.

In (E), even though the manufacturing cost varies with oil prices, it is still subjected to the assumption that the oil company does not want to expand its profit.

Hey,

I will give it a try. Might be a stupid argument but still

Consumers purchase gasoline from companies and not from manufacturers right. So what the manufacturer does would probably not affect the consumer purchase price of gasoline.

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Re: Oil analysis predict that if the price of oil fails by half, [#permalink]

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13 Sep 2017, 04:17
Options A(Is the word "some" a problem to reject the option), and B(expansion in the profit margin of manufacturer) also seem convincing to me.
How to reject them during exam...
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Re: Oil analysis predict that if the price of oil fails by half, [#permalink]

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13 Sep 2017, 05:51
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DAakash7 wrote:
Options A(Is the word "some" a problem to reject the option), and B(expansion in the profit margin of manufacturer) also seem convincing to me.
How to reject them during exam...

If option B was " manufactures will expand their profit margin " Then this could surely be a weakener.

But option B is " Manufactures will not expand their profit margin " - This surely strengthens. Right ?

Option E actually does not strengthen the argument hence it is the best choice.

Although I am no expert I feel a better weakener would be something like " Refining costs, distribution costs, and taxes, increase as the quantity of oil increases, and a drop in the price of oil, causes quantity of oil for refining and distribution to increase"

Option E given as it is , could also imply that refining, distribution and taxes remain same ( does not vary ) hence if the initial manufactures purchase price of raw oil dropped then definitely the consumer purchase price of oil would also drop as the price of other factors ( such as refining, distribution and taxes ,) does not increase. ( nor decrease , )

Please let me know if you still have further doubts.
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Re: Oil analysis predict that if the price of oil fails by half, [#permalink]

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13 Sep 2017, 06:06
stne wrote:
DAakash7 wrote:
Options A(Is the word "some" a problem to reject the option), and B(expansion in the profit margin of manufacturer) also seem convincing to me.
How to reject them during exam...

If option B was " manufactures will expand their profit margin " Then this could surely be a weakener.

But option B is " Manufactures will not expand their profit margin " - This surely strengthens. Right ?

Option E actually does not strengthen the argument hence it is the best choice.

Although I am no expert I feel a better weakener would be something like " Refining costs, distribution costs, and taxes, increase as the quantity of oil increases, and a drop in the price of oil, causes quantity of oil for refining and distribution to increase"

Option E given as it is , could also imply that refining, distribution and taxes remain same ( does not vary ) hence if the initial manufactures purchase price of raw oil dropped then definitely the consumer purchase price of oil would also drop as the price of other factors ( such as refining, distribution and taxes ,) does not increase. ( nor decrease , )

Please let me know if you still have further doubts.

Thanks Stne for the reply - it helps!
My doubt was silly and the option was also actually 180 degree of what it should have. I don't know how to avoid such silly mistakes - I tend to do a lot of them now a days - any suggestion?

Regards,
Akash
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Re: Oil analysis predict that if the price of oil fails by half,   [#permalink] 13 Sep 2017, 06:06
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