Oil analysts predict that if the price of oil falls by half, the

Question

Oil analysts predict that if the price of oil falls 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 price of gasoline.

venksune · Answer

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.

Paul · Answer

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$

ywilfred · Answer

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.

Bhai · Answer

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.

venksune · Answer

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.

SRG13 · Answer

Hey, I will give it a try. Might be a stupid argument but still :lol:

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. :-D

AD2GMAT · Answer

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...

stne · Answer

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.

AD2GMAT · Answer

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

rish2708 · Answer

Some translates to   at least one  . Here the option A says that there are some people who will use less gasoline. So actually this argument slightly strengthens my belief. However, this option is neither strengthen nor weakener. This is because we still do not know what the majority of people would do to increase demand or decrease demand for gasoline.

GMAT says that some means at least one and thus on this basis only its tough to decide the impact of "some" on the conclusion.

Regards,
Rishav

lukematic · Answer

I think its E because there are fixed and variable costs in production so the fixed costs may not go down.

CrackverbalGMAT · Answer

The right answer here is  E . With assumption/strengthen/weaken questions, the main trap that you wanna avoid is to look at the options and consider whether they are true, not how they affect the argument  given  their truth.

The conclusion that we are trying to weaken is that  consumer's purchase price for gasoline made from this oil will also fall by half . So we want something that suggests that the consumer purchase price will not fall that much.

A  - If some drivers use less gasoline, it would further indicate that the price is going to fall. This strengthens the conclusion then if anything.  OUT

B  - If gasoline manufacturers do not expand their profit margins, then it suggests they will indeed drop prices.  OUT

C  - If there is competition, then the prices for the consumers will drop, so this doesn't work either.  OUT

D  - A brief increase in quantity purchased does not necessarily indicate the price will be impacted in any way.  OUT

E  - This option works because it attacks the link between the premise and conclusion. If the price of gasoline is not actually that closely linked to the price of oil, then it would not drop just because the price of oil dropped.  CORRECT

- Matoo

francoisnoah819 · Answer

Hey,
I am wondering if E is right. Look, how do you define large proportion? Let’s suppose that the items mentioned above constitute 15% of the whole price compared to the rest of many elements that constitue <2% each. These elements that constitute 85% can still drop enough to make it a 50% drop.

Posted from my mobile device

Adnani · Answer

E made sense..... thus correct answer.....

unraveled · Answer

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. - WRONG. No impact. Irrelevant.

(B) Gasoline manufacturers will not expand their profit margins. - WRONG. Supports somehow but depends on what assumptions we make.

(C) There are many different gasoline companies that compete with each other to provide the most attractive price to consumers. - WRONG. No impact. Irrelevant.

(D) Studies in several countries show that the amount of gasoline purchased by consumers initially rises after the price of gasoline has fallen. - WRONG. No impact. Irrelevant.

(E) Refining costs, distribution costs, and taxes, none of which varies significantly with oil prices. constitute a large portion of the prices of gasoline. - CORRECT. So, these costs would almost remain same thus, only the material price drops by half. This eventually suggests if 100 is the price price which drops to 50, the initial consumer's price being 140 just drops to may be 85, wherein 60 is fixed cost. So, the customer pays 85 which is more than half.

Answer E.

Oil analysts predict that if the price of oil falls by half, the

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Oil analysts predict that if the price of oil falls by half, the

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