Economist: The law of demand predicts that as the price of a good goes

I will go with E.

Premise: The law of demand predicts that as the price of a good goes down, demand for that good will increase, and vice-versa.
Premise: In a recent experiment, economists gave coupons for rice to families in a province of China, where it is a staple food.
Premise: The coupons effectively lowered the cost of rice, and should have led the families to buy more of it.
Surprise outcome/Paradox: Instead, households given the coupons purchased less rice than a control group who did not receive coupons.

From the information above, we have a situation where we expect that when coupons are provided to households it will lead to increased consumption of rice of that household. On the contrary, the consumption of rice rather went down. We need an answer choice which resolves the paradox by explaining the drop in household consumption even though these same households have been given coupons which makes the cost of rice cheaper.

Scanning through the answer choices, only option E appropriately resolves this paradox. Option E says that the availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice. From E, we know that the households who received the coupons will spend less on the same quantity of rice than they did previously. This means that these families now have excess income that can be spent on other items including more expensive substitutes for rice. So if these households now spend part of their excess incomes on other more expensive food substitutes, then their consumption of rice will naturally go down.

The only contender for E is option D. D says that many of the families given coupons discovered that they could sell the coupons on the black market. So many of the families sold the coupons on the black market, we have no idea what they spent the money realized from the illegal sale of the coupons on. Assuming the money wasn't spent on other foods apart from rice, then they may still have to buy the same quantity of rice they bought prior to the receipt of the coupons. In such a situation, we don't expect rice consumption should not go down for the beneficiary households. Since this possibility exists with option D, it is inferior to option E.

The best answer in my view is E.

D for me as it states that if people sold the coupon that group wouldnt have used it for buying rice which in turn solves the paradox

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Here we have to specifically explain the amount of rice purchased by families who received coupons. Why less amount of rice purchased by consumers who received coupons.

D and E are good contenders.
D doesn't tell about rice purchase pattern.

But E answers why. Consumers spends coupons on other things.

E seems best answer to me.

ARGUMENT
[prem] law of demand predicts that lowering prices will increase demand;
[con] families who received coupons should have bought more rice, since prices decreased;
[explain] why did those given coupons consume less rice than those not-given.

(A) irrelevant;
(B) irrelevant;
(C) out of scope;
(D) trap: they discovered that they could sell the coupons, but, why didn't they have spent the extra money on extra rice? also, by discovering that coupons could be sold, this doesn't necessarily mean that they were sold!

Ans (E) those given coupons could spend more money one rice substitutes, rather than rice itself, whereas those not-given couldn't spend elsewhere and had to consume the same amount of rice as before.

Economist: The law of demand predicts that as the price of a good goes down, demand for that good will increase, and vice-versa. In a recent experiment, economists gave coupons for rice to families in a province of China, where it is a staple food. The coupons effectively lowered the cost of rice, and should have led the families to buy more of it. Instead, households given the coupons purchased less rice than a control group who did not receive coupons.

Stimulus: The stimulus states that even though the families were given coupons they did not buy as much rice as the other group with coupon.

An alternative cause for not buying rice even though the price was less needs to be searched for

Which of the following, if true, most helps to explain the amount of rice purchased by families who received coupons?

(A) Chinese families spend an unusually high proportion of their income on rice. Irrelevant
(B) The prices of staple goods, including foodstuffs such as rice, do not fluctuate as much as those of non-necessary goods, such as consumer electronics.Irrelevant
(C) In the months before and after the experiment, the average per-family consumption of rice in the Chinese province steadily decreased. Irrelevant because the control group consumption is still higher than the coupon group
(D) Many of the families given coupons discovered that they could sell the coupons on the black market. even though they sold the coupons in market they would still need rice. this does not help to resolve the paradox that though price was less the consumption was not high
(E) The availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice. This explains that the family substituted their rice. hence the demand for rice did not decrease

IMO E:
The availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice.


Economist: The law of demand predicts that as the price of a good goes down, demand for that good will increase, and vice-versa. In a recent experiment, economists gave coupons for rice to families in a province of China, where it is a staple food. The coupons effectively lowered the cost of rice, and should have led the families to buy more of it. Instead, households given the coupons purchased less rice than a control group who did not receive coupons.

Which of the following, if true, most helps to explain the amount of rice purchased by families who received coupons?

(A) Chinese families spend an unusually high proportion of their income on rice.
(B) The prices of staple goods, including foodstuffs such as rice, do not fluctuate as much as those of non-necessary goods, such as consumer electronics.
(C) In the months before and after the experiment, the average per-family consumption of rice in the Chinese province steadily decreased.
(D) Many of the families given coupons discovered that they could sell the coupons on the black market.
(E) The availability of the coupons meant that families had more money to spend on other things, including more expensive substitutes for rice.

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