Last visit was: 23 Apr 2024, 16:05 It is currently 23 Apr 2024, 16:05

Close
GMAT Club Daily Prep
Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History
Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.
Close
Request Expert Reply
Confirm Cancel
SORT BY:
Date
Tags:
Show Tags
Hide Tags
Manager
Manager
Joined: 01 Sep 2016
Posts: 125
Own Kudos [?]: 1122 [30]
Given Kudos: 33
GMAT 1: 690 Q49 V35
Send PM
Most Helpful Reply
Intern
Intern
Joined: 16 Feb 2017
Posts: 13
Own Kudos [?]: 36 [8]
Given Kudos: 80
Send PM
Senior Manager
Senior Manager
Joined: 02 Apr 2014
Posts: 371
Own Kudos [?]: 474 [7]
Given Kudos: 1227
Location: India
Schools: XLRI"20
GMAT 1: 700 Q50 V34
GPA: 3.5
Send PM
General Discussion
Manager
Manager
Joined: 01 Sep 2016
Posts: 125
Own Kudos [?]: 1122 [0]
Given Kudos: 33
GMAT 1: 690 Q49 V35
Send PM
As the US increased the production of natural gas [#permalink]
can you please explain why is a wrong? I find this option very subtle. On thing to note here is that option a talks about users, so even if there is a high tax being levied on the polythelene, the makers of plastic product will also increase the price i.e they will also add their fair share of tax. So there is nothing that actually undermines the cost benefit directly. So i eliminated this option. Is this reasoning correct? C on the other hand was very direct. thanks
Director
Director
Joined: 20 Dec 2015
Status:Learning
Posts: 876
Own Kudos [?]: 566 [3]
Given Kudos: 755
Location: India
Concentration: Operations, Marketing
GMAT 1: 670 Q48 V36
GRE 1: Q157 V157
GPA: 3.4
WE:Engineering (Manufacturing)
Send PM
Re: As the US increased the production of natural gas [#permalink]
3
Kudos
Hi,
I am perplexed by this question .
Zero cost saving is for the producers not for consumers i think then how come c is right .
Am i correct ?
Can some explain why is C correct and A wrong.
Manager
Manager
Joined: 23 May 2017
Posts: 192
Own Kudos [?]: 359 [2]
Given Kudos: 9
Concentration: Finance, Accounting
WE:Programming (Energy and Utilities)
Send PM
Re: As the US increased the production of natural gas [#permalink]
2
Kudos
As the US increased the production of natural gas released from underground shale formations, creating more output of polyethylene, it was expected that makers of plastic products such as plastic trash bags, toys, containers etc., which use polyethylene as a raw material, would benefit from the same as a result of the decrease in the price of natural gas.

Conclusion :However, makers of plastic products have instead reported no cost benefit as a result of the increase in the supply of natural gas.

We must focus on the question we have been asked for?

Question is very direct and specific about the effect of increased in the supply of natural gas on makers of plastic.

Option A: To discourage people from using plastic products, many countries have started levying heavy taxes on the plastic industry as a measure to increase the cost of production and the resultant price of plastic products.

This one speaks about the applying high taxes on plastic industry. So makers can still add another component in the retail price of the plastic bags, toys and containers in order to compensate the high tax they paid to government. This option however does not relate the effect of increase in production of natural gas to their profits.
Moreover, this option gives another incentive to makers of plastic to increase the prices of plastic items which can or cannot increase its profit margin.

On the other hand Option C hits the middle man.

C: The makers of polyethylene have increased their profit margins and hence are not passing on lower cost benefits to their customers.

Natural gas --> polyethylene -> plastic items.
Increase in production of natural gas means more polyethylene , more polyethylene means more plastic items.

but what if the polyethylene is still selling at the usual price - makers of plastic can not increase their profit on their usual price.
Intern
Intern
Joined: 20 Aug 2016
Posts: 13
Own Kudos [?]: 21 [4]
Given Kudos: 36
Location: India
Concentration: Strategy, International Business
WE:Operations (Computer Software)
Send PM
Re: As the US increased the production of natural gas [#permalink]
4
Kudos
The answer is C.

The line of reasoning goes
1. The maker of Polyethylene is making profit margins means they are charging more for the same polyethylene than they were charging before when the production was low.
2. the makers of plastic products are the customers to the makers of polyethylene(who are getting polyethylene as a by product of natural gas extraction).

since the makers of plastic products have to bear the extra cost( due to the profit margins of polyethylene makers ) they are not able to reduce the cost despite the availability of polyethylene in large amount.

Do not get confused by the word "customer" it is used for maker of plastic products and not for user of plastic products.
Manager
Manager
Joined: 30 May 2017
Posts: 57
Own Kudos [?]: 61 [2]
Given Kudos: 42
Concentration: Finance, General Management
GMAT 1: 690 Q47 V38
GPA: 3.23
Send PM
As the US increased the production of natural gas [#permalink]
2
Kudos
I think the confusion on this one, at least for me, was that the drillers who extract the polyethylene out of the ground are called "makers" (Oil and gas drillers don't make anything, they aren't manufacturers, they extract resources). Thus, I got them confused with the makers of plastic products and wrongly eliminated C.
Manager
Manager
Joined: 08 Jan 2018
Posts: 169
Own Kudos [?]: 991 [1]
Given Kudos: 332
Location: United States (ID)
GPA: 3.33
WE:Accounting (Accounting)
Send PM
Re: As the US increased the production of natural gas [#permalink]
1
Kudos
arvind910619 wrote:
Hi,
I am perplexed by this question .
Zero cost saving is for the producers not for consumers i think then how come c is right .
Am i correct ?
Can some explain why is C correct and A wrong.


In A, increase in cost as a result of increase in tax does not make sure the profit will diminish. On the other hand, C states clearly that plastic companies will accept lower cost benefits (or profits in short)

Give me kudos if my post helps.
Director
Director
Joined: 29 Jun 2017
Posts: 778
Own Kudos [?]: 396 [1]
Given Kudos: 2198
Send PM
Re: As the US increased the production of natural gas [#permalink]
1
Kudos
i dont like this problem .
choice c contradict the evidence that there is no cost benifit. this mean there is no increased profit margin.
Intern
Intern
Joined: 30 Jan 2018
Posts: 11
Own Kudos [?]: 2 [0]
Given Kudos: 73
Send PM
Re: As the US increased the production of natural gas [#permalink]
I held A and C at first. When look at the two options a bit closer, A is talking about tax impact whereas the conclusion is '...no cost benefit as a result of the increase in the supply of natural gas'. So A is kind of irrelevant, it doesn't explain why increased gas supply did not make the plastic items production cheaper. So I went with C.
Intern
Intern
Joined: 27 Mar 2017
Posts: 7
Own Kudos [?]: 17 [0]
Given Kudos: 88
GMAT 1: 610 Q49 V28
GPA: 3.98
Send PM
Re: As the US increased the production of natural gas [#permalink]
Hi ,

I know many stumbled between choices A & C.
Let me explain you my reasoning, keeping it simple.

Conclusion says : the makers of plastic products reported zero cost benefit , in spite of increase in production of Natural gas, and reduction in price of Natural gas.
Which means in simple words : zero cost benefit --> no benefit in the production of plastic products even though the indirect raw material price got reduced.

Option A: This speaks about increased tax effects 1) increased cost of production , and which results in 2) increased selling price of plastic products. Which means this option explains the effect of increased taxes, but not the effect of price reduction of Natural gas.

Option C: This speaks about effect of Natural gas price reduction. Ideal expectation is as price of raw material reduces then cost of production of plastic products will reduce, but because of intermediate raw material producers have increased their profit margin, the end producers of plastic didnt get the fruits of reduced price of Natural gas.

Hope the above explanation make things clear :)
Manager
Manager
Joined: 26 Mar 2019
Posts: 69
Own Kudos [?]: 104 [0]
Given Kudos: 142
Location: Azerbaijan
Concentration: Finance, Strategy
GMAT 1: 730 Q50 V38
Send PM
Re: As the US increased the production of natural gas [#permalink]
Please could someone explain why answer choice E is incorrect?
Manager
Manager
Joined: 20 Feb 2017
Posts: 77
Own Kudos [?]: 98 [0]
Given Kudos: 84
Location: United States
Send PM
As the US increased the production of natural gas [#permalink]
RusskiyLev wrote:
Please could someone explain why answer choice E is incorrect?



E: Since the production of natural gas released from shale formation has increased, the demand for plastic products has decreased significantly.

Choice E talks about reduced plastic product demand but the stem is concern about zero cost benefit as reported by the makers of plastic products due to increased output of polyethylene.

So even if demand has reduced , plastic industries can buy cheaper polyethylene and get benefit from it..

Option E is just a trap choice.
Manager
Manager
Joined: 24 Sep 2019
Posts: 128
Own Kudos [?]: 91 [0]
Given Kudos: 171
Location: India
GMAT 1: 710 Q49 V36
Send PM
Re: As the US increased the production of natural gas [#permalink]
Between Option A & Option C:
Option A says many countries. Does that include the US? One can never tell.

I went for Option C after eliminating all other options. That's one way to go!
Manager
Manager
Joined: 17 Jul 2019
Posts: 70
Own Kudos [?]: 523 [0]
Given Kudos: 296
Send PM
Re: As the US increased the production of natural gas [#permalink]
Please help explain why A is wrong?
Target Test Prep Representative
Joined: 24 Nov 2014
Status:Chief Curriculum and Content Architect
Affiliations: Target Test Prep
Posts: 3480
Own Kudos [?]: 5134 [1]
Given Kudos: 1431
GMAT 1: 800 Q51 V51
Send PM
As the US increased the production of natural gas [#permalink]
1
Kudos
Expert Reply
rheam25 wrote:
Please help explain why A is wrong?

    A: To discourage people from using plastic products, many countries have started levying heavy taxes on the plastic industry as a measure to increase the cost of production and the resultant price of plastic products.

What (A) describes is an ongoing issue for the makers of plastic products. The taxes represent a cost that they have to deal with.

OK.

Now, if the increase in the supply of natural gas were to result in a decrease in the price of natural gas, that decrease in the price of natural gas, and a resulting decline in the cost of the raw material polyethylene, could offset, completely or partially, the cost of the heavy taxes levied on the plastic products industry. So, in such a case, that decrease in the price of natural gas would certainly benefit the makers of plastic products by, for instance, offsetting the increased tax costs.

So, even in a situation characterized by such taxes, the makers of plastic products could experience a cost benefit resulting from a decrease in the price of natural gas.

So, the information provided by choice (A) leaves us still wondering why the makers of plastic products experienced no cost benefit from the increase in the supply of natural gas.
Manager
Manager
Joined: 22 Jan 2020
Posts: 69
Own Kudos [?]: 13 [0]
Given Kudos: 304
GMAT 1: 730 Q43 V42
Send PM
Re: As the US increased the production of natural gas [#permalink]
E: Since the production of natural gas released from shale formation has increased, the demand for plastic products has decreased significantly.

In relation to the 1/3 of the respondants who picked this answer.

A decrease in demand on the demand curve will produce a lower price, but that is not reflected in the cost of goods sold (COGs), which is what the premise discusses.
Manager
Manager
Joined: 26 Sep 2022
Posts: 86
Own Kudos [?]: 2 [0]
Given Kudos: 40
Location: India
Concentration: General Management, Other
GRE 1: Q164 V158
Send PM
Re: As the US increased the production of natural gas [#permalink]
This was my reasoning

Conclusion : However, makers of plastic products have instead reported no cost benefit as a result of the increase in the supply of natural gas.

option C says The makers of polyethylene have increased their profit margins and hence are not passing on lower cost benefits to their customers.

If makers of Polyethylene don't pass lower cost benefits to their customers ( plastic products), then the makers of plastic products don't have any incentive to make profits, (the situation maybe the same or worse than before, it will become worse if Makers of polyethylene start selling the product at a higher price). Hence, either way there is no cost benefit to makers of plastic products
GMAT Club Bot
Re: As the US increased the production of natural gas [#permalink]
Moderators:
GMAT Club Verbal Expert
6917 posts
GMAT Club Verbal Expert
238 posts
CR Forum Moderator
832 posts

Powered by phpBB © phpBB Group | Emoji artwork provided by EmojiOne