Seventeenth-century philosopher John Locke stated that as much as 99

Passage breakdown

In the first paragraph, the author introduces the Labor Theory of Value (LTOV):

• The LTOV holds that "100 percent of the value of any product is generated by labor."
• This theory was influenced by Locke, who thought that 99% of value is generated by labor.

In the second paragraph, the author criticizes the LTOV:

• The author thinks that the LTOV "systematically disregards the productive contribution of capital goods."

For more on the process of breaking down RC passages, check out this article and our live RC videos.

Explanations for individual questions

• Question 1
  
  • Part 1
  • Part 2
• Question 2
  
  • Part 1
  • Part 2
• Question 3
• Question 5

Time Taken: 8 min 18 sec.
1. According to the author of the passage, which of the following is true of the distribution of the income derived from the total output of consumer goods in a modern economy?
A. Workers receive a share of this income that is significantly smaller than the value of their labor as a contribution to total output.
B. Owners of capital goods receive a share of this income that is significantly greater than the contribution to total output attributable to the use of capital goods.
C. Owners of capital goods receive a share of this income that is no greater than the proportion of total output attributable to the use of capital goods.
one-third of the total output of consumer goods is attributable to the use of capital goods. Approximately two-thirds of the income derived from this total output is paid out to workers as wages and salaries, the remaining third serving as compensation to the owners of the capital goods.
D. Owners of capital goods are not fully compensated for their investment because they pay out most of their share of this income to workers as wages and benefits.
E. Workers receive a share of this income that is greater than the value of their labor because the labor theory of value overestimates their contribution to total output.

2. The author of the passage is primarily concerned with
A. criticizing Locke’s economic theories
B. discounting the contribution of labor in a modern economy
C. questioning the validity of the labor theory of value
D. arguing for a more equitable distribution of business profits
E. contending that employers are overcompensated for capital goods

3. Which of the following arguments would a proponent of the labor theory of value, as it is presented in the first paragraph, be most likely to use in response to the statement that “The labor theory of value systematically disregards the productive contribution of capital goods”?
A. The productive contributions of workers and capital goods cannot be compared because the productive life span of capital goods is longer than that of workers.
B. The author’s analysis of the distribution of income is misleading because only a small percentage of workers are also shareholders.
C. Capital goods are valuable only insofar as they contribute directly to the production of consumer goods.
D. The productive contribution of capital goods must be discounted because capital goods require maintenance.
E. The productive contribution of capital goods must be attributed to labor because capital goods are themselves products of labor.
Locke’s intellectual heirs it was only a short step to the “labor theory of value,” whose formulators held that 100 percent of the value of any product is generated by labor (the human work needed to produce goods)

1. According to the author of the passage, which of the following is true of the distribution of the income derived from the total output of consumer goods in a modern economy?

Analysis : In second paragraph Author talks about total output of consumer good and it distribution. According to that

Investment : Capital Goods contribute 1/3 rd and Labor contribute 2/3rd.
Return : labor receive 2/3rd as wages and salaries. Owner of capital receive 1/3 rd and out of this 1/3rd. Owner of capital has to again give back to workers who are shareholders, pension beneficiaries, and the like


A. Workers receive a share of this income that is significantly smaller than the value of their labor as a contribution to total output.
Incorrect as per the explanation above. Worker invest 2/3rd and received 2/3rd + something more.

B. Owners of capital goods receive a share of this income that is significantly greater than the contribution to total output attributable to the use of capital goods.
Incorrect as Owners of capital goods invested 1/3rd and received 1/3rd - Share out to workers again.

C. Owners of capital goods receive a share of this income that is no greater than the proportion of total output attributable to the use of capital goods.
Correct - Owners of capital goods invested 1/3rd and received 1/3rd - Share out to workers again.

D. Owners of capital goods are not fully compensated for their investment because they pay out most of their share of this income to workers as wages and benefits.
Incorrect - not supported by passage.

E. Workers receive a share of this income that is greater than the value of their labor because the labor theory of value overestimates their contribution to total output.
Incorrect - labor theory talks about the contribution, never said anything about the distribution workers should receive



2. The author of the passage is primarily concerned with

Analysis : In first para author introduced labor theory and gave short description. In second para, author criticize the theory because of some loop hole.

A. criticizing Locke’s economic theories
Incorrect - Too vast to be correct. Locke’s economic theories can be many we just talk about one. Also, "Labor value theory" is not Locke’s theory. Locke's given idea and Labor theory is an extension of that idea.

B. discounting the contribution of labor in a modern economy
Incorrect - No such Philosophy is discussed anywhere in passage. author talks about contribution of labor and its value, has not discounted it.

C. questioning the validity of the labor theory of value
Correct - Author actually question the labor theory of value in second para. In first para, he introduced the Theory.

D. arguing for a more equitable distribution of business profits
Incorrect - Too narrow, Author never argued for equitable distribution. Author just presented the distribution pattern, never argued for the same.

E. contending that employers are overcompensated for capital goods
Incorrect - Too narrow. It is discussed in second para, moreover author took opposite stand.



3. Which of the following arguments would a proponent of the labor theory of value, as it is presented in the first paragraph, be most likely to use in response to the statement that “The labor theory of value systematically disregards the productive contribution of capital goods”?

Author's argument - The labor theory of value systematically disregards the productive contribution of capital goods

Possible weakner - what is author has miscalculated the labor contribution of capital goods. what if entire capital good is labor' contribution. then author conclusion is broken.

Only Option E matches the pre thought answer.

1. According to the author of the passage, which of the following is true of the distribution of the income derived from the total output of consumer goods in a modern economy?

C. Owners of capital goods receive a share of this income that is no greater than the proportion of total output attributable to the use of capital goods.

D. Owners of capital goods are not fully compensated for their investment because they pay out most of their share of this income to workers as wages and benefits.

why not D?
Moreover, part of this remaining third is received by workers who are shareholders, pension beneficiaries, and the like.

Owners of capital goods are not fully compensated for their investment => This is what arguments wants to establish so far.

1)Let's take total output as 99. As per the statements given 1/3*99 = 33(Total output of consumer goods is attributable to the use of Capital Goods).
99*2/3 = 66(Wages + Salaries of workers).
Remaining third ---> 1/3*66 = 22(Compensation to the owners of capital goods).
Part of this remaining third ---> 1/3*22 = Random Value(Share Holders + Pension Beneficiaries + etc).
If you go by options one by one you can see option C matches above calculation. Hence C.
2)The author of the passage (whom I refer to as a he) is primarily concerned with
A. criticizing Locke’s economic theories
INCORRECT, for he only talks about his "effects of labor"
B. discounting the contribution of labor in a modern economy
A CONTENDER BUT INCORRECT, as his focus is not discounting the contribution of labor but rather counting the contribution of capital goods in production. This is evidenced by: "Although human effort is required to produce goods for the consumer market, effort is also invested in making capital goods"
C. questioning the validity of the labor theory of value
CORRECT, as he does exactly this in his conclusion:
"The labor theory of value (45) systematically disregards the productive contribution of capital goods a failing for which Locke must bear part of the blame. "
D. arguing for a more equitable distribution of business profits
INCORRECT, since there is no argument in favor of a more equitable distribution of profits, rather there are factual statements regarding how the profits are distributed.
E. contending that employers are overcompensated for capital goods
INCORRECT, nowhere in the passage is "over"compensation implied. only compensation.
Hence C.
3)Locke’s intellectual heirs it was only a short step to the “labor theory of value,” whose formulators held that 100 percent of the value of any product is generated by labor (the human work needed to produce goods). Hence E.

Imo C ,C,E
The only tough was question 1 but if read carefully the lines mentioned in the passage we would have no difficulty in answering that question.
Although human effort is required to produce goods for the consumer market, effort is also invested in making capital goods (tools, machines, etc.), which are used to facilitate the production of consumer goods. In modern economies about one-third of the total output of consumer goods is attributable to the use of capital goods. Approximately two-thirds of the income derived from this total output is paid out to workers as wages and salaries, the remaining third serving as compensation to the owners of the capital
goods.
1. According to the author of the passage, which of the following is true of the distribution of the income derived from the total output of consumer goods in a modern economy?
A. Workers receive a share of this income that is significantly smaller than the value of their labor as a contribution to total output.

B. Owners of capital goods receive a share of this income that is significantly greater than the contribution to total output attributable to the use of capital goods.

C. Owners of capital goods receive a share of this income that is no greater than the proportion of total output attributable to the use of capital goods. Correct

D. Owners of capital goods are not fully compensated for their investment because they pay out most of their share of this income to workers as wages and benefits.

E. Workers receive a share of this income that is greater than the value of their labor because the labor theory of value overestimates their contribution to total output.
Thus it is clear that the income eceived by capital goods owners is not greater than the proportion of output attributable to the use of capital goods.

I am a non native speaker of English.
this passage is easy to read but the questions are hard and contain many close answers

easy passage, close answers.

in this scenario, we need to spend more time on answering questions. if we are hurry, we die.

so, whenever we see an easy passage, dont think we are in the victory already.

Took 5 mins 45 seconds , including 2 mins 40 seconds to read . All correct

1. According to the author of the passage, which of the following is true of the distribution of the income derived from the total output of consumer goods in a modern economy?

. In modern economies about one-third of the total output of consumer goods is attributable to the use of capital goods. Approximately two-thirds of the income derived from this total output is paid out to workers as wages and salaries, the remaining third serving as compensation to the owners of the capital goods.


C. Owners of capital goods receive a share of this income that is no greater than the proportion of total output attributable to the use of capital goods. -- Correct


2. The author of the passage is primarily concerned with

A. criticizing Locke’s economic theories -- Incorrect -- It only criticizes 1 theory -- Labor theory of value

B. discounting the contribution of labor in a modern economy -- Incorrect

C. questioning the validity of the labor theory of value - Correct - The labor theory of value systematically disregards the productive contribution of capital goods—a failing for which Locke must bear part of the blame.

D. arguing for a more equitable distribution of business profits - Incorrect -- the passage states that the distribution is fair

E. contending that employers are overcompensated for capital goods -- Incorrect


3. Which of the following arguments would a proponent of the labor theory of value, as it is presented in the first paragraph, be most likely to use in response to the statement that “The labor theory of value systematically disregards the productive contribution of capital goods”?

A. The productive contributions of workers and capital goods cannot be compared because the productive life span of capital goods is longer than that of workers.

B. The author’s analysis of the distribution of income is misleading because only a small percentage of workers are also shareholders.

C. Capital goods are valuable only insofar as they contribute directly to the production of consumer goods.

D. The productive contribution of capital goods must be discounted because capital goods require maintenance.

E. The productive contribution of capital goods must be attributed to labor because capital goods are themselves products of labor. -- Correct

Regarding Question 2 option E
Passage states that about one-third of the total output of consumer goods is attributable to the use of capital goods. So, the remaining two-third or a part of the remaining two-third can be attributed to the workers. We have no information to find this out. So, it is possible that whole of the remaining two-third can be attributed to the workers. In this case, the workers are not receiving a share that is greater than the value of their labor.
Also, I don't remember reading anything about overestimation of contribution of workers.
So, option E cannot be the answer.

Sent from my ONEPLUS A3003 using GMAT Club Forum mobile app

Hey adkikani

I interpreted the answer using the following lines



attributable to the use of capital goods = one-third of the total output
Approximately two-thirds of total output is paid out to workers as wages and salaries
Remaining third serves as compensation to the owners of the capital goods.
Moreover, part of this remaining third is received by workers who are shareholders, pension beneficiaries

So, owners of the capital goods receive a little less than one third of total output of consumer goods is attributable to the use of capital goods and option C echoes this.

I hope that helped. Let me know.

Hi adkikani,

Here's my take on this specific question -

(A) Workers receive a share of this income that is significantly smaller than the value of their labor as a contribution to total output. Its the opposite, we are told that about 2/3 of the income from total output is paid out to workers - Incorrect
(B) Owners of capital goods receive a share of this income that is significantly greater than the contribution to total output attributable to the use of capital goods. Its again the opposite,owners receive 1/3 of the share attributed to the income from total output because of capital goods
(C) Owners of capital goods receive a share of this income that is no greater than the proportion of total output attributable to the use of capital goods. - Safer,generalized option - which states no greater than the total output - keep it - In line with the passage
(D) Owners of capital goods are not fully compensated for their investment because they pay out most of their share of this income to workers as wages and benefits. - Irrelevant
(E) Workers receive a share of this income that is greater than the value of their labor because the labor theory of value overestimates their contribution to total output. - Irrelevant - labor theory overestimates in the sense that it disregards the contribution of capital goods, not in terms of the share of the income specifically to workers. may be this overestimation is because of the other factor,who knows what

Hope this helps!!

Notice this in the passage:
" In modern economies about one-third of the total output of consumer goods is attributable to the use of capital goods. Approximately two-thirds of the income derived from this total output is paid out to workers as wages and salaries, the remaining third serving as compensation to the owners of the capital goods. "

1/3rd of output is attributable to use of capital goods.
1/3rd of income is given to the owners of the capital goods.

(C) says "Owners of capital goods receive a share of this income that is no greater than the proportion of total output attributable to the use of capital goods."

It matches what the passage says. Share of income is no greater than the proportion of total output.

5 mins 20 secs 2 correct

can someone explain me the 2nd question?

Bob2018

There were multiple explanations given in the above posts for question 2. Please go through them. If you still feel confused, please put down your analysis of the same and that will let us correct your analysis.

Thanks.

Can anyone elaborate on Q3? Why should we choose C instead of B?

the first sentecne says "Although human effort is required to produce goods for the consumer market, effort is also invested in making capital goods " and then the entire passage explain this that how capital good help and then the next sentence " In modern economies about one-third of the total output of consumer goods is attributable to the use of capital goods.--->talks about modern economies
thus what if Capital market did not make a significant productive contribution in Locky's time as this concept exists in modern era.

Now coming to your question, why not B
it says that one third of the earning from capital good is given to owner and even third of this is given to workers working as shareholders and as pension beneficiaries
This tells about that how division of money earned due to capital good take place. This concept exist only when in investment in capital good started taking place in modern economies. no investment in capital goods, no such benefits...so it doesnt effectively counter the author's criticism of Locke

According to the author of the passage, which of the following is true of the distribution of the income derived from the total output of consumer goods in a modern economy?

(A) Workers receive a share of this income that is significantly smaller than the value of their labor as a contribution to total output.

(B) Owners of capital goods receive a share of this income that is significantly greater than the contribution to total output attributable to the use of capital goods.

(C) Owners of capital goods receive a share of this income that is no greater than the proportion of total output attributable to the use of capital goods.

(D) Owners of capital goods are not fully compensated for their investment because they pay out most of their share of this income to workers as wages and benefits.

(E) Workers receive a share of this income that is greater than the value of their labor because the labor theory of value overestimates their contribution to total output.

I was confused between C & D. I went for D because the passage states "Moreover, part of this remaining third is received by workers who are shareholders, pension beneficiaries, and the like."

Can someone please clarify why we won't go for D.