Suriland cannot both export wheat and keep bread plentiful and afforda

Suriland cannot both export wheat and keep bread plentiful and affordable in Suriland. - Suriland has to compromise on one of two fronts. If the country exports wheat, bread would no longer remain abundant and affordable locally. If it keeps enough bread for local consumption, the country would not be able to export wheat.

Accordingly, Suriland’s wheat farmers are required to sell their crop to the government, which pays them a dollar per bushel less than the price on the world market. - Farmers are required to sell wheat to the government – and that too at a price cheaper than the price on the world market. The word ‘accordingly’ indicates this requirement is due to the constraint mentioned in the first statement.

Therefore, if the farmers could sell their wheat on the world market, they would make a dollar per bushel more, less any additional transportation and brokerage costs they would have to pay. - If the farmers were not bound to sell to the government, they would make one dollar more per bushel (less the additional costs).

Gist: The government requires farmers to sell wheat to it at $1/ bushel less than the world market price (support), If the farmers could sell on the world market, they would make $1/ bushel more than they currently do, less the additional costs (conclusion).


The argument assumes that if the farmers could sell on the world market, they would. There are a few underlying assumptions here:

1. Of their government and the world market, the farmers will sell to whoever pays them a higher price.
2. The selling price of wheat on the world market will remain higher than the price at which the government buys from the farmers.
3. The additional costs will not go beyond the additional revenue they’d generate on the world market.

Taking some of the assumptions one step further:

• What if the farmers, in the best interest of their country, wish to continue selling to the government?
• What if the additional costs per bushel were higher than a dollar, disincentivizing the farmers from selling on the world market?

The usual caveat: there could be other assumptions and other ways to attack the assumptions.


(A) Suriland's wheat farmers have higher production costs than do farmers in many other wheat-producing countries.
Incorrect. The argument deals with whether the farmers would make the additional dollar (less costs) per bushel if they were allowed to sell on the world market. How these farmers’ production costs compare with farmers from other countries has no bearing on the argument.

(B) Sale of a substantial proportion of Suriland's wheat crop on the world market would probably depress the price of wheat.
Correct. In the hypothetical scenario, if farmers sold a substantial proportion of wheat crop on the world market, wheat’s price would likely decrease. If wheat’s price did decrease, farmers would no longer make $1/ bushel more (less additional costs) than what they made when their government was paying them on exporting wheat. They’d earn according to the new, reduced price of wheat.

(C) The transportation and brokerage costs that Suriland's farmers would face if they sold their wheat outside Suriland could amount to almost a dollar per bushel.
Incorrect. The costs ‘could’ amount to ‘almost a dollar’ → the additional costs would still remain less than a dollar. So, the farmers would still make a higher revenue on selling the wheat on the world market. While, the closer the costs are to one dollar, the lower the incentive of farmers to go to the world market, as long as the farmers still make more money, they would have the added incentive to sell outside.

(D) Suriland is surrounded by countries that do not import any wheat.
Incorrect. What are the transportation costs associated with exporting to countries that do import wheat from Suriland? Do none of the countries around Suriland import wheat? Just ‘cause Suriland is surrounded by countries that do not import any wheat, doesn’t necessarily mean that all surrounding countries do not import any wheat. (I am surrounded by geniuses doesn’t imply everyone surrounding me is a genius.) Moreover, do none of the not-so-near countries import wheat? Doesn’t seem so, given the argument. Thus, while this piece of information might indicate that the additional transportation costs would not be miniscule, the option at best just mildly weakens the argument.

(E) The price of a bushel of wheat on the world market occasionally drops below the average cost of producing a bushel of wheat in Suriland.
Incorrect. How the price on the world market compares with the cost of production is irrelevant. The government pays $1 less than the world market price. So, if the farmers could sell on the world market, they still would – after all, they’d at least make a smaller loss selling on the world market than they would selling to their government.


If you have any doubts regarding any part of this solution, please feel free to ask.