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705-805 Level|   Resolve Paradox|               
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Technological improvements and reduced equipment costs have made conve 18 Jun 2019, 00:57
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VeritasKarishma
rohansherry
153. Technological improvements and reduced equipment costs have made converting solar energy directly into
electricity far more cost-efficient in the last decade. However, the threshold of economic viability for solar power
(that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more
economical than new oil-fired power plants) is unchanged at thirty-five dollars.
Which of the following, if true, does most to help explain why the increased cost-efficiency of solar power has
not decreased its threshold of economic viability?
(A) The cost of oil has fallen dramatically.
(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs
for that equipment.
(C) Technological changes have increased the efficiency of oil-fired power plants.
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically
viable.


Show Spoiler
OA:C...pls explain the meaning of the sentence,

It is a good tricky CR question. People with a quantitative bent of mind would love it, I am sure.
Let me put some numbers here to make it clearer. You need the numbers to understand that a paradox exists. Once you do understand that, resolving it is very simple.

Sunlight is free. Infra needed to convert it to electricity is expensive. Say for every one unit of electricity, you need to spend $50 in a solar power plant (this $50 is the infra cost for solar power).

Oil is expensive. Infra needed to convert it to electricity, not so much. Say for every one unit of electricity, you need to spend $40 in an oil fired power plant. Say, the split here is $25 + $15 ($25 is the cost of oil used and $15 is cost of infra for a unit of electricity here).

Oil based electricity is cheaper. But if the cost of oil rises by $10 (from $25 to $35), solar power will become viable. Now, at both places, cost of one unit of electricity will be $50.
This $35 = the threshold of economic viability for solar power = the price per barrel to which oil would have to rise (mind you, this isn't the actual price of oil)

What happens if you need to spend only $45 in a solar power plant for a unit of electricity? Would you expect 'the threshold of economic viability for solar power' to go to 30? Yes! Now, for solar viability, 'cost of oil + cost of infra in oil power plant' should be only $45. 'Cost of infra in oil power plant' = 15 so we need the oil to go up to $30 only. That will make solar power plants viable. So the threshold of economic viability should decrease.

But the threshold of economic viability for solar power is still $35! It doesn't decrease. That is the paradox! How do you resolve it? By saying that 'Cost of infra in oil power plant' has also gone down by $5 and is only $10 now.

This is what the scene is like now:

Sunlight is free. Infra needed to convert it to electricity is expensive. For every one unit of electricity, you need to spend $45 in a solar power plant.

Oil is expensive. Infra needed to convert it to electricity, not so much. For every one unit of electricity, you need to spend $35 in an oil fired power plant. The split now is $25 + $10 ($25 is the cost of oil used and $10 is cost of infra for a unit of electricity).

You still need the oil price to go up to $35 so that cost of electricity generation in oil power plant is also $45. So you explained the paradox by saying that "Technological changes have increased the efficiency of oil-fired power plants." So, option (C) is correct.

If you think about it now, the actual price of the oil has nothing to do with 'the threshold of economic viability for solar power'. This threshold is $35 so you need the oil to go up to $35. Whether the actual price of oil is $10 or $15 or $20, it doesn't matter. It still needs to go up to $35 for solar viability. So option (A) is incorrect.
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Quote:

Can't we look at this that , even if the cost of oil has fallen but has the running cost of oil plant pulnged, so we are not sure
on the other hand in option C we are told that tchnology has improved electricity generated per barrel, making oil more economically viable and therefore solar threshold has not plunged
Show more

Note that the value of "the threshold of economic viability for solar power" has NOTHING to do with the actual price of oil. When we say that "the threshold of economic viability for solar power" is $35, it means that if the price of oil is $35, then solar power becomes viable. What is the actual price of oil has NO relevance to this measure. The other factors that decide the value of "the threshold of economic viability for solar power" are infra cost in the solar power plant and infra cost in the oil power plant. The difference between these two costs can be the price of oil (price of raw material for oil power plant). Price for raw material for solar power plant is 0 (sun's energy).

the threshold of economic viability for solar power = per unit infra cost in solar power plant - per unit infra cost in oil power plant

Actual price of oil has nothing to do with it.
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Technological improvements and reduced equipment costs have made conve 12 Nov 2019, 19:04
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Quote:
Hi

I am still not clear as to why option A is not correct. Pls clarify my line of reasoning.
If the threshold value has not decreased then might be the cost of oil decreased or the cost of conversion of oil to electricity decreased.
and option A says the first case that cost of oil decrease and that reduces the overall cost of producing electricity from oil.

Pls point out where I am deviating?

Regards
Shoumodip
Quote:
(A) The cost of oil has fallen dramatically.
The threshold value is NOT affected by the price per barrel.

For example, say that my "threshold" movie ticket price is $10. In other words, if tickets are under $10, I'm willing to pay. If the movie theater cuts costs and ticket prices drop, that doesn't impact my "threshold" movie ticket price.

In this example, we can infer that the cost per barrel is currently LOWER than the threshold value of $35. So let's say it's currently $30 per barrel. If the price per barrel drops from $30 to $10, that does not change the threshold. The threshold only changes if the cost of converting oil to electricity changes or if the cost of converting solar energy to electricity changes.

I hope that helps!
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Hi GMATNinjaTwo,

You said, "The threshold only changes if the cost of converting oil to electricity changes or if the cost of converting solar energy to electricity changes." But the cost of converting oil to electricity is the combination of the cost of oil AND the cost of the technology. If the cost of oil changes, then wouldn't that affect the cost of converting oil to electricity, too?

Let's go back to your movie ticket example.

Say I get poorer, and I can no longer afford $10 tickets. My poor-ness (poverty sounds too dramatic) should push my threshold down to 5 dollars. However, the threshold doesn't change. What would resolve this paradox? Would you please resolve this paradox similarly to the way this solar/oil example is resolved?

Thanks! :angel:
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Technological improvements and reduced equipment costs have made conve 13 Nov 2019, 03:35
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VeritasKarishma
rohansherry
153. Technological improvements and reduced equipment costs have made converting solar energy directly into
electricity far more cost-efficient in the last decade. However, the threshold of economic viability for solar power
(that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more
economical than new oil-fired power plants) is unchanged at thirty-five dollars.
Which of the following, if true, does most to help explain why the increased cost-efficiency of solar power has
not decreased its threshold of economic viability?
(A) The cost of oil has fallen dramatically.
(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs
for that equipment.
(C) Technological changes have increased the efficiency of oil-fired power plants.
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically
viable.


Show Spoiler
OA:C...pls explain the meaning of the sentence,

It is a good tricky CR question. People with a quantitative bent of mind would love it, I am sure.
Let me put some numbers here to make it clearer. You need the numbers to understand that a paradox exists. Once you do understand that, resolving it is very simple.

Sunlight is free. Infra needed to convert it to electricity is expensive. Say for every one unit of electricity, you need to spend $50 in a solar power plant (this $50 is the infra cost for solar power).

Oil is expensive. Infra needed to convert it to electricity, not so much. Say for every one unit of electricity, you need to spend $40 in an oil fired power plant. Say, the split here is $25 + $15 ($25 is the cost of oil used and $15 is cost of infra for a unit of electricity here).

Oil based electricity is cheaper. But if the cost of oil rises by $10 (from $25 to $35), solar power will become viable. Now, at both places, cost of one unit of electricity will be $50.
This $35 = the threshold of economic viability for solar power = the price per barrel to which oil would have to rise (mind you, this isn't the actual price of oil)

What happens if you need to spend only $45 in a solar power plant for a unit of electricity? Would you expect 'the threshold of economic viability for solar power' to go to 30? Yes! Now, for solar viability, 'cost of oil + cost of infra in oil power plant' should be only $45. 'Cost of infra in oil power plant' = 15 so we need the oil to go up to $30 only. That will make solar power plants viable. So the threshold of economic viability should decrease.

But the threshold of economic viability for solar power is still $35! It doesn't decrease. That is the paradox! How do you resolve it? By saying that 'Cost of infra in oil power plant' has also gone down by $5 and is only $10 now.

This is what the scene is like now:

Sunlight is free. Infra needed to convert it to electricity is expensive. For every one unit of electricity, you need to spend $45 in a solar power plant.

Oil is expensive. Infra needed to convert it to electricity, not so much. For every one unit of electricity, you need to spend $35 in an oil fired power plant. The split now is $25 + $10 ($25 is the cost of oil used and $10 is cost of infra for a unit of electricity).

You still need the oil price to go up to $35 so that cost of electricity generation in oil power plant is also $45. So you explained the paradox by saying that "Technological changes have increased the efficiency of oil-fired power plants." So, option (C) is correct.

If you think about it now, the actual price of the oil has nothing to do with 'the threshold of economic viability for solar power'. This threshold is $35 so you need the oil to go up to $35. Whether the actual price of oil is $10 or $15 or $20, it doesn't matter. It still needs to go up to $35 for solar viability. So option (A) is incorrect.


Hi Karishma VeritasKarishma,

Thanks for the very detailed explanation. I have a question - in your example, what happens if oil price actually decreases?
Say it decreases from $25 to $15. And imagine the cost of infrastructure increases from $15 to $30. Now for every one unit of electricity, we still have to pay $45.
Now comparing that with the $45 of new technology-solar, solar would still become economically viable. So answer choice A can be right if only we add that part of increased infra cost?


--

I think I have problem with this part:

What happens if you need to spend only $45 in a solar power plant for a unit of electricity? Would you expect 'the threshold of economic viability for solar power' to go to 30? Yes! Now, for solar viability, 'cost of oil + cost of infra in oil power plant' should be only $45. 'Cost of infra in oil power plant' = 15 so we need the oil to go up to $30 only. That will make solar power plants viable. So the threshold of economic viability should decrease.

But the threshold of economic viability for solar power is still $35! It doesn't decrease. That is the paradox! How do you resolve it? By saying that 'Cost of infra in oil power plant' has also gone down by $5 and is only $10 now.


Why would I expect the oil to go up to $30 only if solar cost goes down to $45? Because then at $30 oil cost and $45 total spent on oil plant, I would have the two equal options: oil and solar, to choose from. But doesn't that also mean it can go 2 ways: either the cost of oil go down, or the cost of infrastructure go down. Either way can help us keep both prices the same; we'd have equal choices to choose from and none is better than the other since they'd both cost $45?

Why do we focus only on the crude oil prices when we decide the economic viability? Isn't it unrealistic? If crude oil prices were $35 (which is that threshold), but the cost of infra is somewhere like $3000, then isn't it more viable to use solar, and if the cost of infra is $1, then it's more viable to use oil?

Thanks.
Show more

Focus on this very carefully:
"threshold of economic viability for solar power" has nothing to do with actual price of oil.

threshold of economic viability for solar power = price per barrel to which oil would have to rise in order for new solar power plants to be more
economical than new oil-fired power plants

Solar plants become viable when
cost of producing 1 unit of electricity in solar plant = cost of producing 1 unit of electricity in oil plant

i.e. when
Cost of infra in solar plant per unit = Cost of oil + Cost of infra in oil plant per unit
This highlighted cost of oil is "threshold of economic viability for solar power"

So "threshold of economic viability for solar power" = Cost of solar plant infra - cost of oil plant infra

Now the argument tells us that cost of solar plant infra has decreased. The issue is that "threshold of economic viability for solar power" is still same. Why? Because cost of oil plant infra has also decreased.

NOTHING to do with actual price of oil.
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The question here asks us to explain why the threshold of economic viability has not decreased from $35, despite technological improvements in solar power equipment. The key to this question is to realize what the definition of economic viability is, as defined by the GMAT writers of this question. This specific definition can be found in the parenthesis in the question, the part where it says "(that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more economical than new oil-fired power plants)" This is where the "threshold of economic viability" is defined. Reading this carefully, you will realize that the "price of oil" is a threshold that will not change unless the ratio of efficiencies of oil power equipment vs. solar power equipment increases or decreases. This is the ONLY thing that will change the threshold.

The question states that the efficiency of solar power equipment has increased. If the efficiency of oil power equipment has stayed the same, then the ratio of efficiencies of solar vs. oil power equipment should change. However, the anomaly the question is asking about is why the ratio has not changed. The ONLY way the ratio won't change despite the increased efficiency of solar power equipment is if the efficiency of oil power equipment increased by the same amount as the efficiency of solar power equipment. For those who think more in terms of math: If the solar power equipment efficiency was originally "100" and the oil power equipment efficiency was originally "200", then the ratio of "old solar : old oil" is 100:200, or 1/2. Now, the solar power equipment efficiency increased, so let's say its efficiency is now "200". If the oil power equipment efficiency remained the same as before, the ratio of "new solar : old oil" would now be 200:200, or 1, which is a change from the original old ratio of 1/2. The only way the ratio of new solar : old oil would remain at 1/2 is if oil power equipment's efficiency increased to "400" from its original 200, making the ratio of new solar : new oil equal to 200:400, or 1/2, which is the same as the old ratio. This clearly demonstrates that the answer is C. That's the only answer that discusses technological improvements in oil power equipments that make it more efficient .

The reason why Choice A is wrong is because the cost of oil has no effect on this $35 threshold. To understand this, I thought of the following two extreme scenarios:
1) Oil all of a sudden costs $1 million / barrel (or some other ridiculous amount of money), does this change the threshold? No. The threshold is still at $35. The fact that oil now costs $1 million / barrel means that the threshold of $35 is exceeded, which means it is now more efficient to use solar power equipment than oil power equipment. However, it doesn't mean the threshold of $35 has changed.
2) Oil all of a sudden becomes free. It costs $0. Does this effect the $35 threshold? No. The threshold is independent of the cost of oil. Even if oil is free, the threshold for solar power equipment to become more efficient than oil power equipment is still $35, because the efficiencies of the equipment do not depend on the price oil, they only depend on the technical abilities of the equipments. Now, you might say, doesn't that explain why the threshold of efficiency is unchanged? It does not. The reason why I showed two extreme scenarios is to show that the price of oil is IRRELEVANT to the threshold. If it CAN explain why the threshold of efficiency is unchanged, then one of the two extreme scenarios should change the threshold of $35. However, I have shown both extreme scenarios and neither of them effect the threshold of $35. Therefore, Choice (A) is irrelevant and is the wrong answer.
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Perfect explanation.

This question is a perfect example of why it is so important to have great reading comprehension skills and to take your time analyzing the stimulus. Understanding the sentence structure and correctly understanding the meaning is so important in this problem.

The key is to understand (which is very hard to do under time pressure) that the “threshold” refers to the price TO WHICH the price of oil must rise.

The passage does not say that the price of oil must rise $35.

Rather, the price of the oil must rise TO $35.

This is what makes (A) such a great trap choice.

We need to explain why, even though process of concerting solar energy has become cheaper, the price of oil still needs to rise TO the price OF $35 in order to make solar energy the more economical method.


If A is true, and the price of oil decreases dramatically, this fact essentially does nothing to explain the situation. The price of oil still has to rise to $35 to make solar power more economical, according to the facts.

This is where the apparent discrepancy comes in to the picture. Solar power has become cheaper. Why would the price of oil still need to go to $35? We would expect that the price of oil would only need to rise to a lower price in order for solar power to be the cheaper method.

If the price of oil drops even more, then this deepens the paradox, because it makes us wonder why the price of oil still has to rise to $35 to make the conversion process of oil based plants more expensive than that of the solar plants.

There must be something else in the process of oil-fired based plants that has made the entire process cheaper. This is needed to counterbalance the fact that solar power process has become cheaper. Thus, even though solar plant power is cheaper now than it was, something else has occurred in the oil plant process such that the price of oil STILL needs to rise to $35 in order for solar power to be cheaper.

If you had to re-phrase the apparent paradox:

Why is it that the price of oil STILL has to rise to $35 (to make solar energy the cheaper process) when the process for converting solar energy has decreased?

(C) provides the “something else” about oil plants that could explain why the price of oil still has to rise TO $35 for solar power to become cheaper.

VeritasKarishma
rohansherry
153. Technological improvements and reduced equipment costs have made converting solar energy directly into
electricity far more cost-efficient in the last decade. However, the threshold of economic viability for solar power
(that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more
economical than new oil-fired power plants) is unchanged at thirty-five dollars.
Which of the following, if true, does most to help explain why the increased cost-efficiency of solar power has
not decreased its threshold of economic viability?
(A) The cost of oil has fallen dramatically.
(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs
for that equipment.
(C) Technological changes have increased the efficiency of oil-fired power plants.
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically
viable.


Show Spoiler
OA:C...pls explain the meaning of the sentence,

It is a good tricky CR question. People with a quantitative bent of mind would love it, I am sure.
Let me put some numbers here to make it clearer. You need the numbers to understand that a paradox exists. Once you do understand that, resolving it is very simple.

Sunlight is free. Infra needed to convert it to electricity is expensive. Say for every one unit of electricity, you need to spend $50 in a solar power plant (this $50 is the infra cost for solar power).

Oil is expensive. Infra needed to convert it to electricity, not so much. Say for every one unit of electricity, you need to spend $40 in an oil fired power plant. Say, the split here is $25 + $15 ($25 is the cost of oil used and $15 is cost of infra for a unit of electricity here).

Oil based electricity is cheaper. But if the cost of oil rises by $10 (from $25 to $35), solar power will become viable. Now, at both places, cost of one unit of electricity will be $50.
This $35 = the threshold of economic viability for solar power = the price per barrel to which oil would have to rise (mind you, this isn't the actual price of oil)

What happens if you need to spend only $45 in a solar power plant for a unit of electricity? Would you expect 'the threshold of economic viability for solar power' to go to 30? Yes! Now, for solar viability, 'cost of oil + cost of infra in oil power plant' should be only $45. 'Cost of infra in oil power plant' = 15 so we need the oil to go up to $30 only. That will make solar power plants viable. So the threshold of economic viability should decrease.

But the threshold of economic viability for solar power is still $35! It doesn't decrease. That is the paradox! How do you resolve it? By saying that 'Cost of infra in oil power plant' has also gone down by $5 and is only $10 now.

This is what the scene is like now:

Sunlight is free. Infra needed to convert it to electricity is expensive. For every one unit of electricity, you need to spend $45 in a solar power plant.

Oil is expensive. Infra needed to convert it to electricity, not so much. For every one unit of electricity, you need to spend $35 in an oil fired power plant. The split now is $25 + $10 ($25 is the cost of oil used and $10 is cost of infra for a unit of electricity).

You still need the oil price to go up to $35 so that cost of electricity generation in oil power plant is also $45. So you explained the paradox by saying that "Technological changes have increased the efficiency of oil-fired power plants." So, option (C) is correct.

If you think about it now, the actual price of the oil has nothing to do with 'the threshold of economic viability for solar power'. This threshold is $35 so you need the oil to go up to $35. Whether the actual price of oil is $10 or $15 or $20, it doesn't matter. It still needs to go up to $35 for solar viability. So option (A) is incorrect.
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Technological improvements and reduced equipment costs have made converting solar energy directly into electricity far more cost-efficient in the last decade. However, the threshold of economic viability for solar power (that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more economical than new oil-fired power plants) is unchanged at thirty-five dollars.

Which of the following, if true, does most to help explain why the increased cost-efficiency of solar power has not decreased its threshold of economic viability?


(A) The cost of oil has fallen dramatically.

(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs for that equipment.

(C) Technological changes have increased the efficiency of oil-fired power plants.

(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.

(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically viable.

Let’s look at the stimulus given-
Technological improvements and reduced equipment costs have made converting solar energy directly into electricity far more cost-efficient in the last decade.
But, the threshold of economic viability for solar power is unchanged at thirty-five dollars.
Why is it so? We need to look for an option that resolves the paradox.
The comparison is between solar power plants and new oil-fired power plants.


(A) The cost of oil has fallen dramatically.
The comparison is between solar power plants and new oil-fired power plants. What has not changed is the threshold of economic viability for solar power. The price of oil per barrel does not resolve the paradox.

(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs for that equipment.
It is stated in the argument that the cost of solar-power equipment has reduced. Why the cost has reduced or what happened to the raw material for that equipment is out of the scope of the argument. As long as the cost of the equipment has reduced, we are good to go. Eliminate B.

(C) Technological changes have increased the efficiency of oil-fired power plants.
This explains why even though the Technological improvements and reduced equipment costs have made converting solar energy directly into electricity far more cost-efficient , the threshold of economic viability for solar power has not changed.

(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.
Irrelevant.

(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically viable.
Irrelevant.
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Hi, I struggle with these kind of number/quant based CR questions. If there is a question set on GMATClub which has these type of questions then could you please share the link of the same? Will be great help. Thanks!
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Hi, I struggle with these kind of number/quant based CR questions. If there is a question set on GMATClub which has these type of questions then could you please share the link of the same? Will be great help. Thanks!
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Check the links below:

Numbers & Percent CR questions from our Questions' Bank

Critical Reasoning Megathread

Hope it helps.
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My take on this. Without going to much into quantitative way to solve this and sticking to the basics.

Lets first analyze the CR passage line by line.

Technological improvements and reduced equipment costs have made converting solar energy directly into electricity far more cost-efficient in the last decade.


Solar energy > electricity in itself (i.e. in no relation to oil) has become more $ effective in the last decade. (Just hold this thought and move on)

However, the threshold of economic viability for solar power (that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more economical than new oil-fired power plants) is unchanged at thirty-five dollars.

Threshold $ viability for solar power (price per barrel of oil which would have to rise to make solar a more econ. solution) has remain unchanged.

To Summarize :
Solar Energy > Elec. more $ effective (in itself)
Threshold for Solar > Electric v/s Oil > Electric (Unchanged)


Question stem says :

Which option, does most to help explain why the increased cost-efficiency of solar power has not decreased its threshold of economic viability?
i.e. why solar becoming more cost effective hasn't made a shift in economic viability.

Answer options :

(A) : The cost of oil has fallen dramatically.

If the cost falls dramatically, the first change it will do is to change the so called 'threshold' mentioned in line #2 of question. For this to be considered as true the premise would have to be broken/falsified which definitely cannot be done. Hence, we can ignore this option.

This makes (C) the most viable option for the question.

-x-

Over the course of the last few months of prep, I have realized that there are only 2 x ways GMAT can make a question tricky/difficult.

1. By compounding multiple simple concepts together in one question.
2. By giving a really enticing trap answer choice (Pitfall)

(They sometimes use a mix of 1 & 2 as well but that is rare)

This question was definitely a (2).

Hence, if you realize that there is an seeming 'obvious' answer choice in any question, be a bit skeptical and only choose it after a through analysis.
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cool_jonny009

Technological improvements and reduced equipment costs have made converting solar energy directly into electricity far more cost-efficient in the last decade. However, the threshold of economic viability for solar power (that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more economical than new oil-fired power plants) is unchanged at thirty-five dollars.

Which of the following, if true, does most to help explain why the increased cost-efficiency of solar power has not decreased its threshold of economic viability?

(A) The cost of oil has fallen dramatically.
(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs for that equipment
(C) Technological changes have increased the efficiency of oil-fired power plants.
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically viable.
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Hi experts avigutman IanStewart

Several experts and members have used "ratio," breakdowns or other math concepts to approach this question, but I cannot relate to them. Later I found a way to explain why (C) is correct. Could you help confirm my line of thinking? It would be great if you could some of your thoughts when you have time. :)

Initially I could see why (A), (B), (D) and (E) are incorrect, but I could not understand how (C) explains the situation--it was unclear to me how (C) explains why the threshold can stay unchanged at $35, despite the increasing efficiency in solar power.

Reading "The threshold of economic viability for solar power (that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more economical than new oil-fired power plants) is unchanged at thirty-five dollars," I initially thought that the threshold is mainly decided by the costs of solar power generation, and by nothing more. I thought so mainly because this question reminded me of shale oil and crude oil--it is said that shale oil does not get extracted unless the oil price surpasses the costs of extracting shale oil.

Let's check:
(C) Technological changes have increased the efficiency of oil-fired power plants.

Initially, I thought that the threshold of "economic viability for solar power" would reduce only if the costs of solar power generation reduce. For example, one barrel priced at $30 can be used to produce 1,000 units of power, and the costs of producing 1,000 units solar power total $35. We can infer that solar power would be economical only when the oil prices rises to $35 per barrel. (I think we can ignore other costs, such as labor costs or maintenance costs, since including them would make the discussion too complex, at least to me.)

If the costs of producing solar power drop to $32, the threshold should fall to $32, all other things being equal.

But, later I found that there seems to be a hidden variable in (C). Saying "the efficiency of oil-fired power plants increased," (C) in fact means that the factories can produce more units of power from one barrel of oil than they did before.

Let's say now these plants can produce 1,100 units of power, instead of 1,000 units, from one barrel. Now, even though the costs of producing 1,000 units of solar power has fallen to $32, the solar power developers would still pay $32*1.1=$35.2 to produce 1,100 units of power. Hence, the "threshold" returns to $35 again--unless the oil prices surpasses $35, solar power would not be an economical option.

*
It is not my intention to turn a CR question into a quant question (plugging numbers method?), but for now I cannot think of other methods to explain why (C) works. I think that my method is not unclear, but I am afraid that I do not have this time in the real test. Could you share your approach for this question?

I personally think that this question is hard because of the term "threshold of economical viability," which is more abstract than "oil prices." Some smart experts have pointed out that this "threshold" would be affected by the relative efficiency/costs of two energies, and they are right. But CR questions can always present a new idea with a definition that we never see before. Under such circumstances, how do we most efficiently tackle the questions containing new ideas? If plugging number is my cup of tea, would you advice me to continue with this tool?

Sorry that my questions might be a bit general.
Thank you for your time and thoughts. :)

GMATNinja


Now back to our example... oil plants are currently more economical than solar plants. If the price per barrel of oil goes above $35 per barrel (the threshold of economic viability), solar will become the more economical option. The cost of converting solar energy into electricity has gone DOWN, so we would expect the threshold of economic viability to DECREASE from $35 per barrel. However, the threshold has not changed. We need an answer choice that helps explain why that might be the case:

Quote:
(C) Technological changes have increased the efficiency of oil-fired power plants.
If the cost of converting solar energy into electricity goes DOWN, we would expect the threshold of economic viability to decrease. However, if the cost of converting oil into electricity goes down, we would expect the threshold to INCREASE. Thus, if the cost of converting solar AND the cost of converting oil BOTH decrease, the expected changes to the threshold could cancel each other out (one makes the threshold go up, the other makes the threshold go down, so the threshold could remain the same). Choice (C) describes such a situation, so hang on to it.
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KarishmaB

Note that the value of "the threshold of economic viability for solar power" has NOTHING to do with the actual price of oil. When we say that "the threshold of economic viability for solar power" is $35, it means that if the price of oil is $35, then solar power becomes viable. What is the actual price of oil has NO relevance to this measure. The other factors that decide the value of "the threshold of economic viability for solar power" are infra cost in the solar power plant and infra cost in the oil power plant. The difference between these two costs can be the price of oil (price of raw material for oil power plant). Price for raw material for solar power plant is 0 (sun's energy).

the threshold of economic viability for solar power = per unit infra cost in solar power plant - per unit infra cost in oil power plant

Actual price of oil has nothing to do with it.
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gmat800live

For some reason, the explanations regarding why A is wrong didn't make sense to me. So here you have a very easy way to understand it:

You have two different ratios A and B.

A -> priceoil:oil:electricity
B -> pricesolar:solar:electricity

Now, the key is to understand that when we say "threshold is 35" that means we are saying than when we plug 35 on "priceoil", then A and B are the same. That's it! So now, if you tell me that solar:electricity ratio has improved, but that when I plug 35 on priceoil then A still equals B, the only way that can happen is if oil:electricity has improved. And note how "current price of oil" is not a factor here. Yes, priceoil is on the ratios, but we are forced to put 35 there, and it has nothing to do with current price of oil. Makes sense?

Done. I really hope this clarifies this once and for all.
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preetamsaha


Reading this carefully, you will realize that the "price of oil" is a threshold that will not change unless the ratio of efficiencies of oil power equipment vs. solar power equipment increases or decreases. This is the ONLY thing that will change the threshold.

The question states that the efficiency of solar power equipment has increased. If the efficiency of oil power equipment has stayed the same, then the ratio of efficiencies of solar vs. oil power equipment should change. However, the anomaly the question is asking about is why the ratio has not changed. The ONLY way the ratio won't change despite the increased efficiency of solar power equipment is if the efficiency of oil power equipment increased by the same amount as the efficiency of solar power equipment.
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GraceSCKao

Several experts and members have used "ratio," breakdowns or other math concepts to approach this question, but I cannot relate to them. Later I found a way to explain why (C) is correct. Could you help confirm my line of thinking? It would be great if you could some of your thoughts when you have time. :)
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I haven't read the earlier replies, but your reasoning looks right. When I read this question, I think I use an approach akin to an estimation approach to a Quant problem. The definition of "threshold of economic viability" makes my head hurt when I read it, so at first I'd just try to extract a general idea of what it means: it compares how "economical" new solar plants would be, compared to new oil plants. We have learned that solar power has become cheaper to make, but that threshold number that compares how economical each type of power is to produce hasn't changed. If it hasn't changed, something must have made oil cheaper to produce too. That leads directly to C. If, by developing just that kind of approximate understanding of the meaning of the "threshold", I found more than one candidate answer choice, then I'd think more carefully about what that threshold definition meant.

I'm sure most of the more detailed replies above explain the logic much more precisely than I just did, but based on the comparison the question draws, C is the only answer that really could be right.
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GraceSCKao

I love math but still find it easier and faster on most CR math-ey questions to use logic rather than math, so here's my stab.

The economic viability of solar is some function of the following inputs (along with perhaps a few others): cost of equipment, upkeep, efficiency.
The economic viability of oil is some function of the following inputs (along with perhaps a few others): cost of factory, upkeep, efficiency, cost of oil.

Solar has benefitted from technological improvements and reduced equipment costs but hasn't gained in economic viability COMPARED TO OIL. Solar got better. That means oil must have, too. The passage tells us that it hasn't been because of the cost of oil, so it must be because of one of the other factors.

Sure sounds like C.
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Hi AndrewN

I missed this question and as you can see, this is a question that is highly discussed. I don't have a particular question but I think the key to nail this problem is to understand that the for the threshold to remain same, the cost of producing electricity from both solar and oil sources has to increase or decrease by the same amount. Now the stimulus says the cost from solar sources is decreasing. For the threshold to remain same, its counterpart (the oil source), has to decrease too. Only C can potentially provide that info. Is this way of thinking correct to approach this question ?

Also, is using an elaborated numerical logic required in such questions ? I think not. What is your take ?
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Hi AndrewN

I missed this question and as you can see, this is a question that is highly discussed. I don't have a particular question but I think the key to nail this problem is to understand that the for the threshold to remain same, the cost of producing electricity from both solar and oil sources has to increase or decrease by the same amount. Now the stimulus says the cost from solar sources is decreasing. For the threshold to remain same, its counterpart (the oil source), has to decrease too. Only C can potentially provide that info. Is this way of thinking correct to approach this question ?

Also, is using an elaborated numerical logic required in such questions ? I think not. What is your take ?
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You seem to have it just right, Namangupta1997. If solar-power has increased in cost-efficiency, then it must be true that its counterpart, which we can call oil-power, has also increased in cost-efficiency, or else the economic threshold could not be unchanged. If you prefer to use numbers, you can, but such an approach is not required by any means. I think that many test-takers would narrow the options down to (A) and (C) and then chase (A), based on little more than the mealymouthed definition of the threshold in question that is provided in the parenthetical. (Answer choice (A) also uses dramatically, and these significantly types of modifiers often appear in correct answers. We have to remember to always think critically about the question, not to switch into autopilot.)

Thank you for thinking to ask.

- Andrew
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GraceSCKao
Several experts and members have used "ratio," breakdowns or other math concepts to approach this question, but I cannot relate to them. Later I found a way to explain why (C) is correct. Could you help confirm my line of thinking? It would be great if you could some of your thoughts when you have time. :)

Initially I could see why (A), (B), (D) and (E) are incorrect, but I could not understand how (C) explains the situation--it was unclear to me how (C) explains why the threshold can stay unchanged at $35, despite the increasing efficiency in solar power.

Reading "The threshold of economic viability for solar power (that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more economical than new oil-fired power plants) is unchanged at thirty-five dollars," I initially thought that the threshold is mainly decided by the costs of solar power generation, and by nothing more. I thought so mainly because this question reminded me of shale oil and crude oil--it is said that shale oil does not get extracted unless the oil price surpasses the costs of extracting shale oil.

I personally think that this question is hard because of the term "threshold of economical viability," which is more abstract than "oil prices." Some smart experts have pointed out that this "threshold" would be affected by the relative efficiency/costs of two energies, and they are right. But CR questions can always present a new idea with a definition that we never see before. Under such circumstances, how do we most efficiently tackle the questions containing new ideas? If plugging number is my cup of tea, would you advice me to continue with this tool?
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Hi GraceSCKao, we can tell thanks to the word "however" (beginning of second sentence) that this describes some surprising phenomenon, so it's important that we find ourselves feeling surprised by the time we get to the end of the passage. You're right that the definition of "threshold of economic viability" is complex and abstract, and is what makes this problem so hard. Based on the definition:
Quote:
the price per barrel to which oil would have to rise in order for new solar power plants to be more economical than new oil-fired power plants
Show more
It is indeed surprising that the threshold remains unchanged, given that converting solar energy directly into electricity has become far more cost-efficient in the last decade. One would have expected the threshold to decrease.
Consider this analogy: you're in the market for a new car, and you're trying to decide between an electric vehicle and an internal combustion vehicle. Generally speaking, the former is more expensive than the latter, but you get savings over time because electricity is cheaper than fuel. For this analogy to work, let's ignore environmental and *cool* factors, and pretend that all you care about is finding out which option is more economical.
There's going to be a particular price of fuel at which the two options are equally economical. If the price of fuel is higher (all else being equal) you'll choose electric, and if the price of fuel is lower you'll choose internal combustion engine.
So, if we're told that the cost of electricity has dropped in the last decade, *all else being equal*, you'd expect the threshold to go down (i.e. even with a relatively low price of fuel, you'd still choose electric). But, surprise! turns out the threshold didn't decrease. Why??
Well, something must have 'balanced out' the effect of the drop in the cost of electricity. Perhaps the price of electric vehicles has increased? Perhaps the price of internal combustion vehicles has decreased?

Having read the reasoning (and the analogy) that I would use, GraceSCKao, what do you think? Do you prefer plugging numbers? My instinct is to advise against plugging numbers, but I'd love to hear what you think.
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avigutman

Having read the reasoning (and the analogy) that I would use, GraceSCKao, what do you think? Do you prefer plugging numbers? My instinct is to advise against plugging numbers, but I'd love to hear what you think.
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Hi avigutman

Thank you for your detailed and clear explanations! :)
I like your analogy--I think it is practical and GMAT-style.

On days' reflection, I think that I could not use pure logics to explain to myself why (C) works for two main reasons--first, the term "threshold of economic viability" gave me a hard time, and secondly, I did not really understand the option (C), which, by saying "Technological changes have increased the efficiency of oil-fired power plants," means that the oil-fired power plants can use less oil to produce the same amount of power.

If this question were to compare the absolute amount of generation costs of the two types of power to decide which energy is more economical, it would be much simpler. How much does it take solar power developers to produce one unit of power? How much does it take the oil-fired power plants to produce one unit of power? The comparison would be straightforward. Of course, the generation costs could be affected by lots factors, such as efficiency (how many units of power can be produced with the same input), oil price (material costs for the oil-fired power plants), equipment costs, labor costs and so on.

But, this question does not prefer such a direct comparison; instead, it takes an indirect road by using the threshold concept. I call such a concept "indirect" as I think that how high the threshold is will still mainly depend on the generation costs of the two types of power. The beauty of the threshold method is that it highlights one variable (the oil price in this case), but in fact the threshold is still decided by many variables.

However, after comparing your analogy to this CR question, I found out something interesting (at least interesting to me)--the term "threshold" could be defined in many ways, and hence there is no one pattern for all questions containing this term. So, if I run into another CR question using the term "threshold," I need to read carefully how the test designers define the term.

In this CR question, "threshold of economic viability for solar power" is defined as "the price per barrel to which oil would have to rise in order for new solar power plants to be more economical than new oil-fired power plants." In other words, it is defined as a specific oil price above which new solar power plants will be considered more economical than new oil-fired power plants.

With this definition, although the oil price itself is the very gauge of the threshold, the decrease in the real oil price, even though it means lower generation costs of oil-fired power, will not boost the threshold. For example, one barrel of oil priced at $30 can be used to produce 1,000 units of oil-fired power, and the costs of producing 1,000 units solar power total $35. Only when the oil price rises to $35 per barrel, the solar power would be economical. But even if the oil price falls to $20 per barrel, the threshold is still at $35.

But, if we "flip the direction" and have another term "threshold of economic viability for oil-fired power plants" as "the rent per acre to which land whose sunshine condition is ideal for solar power would have to rise in order for new oil-fired power plants to be more economical than new solar power plants," now the oil price would matter for the threshold, would not it?

For your analogy, which talks about the choice between electric cars and traditional cars, the threshold is defined as "a particular price of fuel at which the two options are equally economical." With this definition, the change in the price of electricity, instead of the change in the fuel price, would affect the threshold. But I feel that there is more than one way to define the "threshold." With different definition of the "threshold", what matters for the threshold also varies. That is something I find very interesting from this practice. :)

avigutman

Consider this analogy: you're in the market for a new car, and you're trying to decide between an electric vehicle and an internal combustion vehicle. Generally speaking, the former is more expensive than the latter, but you get savings over time because electricity is cheaper than fuel. For this analogy to work, let's ignore environmental and *cool* factors, and pretend that all you care about is finding out which option is more economical.

There's going to be a particular price of fuel at which the two options are equally economical. If the price of fuel is higher (all else being equal) you'll choose electric, and if the price of fuel is lower you'll choose internal combustion engine.

So, if we're told that the cost of electricity has dropped in the last decade, *all else being equal*, you'd expect the threshold to go down (i.e. even with a relatively low price of fuel, you'd still choose electric). But, surprise! turns out the threshold didn't decrease. Why??

Well, something must have 'balanced out' the effect of the drop in the cost of electricity. Perhaps the price of electric vehicles has increased? Perhaps the price of internal combustion vehicles has decreased?
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To be frank, I do not think that plugging number is the most efficient way. But if a CR question gives me a totally new idea/concept with a definition that I've never heard before, and if I cannot get the precise meaning of the term, I might still try to have some numbers to see how the variables change and whether the changes matter.

Thank you for your time and response.
Thank you for helping me learn. :)
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GraceSCKao
I think that there is more than one way to define the "threshold." With different definition of the "threshold", what matters for the threshold also varies. That is something I find very interesting from this practice. :)
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Agreed, GraceSCKao! It's such a slippery concept!
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cool_jonny009
Technological improvements and reduced equipment costs have made converting solar energy directly into electricity far more cost-efficient in the last decade. However, the threshold of economic viability for solar power (that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more economical than new oil-fired power plants) is unchanged at thirty-five dollars.

Which of the following, if true, does most to help explain why the increased cost-efficiency of solar power has not decreased its threshold of economic viability?

Most of us are down to (A) and (C)

Easy way to eliminate (A) is the understanding that threshold IS THE OIL PRICE ITSELF. Oil Price Threshold ($35) = Cost of Solar Power - Cost of Oil-Fired Power Plants. Let's be extreme and say that price of oil has gone up to $1,000. Well, now we are above our threshold by $970. Does our threshold change? NO! Because the cost difference between the two methods stay the same. You are an executive evaluating two different options to process a good you are selling for your business. You need to establish a threshold of a fluctuating commodity (oil) to know when to abandon one process over another (e.g., if oil price is so high, you need to abandon your existing process that depends on oil). THRESHOLD is your decision tool. It is a tool for you to assess whether or not the current price of oil is reasonable for you to make the switch to solar power or not.

(C) is what we want. Because the cost of oil-fired power plants (the factor that is getting subtracted from the equation above), it lowers our threshold. Given cost of solar power and cost of oil plants both get reduced, this explains why the threshold remained the same. Imagine a seesaw and you are putting down # of quarters to play 1) solar power game and 2) oil plant game. Solar power game costs less now so you take out a quarter, but the question is saying that seesaw still remains flat. Then oil plant game must cost less as well. (C) is our winner.

(A) The cost of oil has fallen dramatically.

(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs for that equipment.

(C) Technological changes have increased the efficiency of oil-fired power plants.

(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.

(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically viable.


Source : GMATPrep Default Exam Pack
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Technological improvements and reduced equipment costs have made conve 09 Jun 2022, 16:28
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avigutman

Consider this analogy: you're in the market for a new car, and you're trying to decide between an electric vehicle and an internal combustion vehicle. Generally speaking, the former is more expensive than the latter, but you get savings over time because electricity is cheaper than fuel. For this analogy to work, let's ignore environmental and *cool* factors, and pretend that all you care about is finding out which option is more economical.
There's going to be a particular price of fuel at which the two options are equally economical. If the price of fuel is higher (all else being equal) you'll choose electric, and if the price of fuel is lower you'll choose internal combustion engine.
So, if we're told that the cost of electricity has dropped in the last decade, *all else being equal*, you'd expect the threshold to go down (i.e. even with a relatively low price of fuel, you'd still choose electric). But, surprise! turns out the threshold didn't decrease. Why??
Well, something must have 'balanced out' the effect of the drop in the cost of electricity. Perhaps the price of electric vehicles has increased? Perhaps the price of internal combustion vehicles has decreased?
Show more

Hi avigutman - loved the analogy. tried to test the analogy when seeing if (A) is accurate or not accurate.

So, lets say - I own a fuel based car (Honda Civic). I will switch to an electric car (Tesla), if price of oil goes ABOVE 35 $ a barrel. Current price of oil per barrel is 20 $ a barrel

So, 35 $ a barrel is my threshold price to switchover from Honda Civic to Tesla

Now, apparently per the premise -
-- It becomes cheaper to buy teslas - this should reduce the threshold price

But mysteriously, the threshold price HAS mysteriously stayed the same

So (A) explains it

If the price of OIL/Fuel decreases -- i keep my Honda Civic. Thats the equivalent of a 'HIGHER' threshold price

Thus, (A) explains why the Threshold Price has **stayed the same**

The reduced price to buy a TESLA has been compensated with the reduced price of oil
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Schools: NYU Stern (WA)
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Technological improvements and reduced equipment costs have made conve 09 Jun 2022, 19:00
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jabhatta2
avigutman

Consider this analogy: you're in the market for a new car, and you're trying to decide between an electric vehicle and an internal combustion vehicle. Generally speaking, the former is more expensive than the latter, but you get savings over time because electricity is cheaper than fuel. For this analogy to work, let's ignore environmental and *cool* factors, and pretend that all you care about is finding out which option is more economical.
There's going to be a particular price of fuel at which the two options are equally economical. If the price of fuel is higher (all else being equal) you'll choose electric, and if the price of fuel is lower you'll choose internal combustion engine.
So, if we're told that the cost of electricity has dropped in the last decade, *all else being equal*, you'd expect the threshold to go down (i.e. even with a relatively low price of fuel, you'd still choose electric). But, surprise! turns out the threshold didn't decrease. Why??
Well, something must have 'balanced out' the effect of the drop in the cost of electricity. Perhaps the price of electric vehicles has increased? Perhaps the price of internal combustion vehicles has decreased?

Hi avigutman - loved the analogy. tried to test the analogy when seeing if (A) is accurate or not accurate.

So, lets say - I own a fuel based car (Honda Civic). I will switch to an electric car (Tesla), if price of oil goes ABOVE 35 $ a barrel. Current price of oil per barrel is 20 $ a barrel

So, 35 $ a barrel is my threshold price to switchover from Honda Civic to Tesla

Now, apparently per the premise -
-- It becomes cheaper to buy teslas - this should reduce the threshold price

But mysteriously, the threshold price HAS mysteriously stayed the same

So (A) explains it

If the price of OIL/Fuel decreases -- i keep my Honda Civic. Thats the equivalent of a 'HIGHER' threshold price

Thus, (A) explains why the Threshold Price has **stayed the same**

The reduced price to buy a TESLA has been compensated with the reduced price of oil
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Once you've decided to use the price of oil as your threshold parameter, jabhatta2, fluctuations in the price of oil don't change that threshold.
If you decide to use the price of electricity as your threshold parameter, then fluctuations in the price of oil would change the threshold.

Here's another analogy: my threshold weight for going on a diet is 175lbs. What might cause me to change that threshold? Maybe my doctor tells me that actually, for my height, I can weigh up to 200lbs and still be considered healthy. Maybe I gain muscle, and decide to increase my threshold as a result. Maybe I read a book about diet culture and realize that dieting won't make me happy.
On the other hand: if I step on the scale and see that my weight has changed, would that change my threshold? What do you think, jabhatta2?
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