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The cotton farms of Country Q became so productive that the market cou

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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 14 Mar 2013, 22:55
Option A is saying that the government lost revenue from taxes on farm profit. I know it doesn't make sense but if the govt is losing profit then how is A the correct answer? Can someone help me out? I think i'm not able to understand this option.

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mahendru1992 wrote:
Option A is saying that the government lost revenue from taxes on farm profit. I know it doesn't make sense but if the govt is losing profit then how is A the correct answer? Can someone help me out? I think i'm not able to understand this option.


Hi mahendru1992,

To solve the paradox, We need to show that even if the government paid some farmers in order to boost cotton prices, it's wouldn't affect the government's budget i.e there will be NO LOSS

A states that : Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

So, the fact that depressed cotton prices meant operating losses for cotton farms can be perceived as a shortfall, Therefore, if the government paid some farmers, it will not loose revenue from taxes on farm profits thereby not affecting the budget.

Hope that helps !
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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 15 Mar 2013, 10:10
Rock750 wrote:
mahendru1992 wrote:
Option A is saying that the government lost revenue from taxes on farm profit. I know it doesn't make sense but if the govt is losing profit then how is A the correct answer? Can someone help me out? I think i'm not able to understand this option.


Hi mahendru1992,

To solve the paradox, We need to show that even if the government paid some farmers in order to boost cotton prices, it's wouldn't affect the government's budget i.e there will be NO LOSS

A states that : Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

So, the fact that depressed cotton prices meant operating losses for cotton farms can be perceived as a shortfall, Therefore, if the government paid some farmers, it will not loose revenue from taxes on farm profits thereby not affecting the budget.

Hope that helps !


Great explanation!

I initially thought D is the official answer, but now looking at the explanation how Govt. has smartly balanced out the budget, it is clearly A that is the winner!
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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 06 Jul 2013, 22:03
Question confused me for the longest time and after reading so many posts it didn't click for me until now.

What's confusing is that the gov't lost revenue from taxes on farm profits (answer choice A). I didn't see how losing revenue would help the net burden on the budget, but I realize this stmt in turn, will mean that when cotton prices increases, the gov't will receive more revenue from taxes on farm profits. I'm not negating the argument (which is the case for assumption questions), as this question is a "resolve the paradox" type of question, but instead if answer choice is true, that means when cotton price increases, so will gov't revenue.

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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 06 Jul 2013, 23:00
ellenhch wrote:
Question confused me for the longest time and after reading so many posts it didn't click for me until now.

What's confusing is that the gov't lost revenue from taxes on farm profits (answer choice A). I didn't see how losing revenue would help the net burden on the budget, but I realize this stmt in turn, will mean that when cotton prices increases, the gov't will receive more revenue from taxes on farm profits. I'm not negating the argument (which is the case for assumption questions), as this question is a "resolve the paradox" type of question, but instead if answer choice is true, that means when cotton price increases, so will gov't revenue.


Hi ellenhch.

First of all, this is strengthen question, not resolve the paradox. The main conclusion is: "If the government’s program is successful, it will not be a net burden on the budget"
What is the government's program? <== This is the payment plan to support the farmers.

So I will "rewrite" the conclusion as following:
Main conclusion: The successful payment plan of government will not be a net burden of the budget.
Question: Which of the following answer will best support this conclusion?

Okay, so you need to find an option that strengthen the point "a successful expense will not be a burden of the Gov's budget". The logic for this kind of question is:
Gov's NET INCOME = Gov's REVENUE - Gov'S EXPENSES

So you will think, "okay, Gov's net income will not decrease if":
(1) No expenses
--OR--
(2) Revenue comes from the expense will be larger then the expense itself.


A says: Depressed cotton prices ==> losses for cotton farms ==> the government lost revenue from taxes on farm profits.

It says that if Gov does not pay "the Expense - Payment plan" ==> Gov will loss revenue for sure because of falling prices of cotton. So it would be better if Gov pay like 1 dollar first (payment plan), then Gov can earn 2 dollars (revenue from taxes) later. It's exact the logic in A.

Hope it clears.
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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 12 Jul 2013, 03:49
A should be answer as it supports the government decision.

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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 25 Jul 2013, 09:11
gixxer1000 wrote:
This is a paradox question. How will the government provide payments to farmers to reduce their cotton production without reducing their budget. We have to figure out a way that the government can give money to the farmers and then make that money back so there is a net zero effect on the budget.

(A) Doesn't solve the paradox and actually widens it. The government loses money when it gives it to the farmers and then loses money again from the lost tax revenu.

(B) Irrelevant because it addresses production in countries other and country Q.

(C) Correct. This proves that the program works. If The program does reduce production then cotton prices will rise and the government will make up the difference from the payments through increased tax revenues from higher cotton prices.

(D) Irrelelevant. Size of farm makes no difference.

(E) Widens paradox like A because if the land is not used for anything else that results in reduced revenue and therefore reduced taxes for the government.



I still cant understand that it is a paradox question?
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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 25 Jul 2013, 09:13
Is it a paradox question for sure? Then why is it put in strengthen the argument category?
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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 25 Jul 2013, 09:37
Found this problem in the Verbal Review 2nd Edition GMAT book from the OG guide. It says this problem is, "Evaluation of a Plan". Per Manhattan GMAT's OG Archer, they labeled this problem as an , "Explain the Discrepancy".

Finally understand this after reading the explanation.
A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

The gov't therefore pays the direct support payments (now) in order to boost cotton prices.

When cotton prices increase, the gov't does not have to pay these direct support payments (as cotton P have increased and taking out acreage from the cotton farm is no longer necessary), therefore because the farms are earning more revenue from the increases prices of the cotton, gov't gets more revenue in taxes.

In the end, this does not result in a net burden on the budget.

Profit = Revenue - expenses (revenue the gov't gets later when cotton P increase), - expenses (the gov't paying direct support payments to farms now for the depressed cotton prices). Basically they offset each other.

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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 25 Jul 2013, 09:46
ellenhch wrote:
Found this problem in the Verbal Review 2nd Edition GMAT book from the OG guide. It says this problem is, "Evaluation of a Plan". Per Manhattan GMAT's OG Archer, they labeled this problem as an , "Explain the Discrepancy".

Finally understand this after reading the explanation.
A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

The gov't therefore pays the direct support payments (now) in order to boost cotton prices.

When cotton prices increase, the gov't does not have to pay these direct support payments (as cotton P have increased and taking out acreage from the cotton farm is no longer necessary), therefore because the farms are earning more revenue from the increases prices of the cotton, gov't gets more revenue in taxes.

In the end, this does not result in a net burden on the budget.

Profit = Revenue - expenses (revenue the gov't gets later when cotton P increase), - expenses (the gov't paying direct support payments to farms now for the depressed cotton prices). Basically they offset each other.



I believe there is a flaw in this question.
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New post 25 Jul 2013, 09:54
@trafficspinners what do you mean?

I really hate this question!

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New post 24 Jun 2014, 08:51
ellenhch wrote:
A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

The gov't therefore pays the direct support payments (now) in order to boost cotton prices.

When cotton prices increase, the gov't does not have to pay these direct support payments (as cotton P have increased and taking out acreage from the cotton farm is no longer necessary), therefore because the farms are earning more revenue from the increases prices of the cotton, gov't gets more revenue in taxes.

In the end, this does not result in a net burden on the budget.

Profit = Revenue - expenses (revenue the gov't gets later when cotton P increase), - expenses (the gov't paying direct support payments to farms now for the depressed cotton prices). Basically they offset each other.


If the govt stops paying the direct support to the farmers, they will again start to grow the cotton on the remaining 25% land for which govt paid them not to.... thus the cotton prices will again go down as the supply of cotton will increase.... this will form a cycle.... isn't this question a bit confusing...
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New post 01 Jul 2014, 16:11
The government is supporting Cotton farmers by providing direct support payments up to a specified maximum per farm.

Any option that help in recovery for government is the answer choice. A wins because, after Government help cotton crop will be sold and farmers direct support payments up to a specified maximum per farm.will earn profits and hence they will pay back Tax to the government. Thus this wont be a net burden on Government. (Tax will compensate for Net Burden)
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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 04 Jul 2014, 00:00
I missed the word "net" and hence eliminated A completely. I couldn't convince myself for another option and gave up. After checking OA I read the para again and banged my head against the wall.

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The cotton farms of Country Q became so productive that the market could not absorb all that they produced. Consequently, cotton prices fell. The government tried to boost cotton prices by offering farmers who took 25 percent of their cotton acreage out of production direct support payments up to a specified maximum per farm.

The government's program, if successful, will not be a net burden on the budget. Which of the following, if true, is the best basis for an explanation of how this could be so?

A. Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.
B. Cotton production in several countries other than Q declined slightly the year that the support-payment program went into effect in Q.
C. The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level in the base year for the program.
D. The specified maximum per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms.
E. Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop.
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The cotton farms of Country Q became so productive that the market could not absorb all that they produced. Consequently, cotton prices fell. The government tried to boost cotton prices by offering farmers who took 25 percent of their cotton acreage out of production direct support payments up to a specified maximum per farm.

The government's program, if successful, will not be a net burden on the budget. Which of the following, if true, is the best basis for an explanation of how this could be so?

A. Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.
B. Cotton production in several countries other than Q declined slightly the year that the support-payment program went into effect in Q.
C. The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level in the base year for the program.
D. The specified maximum per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms.
E. Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop.

Well Option A is the best answer choice and the explanation goes as under:-

Option A:- This is the correct answer as it states that the current scenario i.e. depressed cotton prices itself is a big cost to the government and hence it has to fund
to the farmers to get them out of this situation.

Option B:- Does not affect the conclusion directly - 'The government's program, if successful, will not be a net burden on the budget'.

Option C:- Out of scope - Does not affect the conclusion at all as it is talking about the year after the government settles funds to the farmers.

Option D:- Out of scope - Does not affect the conclusion at all as the comparison is made between larger and smaller farms. This is a wishy-washy option running around the bush.

Option E:- Out of scope - Does not affect the conclusion. - If the withdrawn cotton accreage cannot be used for producing other crops, then it will indirectly affect the
country Q's GDP, hence can be a cost. So it somewhere weakens the conclusion as well.

Hope this explanation helps.

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the government offered farmers who took 25 percent of their cotton acreage out of production direct support payments up to a specified maximum per farm.
in order to indicate that these payments to farmers will not be a burden on budget, a correct answer choice should address monetary incentive of the government



A. Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

B. Cotton production in several countries other than Q declined slightly the year that the support-payment program went into effect in Q.
out of scope... we strictly care about mentioned farmers within the country
C. The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level in the base year for the program.
out of scope.. the argument says the program if successful, will not be a burden.. so the first year is not a good measure
D. The specified maximum per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms.
the argument does not talk about the specifications of the program.
E. Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop.
same as D

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P1:The cotton farms of Country Q became so productive that the market could not absorb all that they produced. Consequently, cotton prices fell.
P2:The government tried to boost cotton prices by offering farmers who took 25 percent of their cotton acreage out of production direct support payments up to a specified maximum per farm.

The government's program, if successful, will not be a net burden on the budget.
Which of the following, if true, is the best basis for an explanation of how this could be so?

OK, so the goverment is spending some money to boost the cotton prices.Now if some way , the govt gets that money back then the solution will not be a net burden.
Target would be to find an option which fill in this deficit ,due to outflow of money, with inflow in-form of tax etc.


A. Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.
>> Looks good.The government's program, if successful, will not be a net burden on the budget as it will be getting most of those money back in form of revenue.

B. Cotton production in several countries other than Q declined slightly the year that the support-payment program went into effect in Q.
>> But how would this help govt to recoup the money spent.Also we are concerned abt the effect of plan in Q not in other countries.

C. The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level in the base year for the program.
>> This might help farmers but how would this help govt budget?

D. The specified maximum per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms.
>> Argument doesn't confirm this.Also doesn't give any info that how would this fill in govt losses.

E. Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop.
>> Same issue. Doesn't answer how this would help govt to meet its losses. Also affect of growing other crop on the mentioned problem is not clear.
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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 26 Aug 2014, 23:29
TeHCM wrote:
Official Guide for GMAT Verbal Review, 2nd Edition

Practice Question
Question No.: 73
Page: 146
Difficulty:



The cotton farms of Country Q became so productive that that market could not absorb all that they produced. Consequently, cotton prices fell. The government tried to boost cotton prices by offering farmers who took 25 percent of their cotton acreage out of production direct support payments up to a specified maximum per farm.

The government's program, if successful, will not be a net burden on the budget. Which of the following, if true, is the basis for an explanation how this could be so?

(A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.

(B) Cotton production in several countries other than Q declined slightly the year that support-payment program went into effect in Q.

(C) The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level in the base year for the program.

(D) The specified maximum per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms.

(E) Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop


Why is D wrong ? The question asks about the burden on the budget. In other words,the initiative by government wouldn't increase the deficit is what we should dig for. How am i going wrong, what is the flaw ? Experts kindly assist
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