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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 25 Jul 2013, 10:46
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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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 25 Jul 2013, 10:54
@trafficspinners what do you mean?

I really hate this 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 24 Jun 2014, 09:51
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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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 01 Jul 2014, 17:11
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, 01:00
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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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 09 Aug 2014, 09:32
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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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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 09 Aug 2014, 09:32
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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 10 Aug 2014, 00:31
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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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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 10 Aug 2014, 00:59
1
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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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 10 Aug 2014, 12:13
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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 27 Aug 2014, 00:29
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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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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New post 03 Oct 2014, 10:32
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


What does "25 percent of their cotton acreage out of production" means?

- Does it mean that the cotton producers would remove that much amount of cotton (that corresponds to 25% of their land), off the market??? and Gov. would pay for it?
OR its asking farmers to not grow in that 25% of their land - but, this won't make sense, because the cotton is already produced.

- Is the government buying that cotton? Not sure if the government is asking for the cotton to be removed from production, is it actually buying the cotton for the price its paying the cotton producers. If so, I thought B could be a valid choice, because they can sell the cotton to those countries which had less production this year.

My final contenders were A and B.

B - because I thought government would
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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 28 Feb 2015, 07:06
concentrate on the question stem: 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 --> CORRECT. after that program prices went up --> income from taxes has also increased, so +/- "0" ....

(B) Cotton production in several countries other than Q declined slightly the year that support-payment program went into effect in Q --> irrelevant, we are interested in that particular 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 --> argument was taking about 25%. This information doesn't help us to answer the question stem.

(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 did't make any distinctions between farm types. Wrong comparison.

(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 --> And how should this help the goverment to compensate mady payments... it has a reverse effect...
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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 01 Mar 2015, 17:47
The cotton farms of Country Q became so productive that that market could not absorb all that they produced. Consequently, cotton prices fell.

>> A clear case of excess supply and hence reduced price (= basic economics)

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.

>> Government is taking measures to re-calibrate supply-demand by reducing supply. Hence, they are incentivizing reduction in cotton production

The government's program, if successful, will not be a net burden on the budget.

>> But could paying the incentives be a burden on the budget? It will not be so, if.... (= is the question)

Which of the following, if true, is the basis for an explanation how this could be so?

>> Find a statement that supports paying incentives will not be a burden on budget

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

>> Less price -> loss or no profit -> government cannot levy tax on profit (= makes sense, HOLD)

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

>> Support program in Q has nothing to do with cotton production other than Q. Cotton production in other countries could decline for several reason = IRRELEVANT


(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.

>> Cotton acreage declining may not necessarily be due to Q. There could be several other reasons e.g. farmers growing other crops that yield better profits etc. - IRRELEVANT

(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.

>> An upper cap on the incentives implies farmers with large land holding have less benefit from the support program = failure of the program as all farmers are not benefited (but we want to find reasons why program is successful) = INCORRECT

(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

>> This implies should farmer incur a net loss? The program may boost cotton prices but the fallow land could yield more profit. = Does not make economic sense = INCORRECT

Hence, ANSWER should be A
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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 Jan 2016, 01:19
The question is asking you to find a fact that would ensure that the government's plan was not at a loss. What we need is a choice that tells us that without their money-giving plan, the government would have lost money because of the diminished cotton prices. Choice A gives us a way that the lower cotton prices would harm the government: it would not be collecting as much tax from the farmers.

The government is giving money to the farmers in exchange for their producing less cotton. This will only be worth it for the government if excess cotton (due to hyper-production) would have meant a budgetary deficit for the government. If the excess cotton (leading to depressed prices) would not have hurt the federal budget, then the government is just wasting money by giving it to the farmers.

For the program not to be a net burden on the budget, Government needs to get something which nullifies the effect of direct support payment.

Option A explains this by stating that tax offsets the money given towards direct support payment.

None of the other options explain how the government would benefit through the support scheme.

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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 Jun 2016, 03:20
Quickly isolate the premise and conclusion in a simple language
PREMISE 1 ) Country Q produced lots of cotton
PREMISE 2 ) Price fell
PREMISE 3 ) Government asked farmer to destroy 25 % crop
PREMISE 4 ) Government said :- We will pay you money for the crop you will destroy.

CONCLUSION ) Government scheme worked. The budget was not stressed and everyone lived happily ever after. :-D

Question :- Explain how the scheme worked? GIVE AN EXPLAINATION WHY BUDGET WAS NOT DISTURBED.

EXPLAINATION :-

1)Government paid money to farmers for destroying crops. Government budget went into a deficit. Government lost money. (government sad :()
2) Crop was destroyed. Normal or high cotton prices were restored. Farmers started making profits (first from high price of cotton and second from the government money that was paid to destroy. Farmers very very happy :) )
3) Then came the Income tax time. Farmers made lots of money. so they paid lots of income tax. Income tax to who- to the government.
Money came back to governement. Budget was full again. Lost money was regained. Government also very happy :) )

NET EFFECT :- GOVERNMENT HAPPY, FARMER HAPPY, COTTON PRICE RESTORED TO NORMAL, BUDGET FULL.

If Farmers do not make money they would have been in loss. Someone in loss do not pay income tax but rather ask the government for help. If the government did not paid money to destroy cotton, it would have lost not only the income tax from farmers but also later had to pay more money in forms of economic relief/aid/funds to distressed farmers. So by paying money to destroy crop the government actually made money.

Meaning all of that happened because because cotton farmers made money. and then paid income tax. Income tax from farmers is important for budget.
Cotton FARMS and cotton farmers should not go in LOSS EVER because then government will also go in loss by losing revenues from cotton operators.
What Options says this

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

ANSWER IS A




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
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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 Oct 2016, 09:35
Those who get the question wrong is because they rush in the reading of the question and in the options available. ( I include myself in this group )

This is a 'double-negation' option.

Simply stating, invert the logic from answer A and you will see that the plan won't fail

Higher cotton prices meant operating earnings for cotton farms, and the government earns revenue from taxes on farm profits.
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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 Oct 2016, 09:43
Those who get the question wrong is because they rush in the reading of the question and in the options available. ( I include myself in this group )

This is a 'double-negation' option.

Simply stating, invert the logic from answer A and you will see that the plan won't fail

Higher cotton prices meant operating earnings for cotton farms, and the government earns revenue from taxes on farm profits.
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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 Feb 2017, 06:18
I have read similar question having Oil as subject . What is the source of this 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 29 Apr 2017, 09:07
Let's consider the stimulus a little bit.

The first two sentences tell us the farmers made so much cotton that the prices dropped. The third sentence tells us that the government tried to boost prices by giving money to some farmers in exchange for their making less cotton. Apparently, the government was concerned.

But notice the stimulus did not establish that the government was actually hurt by these diminished prices. What if (for some reason) lower cotton prices would not have harmed the government? Then, they would have given away free money for no reason.

The question is asking you to find a fact that would ensure that the government's plan was not at a loss. What we need is a choice that tells us that without their money-giving plan, the government would have lost money because of the diminished cotton prices. Choice A gives us a way that the lower cotton prices would harm the government: it would not be collecting as much tax from the farmers.

The government is givng money to the farmers in exchange for their producing less cotton. This will only be worth it for the government if excess cotton (due to hyperproduction) would have meant a budgetary deficit for the government. If the excess cotton (leading to depressed prices) would not have hurt the federal budget, then the feds are just wasting money by giving it to the farmers.

Hence A.
_________________

Thanks & Regards,
Anaira Mitch

Re: The cotton farms of Country Q became so productive that the market cou   [#permalink] 29 Apr 2017, 09:07

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