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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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03 Oct 2014, 09:32
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per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms.

(E) Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop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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28 Feb 2015, 06:06
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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01 Mar 2015, 16:47
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

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

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15 Jan 2016, 00:19
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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12 Jun 2016, 02:20
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.

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.

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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09 Aug 2016, 21:58
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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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04 Oct 2016, 08:35
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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04 Oct 2016, 08:43
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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04 Feb 2017, 05:18
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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29 Apr 2017, 08:07
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.
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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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17 May 2017, 01:09
vivek123 wrote:
'A' makes sense.

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

A seemed like the best choice, but I still feel like it requires an additional assumption, which is the tax on profits would be enough to cover direct support spending. On some other GMAT questions, I feel like taking this additional logical leap could be a way to trick the reader into the wrong answer. There isn't a better answer among the choices, so that is why I went with A, but the answer choices seem flawed to me. A better answer choice, though I guess would make this a much easier problem, is to directly state that tax on profits would be as much as if not greater than dollars spent on support.

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

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07 Jun 2017, 23:26
down to A or E, but A is correct because E does not address the issue that the government is free from the financial burden when the government implements the program.

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

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09 Jun 2017, 06:07
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.

My 2 cents:
given info: since the government will need to pay to the farmers, it implies that its budget is affected (i.e. "net burden on the budget)
question asks: how can paying to farmers NOT be a burden on the budget?
looking for: something which says that even though we will pay to the farmers, we can compensate that cost somehow or avoid losing money in some other way
option A: if there are operating losses because of reduced price of cotton and tax revenue becomes lower, budget of govt is affected. Therefore by paying to the farmers to reduce production by 25%, prices are maintained and therefore operating losses are avoided. The money paid to the farmers is compensated by the money that would have been lost if govt did not implement their plan.

wow difficult to explain, also..
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Re: The cotton farms of Country Q became so productive that the market cou [#permalink]

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22 Dec 2017, 07:17
TeHCM wrote:
Official Guide for GMAT Verbal Review 2015

Practice Question
Question No.: CR 73
Page: 146

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 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

The easiest way to tackle this question is to understand the overall tone of the argument and the question.
The argument says the cotton prices fell ---> meant the loss to farmers ----> so they planned to reward the farmers---> farmers happy ---> and no loss to govt also ---> means govt is also getting something in return---> everyone is happy

In short, the question is looking for something which is a "Happy" option, with no ifs and buts

A is the only one out of 5 for this.

============Hope this approach helped. Press +1 kudos if you liked ========================

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Re: The cotton farms of Country Q became so productive that the market cou   [#permalink] 22 Dec 2017, 07:17

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