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The diamond mines of Extopia produced so many diamonds that the market

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Bunuel
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The diamond mines of Extopia produced so many diamonds that the market [#permalink] The diamond mines of Extopia produced so many diamonds that the market   25 Sep 2023, 01:30
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The diamond mines of Extopia produced so many diamonds that the market was overwhelmed; consumption did not keep pace with production. As a result, diamond prices fell. The government of Extopia attempted to support diamond prices through a subsidy scheme: Diamond producers who voluntarily limited the number of diamonds they produced were compensated directly by the government up to a specified maximum payment. The program instituted by the government of Extopia, if successful, will not result in a net cost increase to the government.

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


A. Depressed diamond prices meant operating losses for diamond producers, decreasing the income of diamond producers, and thus decreasing the taxes paid to the government by diamond producers.

B. Diamond production in countries other than Extopia declined in the same year Extopia’s government instituted the compensatory scheme.

C. In the first quarter after Extopia’s government instituted the compensatory scheme, diamond production declined 8 percent.

D. Because the government specified a maximum subsidy payment per diamond producer, those producers with numerous mines in operation received less support per mine than those producers with fewer mines in operation.

E. Diamond producers desiring to qualify for the compensatory scheme could not continue to produce diamonds and simply withhold them from the market.


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A
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The diamond mines of Extopia produced so many diamonds that the market [#permalink] The diamond mines of Extopia produced so many diamonds that the market   25 Sep 2023, 04:58
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Conclusion : The program instituted by the government of Extopia, if successful, will not result in a net cost increase to the government.

This would be successful if the govt's plan is able to limit or prevent any loss/overhead cost to the govt. Answer choice A tells us just that.

A. Depressed diamond prices meant operating losses for diamond producers, decreasing the income of diamond producers, and thus decreasing the taxes paid to the government by diamond producers.
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Re: The diamond mines of Extopia produced so many diamonds that the market [#permalink] The diamond mines of Extopia produced so many diamonds that the market   26 Sep 2023, 22:39
A. Depressed diamond prices meant operating losses for diamond producers, decreasing the income of diamond producers, and thus decreasing the taxes paid to the government by diamond producers.

because even after providing compensation to those who restrict production indicates that it is better option for the government than the unrestricted production. A gives why it is so.
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Re: The diamond mines of Extopia produced so many diamonds that the market [#permalink] The diamond mines of Extopia produced so many diamonds that the market   27 Sep 2023, 11:37
Bunuel wrote:
The diamond mines of Extopia produced so many diamonds that the market was overwhelmed; consumption did not keep pace with production. As a result, diamond prices fell. The government of Extopia attempted to support diamond prices through a subsidy scheme: Diamond producers who voluntarily limited the number of diamonds they produced were compensated directly by the government up to a specified maximum payment. The program instituted by the government of Extopia, if successful, will not result in a net cost increase to the government.

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

A. Depressed diamond prices meant operating losses for diamond producers, decreasing the income of diamond producers, and thus decreasing the taxes paid to the government by diamond producers.

B. Diamond production in countries other than Extopia declined in the same year Extopia’s government instituted the compensatory scheme.

C. In the first quarter after Extopia’s government instituted the compensatory scheme, diamond production declined 8 percent.

D. Because the government specified a maximum subsidy payment per diamond producer, those producers with numerous mines in operation received less support per mine than those producers with fewer mines in operation.

E. Diamond producers desiring to qualify for the compensatory scheme could not continue to produce diamonds and simply withhold them from the market.]

Government : Expenses = Subsidy ; Income = Tax

Now for this statement to be true " The program instituted by the government of Extopia, if successful, will not result in a net cost increase to the government."

Income (Tax) > Expenses (Subsidy)

Among the options given only (A) goes in line with the pre-thinking process and is logically correct.
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Re: The diamond mines of Extopia produced so many diamonds that the market [#permalink] The diamond mines of Extopia produced so many diamonds that the market   30 Sep 2023, 08:16
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Bunuel wrote:
The diamond mines of Extopia produced so many diamonds that the market was overwhelmed; consumption did not keep pace with production. As a result, diamond prices fell. The government of Extopia attempted to support diamond prices through a subsidy scheme: Diamond producers who voluntarily limited the number of diamonds they produced were compensated directly by the government up to a specified maximum payment. The program instituted by the government of Extopia, if successful, will not result in a net cost increase to the government.

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


A. Depressed diamond prices meant operating losses for diamond producers, decreasing the income of diamond producers, and thus decreasing the taxes paid to the government by diamond producers.

B. Diamond production in countries other than Extopia declined in the same year Extopia’s government instituted the compensatory scheme.

C. In the first quarter after Extopia’s government instituted the compensatory scheme, diamond production declined 8 percent.

D. Because the government specified a maximum subsidy payment per diamond producer, those producers with numerous mines in operation received less support per mine than those producers with fewer mines in operation.

E. Diamond producers desiring to qualify for the compensatory scheme could not continue to produce diamonds and simply withhold them from the market.


This is a CR Butler Question




The production of Diamond exceeded the consumption of Diamond in Extopia. Hence, the price for Diamonds went down.
To earn more revenue from Tax, the government cannot afford the Diamond prices to go down.
To make sure that the prices go up again, the govt introduced a scheme asking producers to limit their production of Diamonds and the producers will be compensated directly by the government up to a specified maximum payment.
Conclusion: This scheme will not increase the net cost to the govt.
How can the conclusion be true?

A- Correct - Depressed diamond prices meant operating losses for diamond producers, decreasing the income of diamond producers, and thus decreasing the taxes paid to the government by diamond producers : This means Lower Diamond prices = Lower Tax revenue. The govt can only earn more revenue if the Diamond prices do not stay Depressed. So even if the govt pays some money to the diamond producers to limit the production, this is the best way possible to make sure that the govt earns more tax in the long run.

B- Diamond production in countries other than Extopia declined in the same year Extopia’s government instituted the compensatory scheme : Out of Scope. We cannot determine anything from what's happening in other countries

C- In the first quarter after Extopia’s government instituted the compensatory scheme, diamond production declined 8 percent: We do not know by what % should the diamond production fall down to increase the prices. Maybe the diamond production was so high that 8% might not be sufficient to shoot up the price of diamonds. This in turn will add cost to the govt as IT WILL PAY TO THE PRODUCERS AS WELL AS NOT BE ABLE TO EARN MORE REVENUE FROM TAX.

D- Because the government specified a maximum subsidy payment per diamond producer, those producers with numerous mines in operation received less support per mine than those producers with fewer mines in operation: How does this prove anything to us? Even if this were the case, do we know that the diamond prices actually went up?

E- Diamond producers desiring to qualify for the compensatory scheme could not continue to produce diamonds and simply withhold them from the market : Withholding the diamonds from the market will be a huge loss for the govt as the earlier tax they collected will not be generated anymore. Extremely wrong answer.
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Re: The diamond mines of Extopia produced so many diamonds that the market [#permalink] The diamond mines of Extopia produced so many diamonds that the market   01 Oct 2023, 07:30
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Bunuel wrote:
The diamond mines of Extopia produced so many diamonds that the market was overwhelmed; consumption did not keep pace with production. As a result, diamond prices fell. The government of Extopia attempted to support diamond prices through a subsidy scheme: Diamond producers who voluntarily limited the number of diamonds they produced were compensated directly by the government up to a specified maximum payment. The program instituted by the government of Extopia, if successful, will not result in a net cost increase to the government.

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


A. Depressed diamond prices meant operating losses for diamond producers, decreasing the income of diamond producers, and thus decreasing the taxes paid to the government by diamond producers.

B. Diamond production in countries other than Extopia declined in the same year Extopia’s government instituted the compensatory scheme.

C. In the first quarter after Extopia’s government instituted the compensatory scheme, diamond production declined 8 percent.

D. Because the government specified a maximum subsidy payment per diamond producer, those producers with numerous mines in operation received less support per mine than those producers with fewer mines in operation.

E. Diamond producers desiring to qualify for the compensatory scheme could not continue to produce diamonds and simply withhold them from the market.


This is a CR Butler Question




PRINCETON REVIEW OFFICIAL EXPLANATION:



A

Resolve the Paradox: How can the government subsidize diamond producers and still not experience an increase in net cost? (Note that the second part of the paradox is in the question, not in the argument.)

(A) Yes. Here we find out that the government collected less in taxes from diamond producers when prices were bad. Paying subsidies would make up for the operating losses, increase diamond producers’ income, and increase taxes to the government, which would compensate for the subsidies.

(B) No. This doesn’t help. If diamond production in other countries declined, then prices for diamonds would increase overall and the program would be unnecessary.

(C) No. This answer choice tells us the goal of the program is satisfied, but it doesn’t tell us anything about the cost to the government. It speaks to only one side of the paradox.

(D) No. This answer choice doesn’t talk about the overall effect that the subsidies would have on the government.

(E) No. This is irrelevant. The rules imposed on the diamond producers won’t change the money the government pays them, and that’s the issue we’re interested in.
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Re: The diamond mines of Extopia produced so many diamonds that the market [#permalink]
01 Oct 2023, 07:30
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