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# The prime principle of economics is that prices are determined by supp

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Manager
Joined: 17 Aug 2018
Posts: 89
Location: India
Schools: IIMA
GMAT 1: 640 Q46 V32
The prime principle of economics is that prices are determined by supp  [#permalink]

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22 Jan 2019, 08:02
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5% (low)

Question Stats:

88% (01:35) correct 12% (01:47) wrong based on 88 sessions

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The prime principle of economics is that prices are determined by supply and demand, not by costs. Some products may cost 90 cents and sell for dollar, while others go for a dollar yet cost only a cent to make. The second producer is neither a profiteer nor an exploiter, and the first producer is neither a benefactor nor a patron. Both producers merely respond to market signals based on supply and demand.

If the statements above are true, which of the following must be true?

A) How much it costs to manufacture a product is not the primary determinant of its selling price

B) A product with a low manufacturing cost is more likely to succeed than a product with a high manufacturing cost

C) A manufacturer who sells a product with a low manufacturing cost at a high price to the customer is deceiving the customer

D) If a product costs a lot to manufacture then its manufacturer must ensure that he does not sell the product at a high price

E) A manufacturer who uses manufacturing costs of a product as a basis to determine the selling price of the product is bound to fail

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Joined: 05 Jan 2019
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Re: The prime principle of economics is that prices are determined by supp  [#permalink]

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22 Jan 2019, 13:26
IMO A
Reason : Its along the same line of reasoning as “The prime principle of Economics........by cost”

Please correct me if I’m wrong.

Posted from my mobile device
Manager
Joined: 17 Aug 2018
Posts: 89
Location: India
Schools: IIMA
GMAT 1: 640 Q46 V32
The prime principle of economics is that prices are determined by supp  [#permalink]

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Updated on: 22 Jan 2019, 20:10
1
new2on wrote:
IMO A
Reason : Its along the same line of reasoning as “The prime principle of Economics........by cost”

Please correct me if I’m wrong.

Posted from my mobile device

Yes, you are correct. From the prompt, we can infer selling price is determined by demand and not by cost.
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Originally posted by KaranB1 on 22 Jan 2019, 19:24.
Last edited by KaranB1 on 22 Jan 2019, 20:10, edited 1 time in total.
Director
Joined: 09 Mar 2018
Posts: 994
Location: India
Re: The prime principle of economics is that prices are determined by supp  [#permalink]

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22 Jan 2019, 20:06
KaranB1 wrote:
The prime principle of economics is that prices are determined by supply and demand, not by costs. Some products may cost 90 cents and sell for dollar, while others go for a dollar yet cost only a cent to make. The second producer is neither a profiteer nor an exploiter, and the first producer is neither a benefactor nor a patron. Both producers merely respond to market signals based on supply and demand.

If the statements above are true, which of the following must be true?

A) How much it costs to manufacture a product is not the primary determinant of its selling price

B) A product with a low manufacturing cost is more likely to succeed than a product with a high manufacturing cost

C) A manufacturer who sells a product with a low manufacturing cost at a high price to the customer is deceiving the customer

D) If a product costs a lot to manufacture then its manufacturer must ensure that he does not sell the product at a high price

E) A manufacturer who uses manufacturing costs of a product as a basis to determine the selling price of the product is bound to fail

So here the main point is that even if manufacture sells a commodity at a price which is greater than the price set by other vendor, it means that the second producer is neither a profiteer nor an exploiter, and the first producer is neither a benefactor nor a patron. Both producers merely respond to market signals based on supply and demand.

A) How much it costs to manufacture a product is not the primary determinant of its selling price
This is true, that's why some are investing less while manufacturing and some more. -> Correct Answer.

B) A product with a low manufacturing cost is more likely to succeed than a product with a high manufacturing cost
This is not mentioned in the argument.

C) A manufacturer who sells a product with a low manufacturing cost at a high price to the customer is deceiving the customer
He is neither a profiteer nor an exploiter(given in the argument)

D) If a product costs a lot to manufacture then its manufacturer must ensure that he does not sell the product at a high price
Not given in the argument -> Out

E) A manufacturer who uses manufacturing costs of a product as a basis to determine the selling price of the product is bound to fail
Bound to fail is too extreme. Tone of the argument was neutral.
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Quote which i can relate to.
Many of life's failures happen with people who do not realize how close they were to success when they gave up.
Re: The prime principle of economics is that prices are determined by supp   [#permalink] 22 Jan 2019, 20:06
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