The owner of a small convenience store observed that almost all custom

Question

The owner of a small convenience store observed that almost all customers paid with credit cards regardless of whether they had cash available, resulting in significant processing charges for the store. The owner began to add a fifty-cent charge to credit card purchases under two dollars, and during the following month, virtually all customers used cash for small purchases while continuing to use credit cards for larger purchases. Nonetheless, during the month after the charge was instated, the average dollar amount of each cash transaction was almost identical to the average dollar amount of each credit card transaction.

The information in the passage most strongly supports which of the following?

The information in the passage most strongly supports which of the following?

A. The average dollar amount spent by customers who did not have cash available was higher after the charge was instated than it had been beforehand.
 
B. After the charge was instated, customers who used cash for purchases totaling two dollars or more spent more, on average, than customers who used credit cards for these purchases.
 
C. The average dollar amount spent in each cash transaction at the convenience store was lower after the charge was instated than beforehand.

D. A significant majority of purchases made at the convenience store during the month after the charge was instated were made using credit cards. 
 
E. Prior to the charge, the average amount spent on credit card transactions was higher than the average amount spent on cash transactions.

KarishmaB · Accepted Answer

- Initially all customers paid with credit cards 
- 50c charge was added to credit card purchases under two dollars.
- All customers used cash for small purchases (presumably under 2 dollars) while continuing to use credit cards for larger purchases.
- Still, average dollar amount of each cash transaction was almost identical to the average dollar amount of each credit card transaction

This is unexpected, right? All customer used cash for < $2 purchases and card for > $2 purchases then you would expect that avg dollar amount of cash transactions would be small but avg dollar amount of card transactions would be high. 
when would the two averages be almost same? When customer pay cash for some very high value purchases to average out the small purchases.

Say avg dollar amount of all purchases is $8. 
When the purchase amount is less than $2, customers use cash. When it is higher, they use card. But some customers would need to make cash transactions of say $15 too to average out the small transactions so that the two averages are same.

Cash transactions: $1, $1.5, $1.8, $14.2, $14.5, $15
Card transactions: $8, $8, $8, $8, $8, $8, $8, $8

The two will have the same average.

A. The average dollar amount spent by customers who did not have cash available was higher after the charge was instated than it had been beforehand.
 
We don't know anything about customers who did not have cash available. Did they spend more before or later, we don't know. All we know is that before, all customers used to pay by card (the ones who had cash and the ones who didn't) and later all customers started paying small amounts by cash.

B. After the charge was instated, customers who used cash for purchases totaling two dollars or more spent more, on average, than customers who used credit cards for these purchases.

Correct. Customers who used cash for higher transactions, spent more than those who used cards. As discussed above, there must have been $15 transactions to make up for the small <$2 cash transactions.
 
C. The average dollar amount spent in each cash transaction at the convenience store was lower after the charge was instated than beforehand.

Before, there were no cash transactions. If there were a few, we don't know their dollar amounts.

D. A significant majority of purchases made at the convenience store during the month after the charge was instated were made using credit cards.

Cannot say. We know that the average dollar amount is same. Whether there were more cash transactions or card transactions, we don't know.

E. Prior to the charge, the average amount spent on credit card transactions was higher than the average amount spent on cash transactions.

Prior to charge, there were no cash transactions. Even if there were a few, we don't know their average dollar amount.

Answer (B)

chetan2u · Answer

The most important would be to rephrase and take out inference

The owner introduced some charges on credit transactions less than $2, and almost all started paying by cash for amounts less than 2 dollars and continued with credit card transactions for larger amounts. Still the amount per cash transaction is similar to amount per card transaction. IF smaller transactions were dollar and larger were through credit card, the amount spent per credit transaction should have outweighed that per cash transaction.

There is nothing in the para that suggests or talks of relative expenditure through credit cards before and after.

The lower amount when we talk of <$2 has to be taken care by some much higher cash transactions. so. if we talk of purchases worth $2 or more, the amount per cash transaction has to be more than that per card transaction. For example, if we had 10 payments costing 1$ by cash, and per card transaction is $3 for say 10 card transaction, the para says the cash transaction is also $3 on an average. If there are say 5 cash transactions above $2, (10*1+5*x)/15=3....10+5x=45 or 5x=35, that is x=7. Thus, these payments are way more than $3, that is per card transaction
CORRECT

As mentioned in choice B, the effect is the opposite.

It need not be true. Both cash transactions and card transactions can be more.

We are told almost all transactions were by card, but we cannot talk of the amount per transactions. There is no incentive to use cards or penalty to pay by cash. It may be that there were only 2 cash transactions and they were huge.

B

prototypevenom · Answer

I am confused between E and B ?

Someone explain please

GDT · Answer

Can someone pls provide a better explanation for all the options

shameekv1989 · Answer

The average amount per transaction for cash and credit cards is similar. Here the revenue earned in cash and credit cards is unknown, similarly, the number of transactions that took place in either category is also unknown. Therefore any answer choice that takes these 2 into considerations would be incorrect.

Another keyword to notice is the small purchases vs large purchases. The definition of these 2 is also not given. The only thing that's given is that some number of cash transactions take place below 2 dollars on which the store charges additional amount.

Option B suggests that Total Cash Transactions = (Some < 2$) + (Some > 2$)

Average is same for cash and credit card transactions. 
Therefore if we take 10 transactions of 2 $ and 10 of 5$ => Revenue from cash transactions = 70$
And the average of total cash transactions would be 3.5$ which is identical to credit card average = 3.5$

Thus amongst the purchases made by cash transactions, those made in more than 2$ amounts i.e. in 5$ amounts is greater than the average amount spent by credit card transactions which is 3.5$.

GDT · Answer

Option B. After the charge was instated,  customers who used cash for purchases totaling two dollars or more spent more, on average, than customers who used credit cards for  these  purchases.

Now as per this option, taking your example 
Avg. amt. spent by customers (on >=$2 cash transactions)=$5
But why are we considering the  avg amt spent by customers through card transactions for both less than and greater than $2   to compare

We should be comparing equivalent terms, i.e., avg. of only transactions >=2 by cash & card respectively

GDT · Answer

MentorTutoring   VeritasKarishma

Could you pls help with this question

Thanks in advance!

Hoozan · Answer

GMATNinja   VeritasKarishma   ChiranjeevSingh

I find the argument and the answer choice (B) are inconsistent

The argument clearly states that "virtually all customers used cash for small purchases while continuing to use credit cards for larger purchases"

If that is the case then every transaction that was well over $2 we would find the customer using a credit card. And for less than $2 (small purchases and thus avoid 55c charge) use cash

Then how can we have an option that states "customers who used cash for $2 or more"

KarishmaB · Answer

You mean you have a problem with the premises given in the argument that they are inconsistent. Option (B) adds nothing new since it is derived from the argument only.

Note the use of "almost", "virtually" etc. The argument does not say "all" - it says "almost all"

For average dollar amount to be the same, there must have been a few very very large cash transactions to bring up the average. That would not be inconsistent with the premises.

Hoozan · Answer

VeritasKarishma  Thank you for your response

gmexamtaker1 · Answer

Hello  VeritasKarishma  a prompt question,

Does the word "virtually" allow us to assume that there is at least one person who has paid a large purchase with cash?
The reason why I made a mistake in this question is because I thought that after the 0.50$ charge, all customers who paid with cash did so  only  for small purchases and all customers who paid with credit card did so for the larger ones, so I suppose the word "virtually" makes the difference right?

KarishmaB · Answer

Use of "almost all" or "virtually all" means there could be exceptions. It doesn't mean that there MUST be exceptions but that there could be. As per the rest of the argument, we realise that there must have been exceptions.

jabhatta2 · Answer

Hi  VeritasKarishma  - question on A.

Per my understanding, customers  who did not have cash available  (exact Verbiage from option A) ARE customers who pay with  credit card

Before the processing fee 
-- (0.05 $, 2 $, 20, 100 $) were all done via credit cards.

After the processing fee 
-- ( 0.05 $ ,  2  $, 20, 100 $) are NOW done via credit cards. The lower elements are being paid in cash.

Thus wouldn't the  average paid by credit cards  GO UP ? (Reason : I have gotten rid of the   "LOWER" ELEMENTS   in the set as striked above)

Thus I thought A should be legitimate ?

jabhatta2 · Answer

VeritasKarishma  -- ahh i think i got it

Maybe after the processing fee
-- ( 0.05 $ ,  2  $, 20,  25  $) IS DONE by credit cards (100$ reduced to 25 $), reducing the average paid by credit cards compared to the average in the set  "Before the processing fee"

KarishmaB · Answer

Yes, correct. We are given in the argument
"Nonetheless, during the month after the charge was instated, the average dollar amount of each cash transaction was almost identical to the average dollar amount of each credit card transaction. "

So avg dollar amount of cash = avg dollar amount of credit card.

Hence payments by cash could be $0.5, $1, $100
and payments by card could be $25, $30, $40

After the charge, some every high payments must have been made by cash and not by credit card to get similar averages.

toothless123 · Answer

I have a doubt about the terminology used:
 Argument : Nonetheless, during the month after the charge was instated, the   average dollar amount   of each cash transaction was almost identical to the average dollar amount of each credit card transaction.

Option B : After the charge was instated, customers who used cash for purchases totaling two dollars or more   spent more, on average  , than customers who used credit cards for these purchases.

Question : What is the difference between "average dollar amount of each transaction" and "spent more on average"? Is first the average/ mean while the second the range of dollar amounts of all transactions?

If we are saying "spent more on   average  ", doesn't it imply that we are talking about the average dollar amount of each transaction?

RiyaJ0032 · Answer

Hi  KarishmaB ,

can you please clarify that in option B when it says avg spending on cash > avg spending on credit card

this does not mean avg spending of each cash vs each credit card transaction (Which is equal as given, in this example it is 8$)

so what does "avg spending on cash" in B refers to?

Can someone please clarify

samarpan.g28 
 GMATNinja

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