V03-30, V03-31, V03-32, V03-33 : GMAT Club Tests

Bunuel · 2014-09-16T02:00:13-07:00

The Chicago School of economics gained ascendancy in the 1950s and became the prevailing way of thinking about capitalist economics, first in the United States and eventually in many Western countries. A dominant subset of “Neoclassical economics,” the Chicago School fine-tuned many of the fundamentals of the larger movement and articulated tenets now generally taken for granted in economic thought. A basic principle of Neoclassical economics is the concept of utility, or the assertion that a correct economic decision is one that yields “the greatest good for the greatest number.” Neoclassical economics vociferously defends a laissez-faire , or “hands off,” approach to government regulation. According to Neoclassical theory, in the absence of state interference, individual participants in the market will make rational economic decisions that maximize their satisfaction. For individuals, the principle of utility translates into buying quality goods at the lowest possible price; for companies, it means making decisions that will maximize profits.The interplay of free market forces, according to Neoclassical economists, will result in greater good – in the form of high quality products and services – for a greater number of people. The Chicago School accepts the principles of utility and laissez-faire regulation, but tailors its understanding of these terms to focus on the related principle of “efficiency.” For Chicago School thinkers, “efficiency” subsumes Neoclassical thought on the mechanisms of utility, which concentrates on individuals making individual rational decisions, into a more sophisticated awareness of the balance between individual decisions and production. The chief cause of inefficiency for Chicago School thinkers is government regulation, which prevents the free interplay of market forces. In an economy unencumbered by state interference, not only are individuals and companies free to maximize their satisfaction, but production itself is likely to become more efficient by producing the highest quality goods at the lowest possible price. 1. According to the passage, which of the following best articulates the relationship of utility to efficiency ? (a) Utility is concerned with maximizing satisfaction, whereas efficiency is concerned with greater production. (b) Utility is the basic principle, whereas efficiency is a more refined version of the basic principle. (c) Utility and efficiency are equally important concepts in Neoclassical economic theory. (d) Utility and efficiency , though opposite in meaning, are both useful in describing the statistical behavior of free markets. (e) Neither utility nor efficiency , as a principle, is able to completely predict the behavior of a free market. B 2. Which of the following best describes the primary purpose of this passage? (a) To discuss the relationship of the Chicago School to Neoclassical economic theory. (b) To demonstrate the fundamental disagreement between the Chicago School and Neoclassical economic theory. (c) To argue for the application of the principle of utility in the United States economy. (d) To trace the development of the concept of efficiency in American economic theory. (e) To outline a plan for producing the highest quality goods at the lowest possible price. A 3. The author of the passage most likely states that greater good comes in the form of high quality products and services for which of the following reasons? (a) To underscore the fact that Neoclassical economists are more concerned with the greater good than other types of economists. (b) To remind readers that, for the principle of utility to truly apply, goods and services must be put to appropriate use. (c) To emphasize the fact that products and services are good, but high quality products and services are better. (d) To distinguish between economic good (quality products and services) and economic evil (lack of quality products and services). (e) To indicate that Government intervention is detrimental for an economy. E 4. According to the passage, all of the following are benefits of a laissez-faire economy EXCEPT (a) Individual participants will make decisions that maximize their satisfaction. (b) Companies will make decisions that maximize their profits. (c) Production of goods will become more efficient. (d) Government agencies will be available to correct inflation. (e) Quality goods will be produced at the lowest possible price. D

Show SpoilerQuestion V03-30 explanation

To answer this question, an understanding of the terms utility and efficiency as they are used in the passage is required. The second paragraph discusses the definition of utility as an economic decision that yields the greatest good for the greatest number. The first sentence of the second paragraph states that the Chicago School accepts this definition of utility, but has refined it and added other subtleties to it, so that the School’s major apparent concern is with efficiency.

According to the passage, utility and efficiency are aspects of the same concern with maximizing satisfaction through greater production; this answer choice presents a redundant sentence.
This option correctly identifies the connection made in the passage between the ideas of utility, the basic principle associated with Neoclassical economics, and the same principle refined by the Chicago School and discussed as efficiency.
Efficiency is not discussed in the passage as being a major component of Neoclassical theory.
Utility and efficiency are not opposite in meaning.
Whether or not utility and efficiency can predict the behavior of a market is outside the scope of this passage.

Show SpoilerQuestion V03-31 explanation

The primary purpose of the passage can best be determined by considering the passage as a whole. The first paragraph establishes the Chicago School as an important subset of Neoclassical economic theory. The second paragraph reviews the principles of Neoclassical economics, and the third discusses the innovations of the Chicago School on the fundamentals of Neoclassical theory.

This option correctly recognizes the informational tone of the passage as a whole and accounts for the entire logical structure of the passage.
A fundamental disagreement between the Chicago School and Neoclassical economic theory is not discussed.
The principle of utility is assumed to have already been applied to the United States economy.
Trace implies a concern with chronology that is not supported by the passage.
Though this idea is mentioned, it is not a focus of the passage as a whole.

Show SpoilerQuestion V03-32 explanation

The words most likely states in the question stem are a signal that the correct answer will deal with material implied but not directly stated in the passage. The relationship of laissez-faire regulation with the principle of utility is being discussed in the second paragraph. The line in question is making a connection between the benefits of limited government regulation and achieving the goal of the principle of utility.

The passage does not make this claim.
Appropriate use of goods and services is not discussed in the passage.
This is an inaccurate definition of the term greater good.
This distinction is not made in the passage, nor is economic evil mentioned.
This option correctly identifies the sentence’s purpose in inferring that if in absence of state intervention, greater good is done, then when the state intervenes, lesser good is done.

Show SpoilerQuestion V03-33 explanation

The words according to the passage in the question stem indicate that the correct answer can be chosen by reviewing details from the passage. Go through each answer choice and confirm that it can be supported by a specific line in the passage. The one that IS NOT supported by the passage is the correct answer.

These lines discuss how individuals will maximize their satisfaction.
There is an indication that companies will maximize their profits.
This passage discusses efficient production of goods.
The passage states explicitly that a laissez-faire economy means little interference from government.
There is a discussion of the production of quality goods at a low price.

V03-30, V03-31, V03-32, V03-33

Prep Toolkit

My Rewards