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

Question

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

Bunuel · Answer

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.     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.     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.     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.

sahilmalhotra01 · Answer

I have a doubt in the question no V03-32.

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:

I think all of the options are irrelevant. Here is my reasoning for the same:

a) other type of economists not discussed in the passage - out of scope.
b)use of goods and services not discussed in the passage - out of scope.
c)passage doesn't makes this claim
d)Economic evil not discusses in the passage - out of scope.
e) moral good is not discussed in the passage - out of scope

Kindly help understand how option choice e is the correct answer.

Thanks

sayantanc2k · Answer

Your point is valid. Answer choice E has been modified.

Vinodhini1803 · Answer

Hi  sayantanc2k ,

I didn mark this answer since 'detrimental' seemed like a strong word and strong words are supposed to be avoided. 
But this seems to be the answer. The passage never states government intervention is detrimental. It states, without intervention, greater good comes. Although same, the first one is too strong. Kindly assist if my understanding is correct.

sam12rawat · Answer

sayantanc2k  Hi, I have the same doubt.

TBT · Answer

Solved this question using elimination. Other 4 options were definately wrong. So D is correct.

Vikramaditya00 · Answer

I think this is a  high-quality  question and the explanation isn't clear enough, please elaborate. I didnt undertand the question nor the answer, can someone pls explain in detail in simple english?

bb · Answer

Hi. Happy to help. Can you let me know which question you are referring to specifically? Sorry I can't see which one of the 4 it was.

Thank you!

siddhantvarma · Answer

Summary : The passage discusses the ascendancy of the Chicago School of economics, a subset of Neoclassical economics, in the 1950s and its emphasis on utility and efficiency. Neoclassical economics focuses on utility and a laissez-faire approach to government regulation, arguing that individuals and companies making rational decisions in a free market will lead to the greatest good for the greatest number. The Chicago School builds on this by emphasizing efficiency, asserting that the absence of government interference not only maximizes individual and corporate satisfaction but also enhances production efficiency.

Passage Breakdown:

P1:  Introduction to the Chicago School of economics, its rise in the 1950s, and its relationship to Neoclassical economics.
 P2:  Explanation of the Neoclassical economic principles of utility which involves making economic decisions that yield the greatest good for the greatest number.Laissez-faire approach suggests that free market forces, without government interference, lead to rational decisions by individuals and companies, resulting in high-quality products and services.
 P3:  The Chicago School's acceptance and refinement of Neoclassical principles, focusing on efficiency. Efficiency in the Chicago School's view includes the balance between individual decisions and production. Government regulation is seen as a cause of inefficiency. An unregulated economy promotes not only individual and corporate satisfaction but also efficient production of high-quality goods at low prices.

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. 
  This is incorrect   because efficiency, as per the Chicago School, also involves maximizing satisfaction alongside production.

(b) Utility is the basic principle, whereas efficiency is a more refined version of the basic principle.
 This is correct   because the passage states that the Chicago School tailors the Neoclassical concept of utility into a more sophisticated awareness of efficiency (Passage Breakdown: Paragraph 3).

(c) Utility and efficiency are equally important concepts in Neoclassical economic theory. 
  This is incorrect   because efficiency is highlighted as a more sophisticated concept within the Chicago School, not as equally important.

(d) Utility and efficiency, though opposite in meaning, are both useful in describing the statistical behavior of free markets.
 This is incorrect   because the passage does not suggest that utility and efficiency are opposite in meaning.

(e) Neither utility nor efficiency, as a principle, is able to completely predict the behavior of a free market.
 This is incorrect   because the passage does not make this claim about the predictive power of these principles.

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.
 This is correct   because the passage outlines how the Chicago School builds upon and refines Neoclassical principles, particularly focusing on utility and efficiency (Summary and Passage Breakdown).

(b) To demonstrate the fundamental disagreement between the Chicago School and Neoclassical economic theory.
 This is incorrect   because the passage does not highlight a fundamental disagreement but rather a refinement and acceptance of Neoclassical principles by the Chicago School.

(c) To argue for the application of the principle of utility in the United States economy.
 This is incorrect   because the passage does not argue for the application of utility specifically.

(d) To trace the development of the concept of efficiency in American economic theory.
 This is incorrect   because the passage focuses on the Chicago School's interpretation rather than tracing the development of efficiency more broadly.

(e) To outline a plan for producing the highest quality goods at the lowest possible price.
 This is incorrect   because the passage does not outline a specific plan but discusses theoretical principles.

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.
 This is incorrect   because the passage does not compare Neoclassical economists' concern for the greater good with that of other economists.

(b) To remind readers that, for the principle of utility to truly apply, goods and services must be put to appropriate use.
 This is incorrect   because the passage does not discuss the appropriate use of goods and services.

(c) To emphasize the fact that products and services are good, but high quality products and services are better.
 This is incorrect   because the passage does not focus on a comparative quality statement in this manner.

(d) To distinguish between economic good (quality products and services) and economic evil (lack of quality products and services).
 This is incorrect   because the passage does not discuss economic good versus economic evil.

(e) To indicate that Government intervention is detrimental for an economy.
 This is correct   because the mention of high-quality products and services emphasizes the beneficial outcomes of a laissez-faire economy, implying that government intervention disrupts these positive results (Passage Breakdown: Paragraph 2).

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. 
This is a benefit of a laissez-faire economy as per Neoclassical economic theory (Passage Breakdown: Paragraph 2).   Incorrect

(b) Companies will make decisions that maximize their profits. 
This is a benefit of a laissez-faire economy as per Neoclassical economic theory (Passage Breakdown: Paragraph 2).   Incorrect

(c) Production of goods will become more efficient. 
This is a benefit according to the Chicago School, as stated in the passage (Passage Breakdown: Paragraph 3).   Incorrect

(d) Government agencies will be available to correct inflation. 
This is not a benefit of a laissez-faire economy, as the passage emphasizes minimal government intervention (Passage Breakdown: Paragraph 2).   Correct.

(e) Quality goods will be produced at the lowest possible price. 
This is a benefit according to the Chicago School, as stated in the passage (Passage Breakdown: Paragraph 3).   Incorrect

jain67 · Answer

Is not option E of the third question extreme?  GMATNinja   KarishmaB   Bunuel   bb

ains0712 · Answer

I don't understand why E is the answer of the third question. 
I was conflicted while I was reading the question and choices between C and E. Can someone pls explain why not C.
I picked E initially because I know that in the overall context of the paragraph, that's why greater good was mentioned -> to imply high quality products and services for more people, in the absence of government intervention. But I ended up picking C because wasn't the sentence/line itself meant to imply this answer choice? Passage says -> Free market will result in greater good – in the form of high quality products and services – for a greater number of people. So in the absence of free market, aka with govt intervention, there is good (products and services for people) but in the free market, there is greater good (high quality products and services for more people)

Confusion · Answer

Bunuel  - I think the answer for this question: 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? is incorrect.

Here is my reasoning. The question is actually asking why did the author states greator good comes as High quality of goods and servics. Its not how? But why is the emphasis of "high quality" - so with that rationale it is option C - because that is what would sit with the definition of Utility. 
 KarishmaB  - please request an expert answer here. I have spend 10-15 mins on this 1 question thinking pretty deep and still don't agree with Option E

KarishmaB · Answer

Option (E) is correct for question 3. No other option comes close.

Given: 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  will result in greater good – in the form of high quality products and services – for a greater number of people.

When state does not interfere, participants make rational decisions. Individuals buy quality goods at lowest prices and companies maximize profit (so it does what will make individuals buy their goods)
So greater good results in the form of quality products when governments keep their hands off. If govt intervenes and caps the cost of certain items say, a company may not be able to produce a high quality product.

Option (C) is not correct. The author is not trying to make a case for high quality products in Neoclassical economics. She is making a case for keeping govt intervention out.

Saks116 · Answer

I like the solution - it’s helpful. No differentiation between the two. Utility is the principle stated in in neoclassical economics. And as stated in passage 'efficiency' subsumes neoclassical thought on the machanisms of utility' which implies that it is re-thought and refined to meet the same goal. 
Hence, B

Vivek1707 · Answer

I did not quite understand the question. The is a poor quality questions. 
None of the answer choices make sense.

Two problems with answer choice E

First:

The author is just explaining the basic principle of neoclassical economics, concept of utility, what neoclassical economists think etc. This answer choice implies that the author is taking an implicit stance which cannot be inferred from the passage.

If I read it this way 
"The author of the passage most likely states that greater good comes in the form of high quality products and services - To indicate that Government intervention is detrimental for an economy.

This reads as if the author has an implicit view which is not there in the passage.

Second:

"To indicate that Government intervention is detrimental for an economy". GMAC ALWAYS avoids such extreme language as it could stir up a controversy. Such answers will never be correct in an actual GMAT passage.

bhanu29 · Answer

Hope you are talking about

I agree that question needs work, but you cannot eliminate an answer because it has "extreme language"

That being said, I think E doesn't do justice to this question as overall tone of the author is neutral.

bb  I think this needs work, thanks for pointing it out  Vivek1707

- Bhanu

suranamohit2694 · Answer

Doubt in Q V03-30

The view that "efficiency is a refined version" is a view of "Chicago School" and not of the author.

How are we verifying that the author is on the same page?

AbhishekP220108 · Answer

Hi suranamohit2694 the question has be explained in detail on this link: https://gmatclub.com/forum/v03-30-v03-3 ... l#p3435506

Also, to verify the efficiency is a refined version, if we look at each paragraph, the author is basically talking in conjunction with the Chicago School. The author is not presenting his own personal view. Hence, from the 2nd and 3rd paragraphs, we get to know that efficiency and utility are related to each other.

Hope this helps!

suranamohit2694

Doubt in Q V03-30

The view that "efficiency is a refined version" is a view of "Chicago School" and not of the author.

How are we verifying that the author is on the same page?

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

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