Letter to the editor: Our city plans to allow major commerci

Question

Letter to the editor : Our city plans to allow major commercial development along the south waterfront and, in so doing, to increase its tax revenue. But, to succeed commercially, the development would inevitably create far more road traffic than the existing roads to the waterfront can handle, causing serious traffic congestion. Providing enough roads or public transportation to the area would cost far more than the city could gain from the increased tax revenue.

Which of the following, if added to the city’s plan, would be most likely to help solve the problem the letter describes?

(A) Funding construction of new roads to the waterfront with a system of tolls on the new roads to the waterfront

(B) Allowing residential development along the waterfront so that there will be waterfront residents who can walk to the commercial development

(C) Giving tax breaks to developers of businesses along the waterfront to offset any tax levied on them for construction of roads or public recreation

(D) Evaluating the net benefits that the commercial development would bring to the city in terms of improved quality of life for the city’s residents rather than its financial terms

(E) Allowing commercial development in other city neighborhoods whose roads are not seriously congested with traffic

mikemcgarry · Accepted Answer

Dear Rock750 , I'm happy to help. This is a great question. :-)

So, the problem is --- tax revenue from waterfront development won't pay for fixing all the problems caused by this development. The city will wind up with horrible traffic and no financial plan for dealing with it. That's the problem we need to address. (A) Funding construction of new roads to the waterfront with a system of tolls on the new roads to the waterfront Toll roads! That magic form of income! Yes, this would have the advantage that more traffic leads to more money, so as long as traffic is a problem, there's money coming in that can solve the problem. Brilliant! This works as a correct answer. (B) Allowing residential development along the waterfront so that there will be waterfront residents who can walk to the commercial development Hmmm. Not satisfying. Those residents would still have to drive home and park, adding to traffic, and folks who live elsewhere would still have to drive there. It doesn't sound as if this would do much to solve the problem. This is incorrect. (C) giving tax breaks to developers of businesses along the waterfront to offset any tax levied on them for construction of roads or public recreation If the city gives tax breaks, that's even less money coming into the city's coffers, and that exacerbates the problem. This is incorrect. (D) Evaluating the net benefits that the commercial development would bring to the city in terms of improved quality of life for the city’s residents rather than its financial terms Hippie cop-out. If the current plan involves tons of traffic, then nobody is a fan of that. This is very weak. This is incorrect. (E) Allowing commercial development in other city neighborhoods whose roads are not seriously congested with traffic Hmm. This could create even more traffic elsewhere in the city, so the entire city would be in gridlock. That certainly doesn't sound like something that makes the problem better. This is incorrect. Does all this make sense? Mike :-)

KarishmaB · Answer

Letter:
Plan: Allow commercial development at waterfront.
Goal: Increase tax revenue
Problem: Will cause traffic congestion for which roads will need to be constructed which will cost more than the increase in tax.

What should be "added" to the plan to help resolve the problem (the expense of roads eating up the increase in revenue)

(A) Funding construction of new roads to the waterfront with a system of tolls on the new roads to the waterfront

Correct. Roads can pay for themselves through toll instead of using tax collection from other sources.

(B) Allowing residential development along the waterfront so that there will be waterfront residents who can walk to the commercial development

This doesn't mean the traffic congestion will not occur. If residential development is allowed at waterfront, there would be some people who can walk to the commercial area (whether they will or not we don't know) but the rest fo the city will still drive down. It may decrease the congestion by a bit but is unlikely to have any major impact. (A) is far better in which everyone who uses the road mandatorily pays for it.

(C) Giving tax breaks to developers of businesses along the waterfront to offset any tax levied on them for construction of roads or public recreation

Our problem is that tax we collect from businesses will be used to construct roads and we will have nothing left. The plan doesn't talk about levying road tax on businesses. Also, we need to increase the overall tax collection. Giving tax breaks to anyone doesn't help us.

(D) Evaluating the net benefits that the commercial development would bring to the city in terms of improved quality of life for the city’s residents rather than its financial terms

Anything other than finances is irrelevant.

(E) Allowing commercial development in other city neighborhoods whose roads are not seriously congested with traffic

We are focusing on increasing tax revenue of this city.

Answer (A)

Rock750 · Answer

Hi Mike, Thanks for your response.

I was torn as to decide between A and B and ended with choosing B.

I agree that Answer A wins over B but my problem is that rarely i'm convinced with an answer choice that comes from this type of question.

While attempting this Q, both A and B were satisfying. In one hand, answer A is proposing new roads with system of tolls that will alleviate traffic congestion with some $$ bonus. Ok, but what if these new roads, regardless of the $$ bonus, will be congested soon after the plan is released. I eliminate this answer choice because i felt that it doesn't bring some additional information about the number of the population that live there ... In the other hand, i choosed B because if we have to allow residential development along the waterfront so that there will be waterfront residents who can walk to the commercial development then if there are too many residential along the waterfront , hence a lot of people who lived far from the waterfront and who are especially pleased with commercial activities will move thereby alleviating traffic congestion.

Another problem is that i'm struggling with my timing for this type of Q, which take me 3min on average to come up with an answer that is not satisfying.

Thanks in advance for your help

mikemcgarry · Answer

Dear Rock750 , I'm happy to respond. :-)

First of all, here's a blog about CR strategy, with links to blogs with strategies for individual question types: https://magoosh.com/gmat/2012/save-time- ... questions/ Here's the first in a series of articles about some real world issues --- understanding these issues can be good background knowledge on the GMAT CR: https://magoosh.com/gmat/2012/gmat-supply-and-demand/ Finally, I would recommend: read. Read real-world arguments in all their messiness and complexity. The Wall Street Journal presents excellent arguments, especially in the editorial section, and if you are planning to get an MBA, you probably should be reading this anyway. The Economist Magazine is an even better source of highly sophisticated arguments: if you read the Econo mist from cover-to-cover every week and understood all the arguments, then GMAT CR would be easy; and, of course, if you are planning to get an MBA, you should be very familiar with this magazine as well. The more you read real-world arguments, they more you will develop intuition for the push-and-pull of force in the real world. Does all this make sense? Mike :-)

gmatprav · Answer

Hello Rock750, I am not an expert, I will just add my 2 cents worth. Hope it helps.

The question introduces a specific problem with respect to new development at the waterfront. The problem is

"Providing enough roads or public transportation to the area   would cost far more than the city could gain from the increased tax revenue.  "

Our need of the hour then is to just solve this problem of additional cost, while benefiting the city. We have to limit our scope to this extent only. While analyzing A, you expanded this scope to consider future problems that may arise. Also notice we are not to assume there may be future problems. We need not worry about these. in fact there may not be any problems or worse, there may be entirely new set of problems that we don't yet know.

As for B, it is a good contender however, can we assume that the visitors of the new commercial development will be ONLY from that particular new residential area? certainly there will be other external visitors otherwise the city will not be planning to develop the waterfront. For them access roads are necessary, so we cannot do away with roads.

This particular assessment

" hence a lot of people who lived far from the waterfront and who are especially pleased with commercial activities will move  "

does not chime well with real world. just because lot of people are pleased with a commercial development/theme park/mall does not necessarily mean they will move to the nearby residential area. This is very unrealistic.

A is a better choice when compared to B. hope it helps.

Icecream87 · Answer

GMAT verbal, I hate you! How do they expect non english speakers to know what "toll" is? I thought is was some sheet metal... :twisted:

mikemcgarry · Answer

Dear Icecream87 , I see that Nevernevergiveup responded to your query, but I have a few things to say as well. :-)

The GMAT Verbal, and in particular, the GMAT CR, expects students to know an assortment of basic economic ideas. Students have the misconception that they need "no outside knowledge" on the GMAT CR. This is a subtle misconception. It's absolutely true that one does not need to have expert knowledge about any specific topic discussed. In this case, the city is fictional, so no one could be an "expert" about it! Nevertheless, one has to be comfortable with a variety of terms and idea about how money is exchanged in the economy. Think about it: the GMAT is a test about your readiness for business school. Part of that readiness involves being aware of major source of income for governments and businesses. In that sense, you need to know about toll roads . For more real world ideas that could be important on the GMAT, see: GMAT Critical Reasoning and Outside Knowledge Think about it: if in business school or in your career, the topic of "toll roads" comes up, and you were to say, " I don't know what those are !" then you would not look very impressive. Knowledge is power. Take every opportunity to learn every economic term, every economic idea, that you possibly can. not only because it could help you on the GMAT, but also because it will help you in everything that comes after the GMAT. As I indicate in that blog post, the way you acquire all this economic knowledge is to read the business news. Read about what individual businesses are doing. Read about what the governments are doing to regulate their national economies. As much as possible, make yourself an expert in how money changes hands in the world. After all, if you are taking the GMAT, then presumably you are planning to devote your life to the business world. It only would make sense to develop expertise in that world as soon as you can. Does all this make sense? Mike :-)

Probus · Answer

Hi  mikemcgarry ,  GMATNinja 
I need help in understanding how we could eliminate A & C

I was stuck between A and C This is what was going in my mind when i did hold on to these two options

The way the argument is constructed (not argument since no conclusion)
Aim: to increase tax revenue
PLan: Commercial Development along South waterfront.
Road Block: Increased traffic that road can't handle and cost of providing any roads or transport would cost far more than it would gain from increased tax revenue

Now Option A says Funding road with collection of toll : But aren't we told that proving for roads would offset any increased in tax revenue ( Yes because of the increased traffic and toll you would have revenue but still you would initially pay out of revenue which is far more than you would gain from increased tax revenue)

While option C says : give tax benefits for developers who provide road on that rout. ( now locally its plan for increased revenue would be achieved since it doesn't have to spend out of their revenue to fund roads, and they would earn because commercial development would still attract more traffic)

Now the only difference in A & C is in the long term Plan A would get them more revenue. But we aren't sure how long since its mentioned that proving roads would cost city far more than city would gain from the increased tax revenue

So why not C? You are meeting your goal to increase tax revenue immediately

What am i missing ?
Probus

Sarjaria84 · Answer

My 2 cents,

There are 2 main problems here,

1. Traffic
2. Tax Revenue

Point B says 'allowing residential construction'. How does this solves the traffic issue, there's an entire city which will still need to move smoothly to the waterfront and however big the residential project is, it will not compensate for the revenue that can be generated from different parts of city. So infact both the problems still stand.

Point 'C'- There's no mention of public recreation being built in the original argument. Additionally, in point 'A' apart from tax revenue city will also get toll revenue and in point 'C' the city in effect looses money because of tax benefits given (I agree this may or may not off set road construction cost) plus it will not receive the revenue flow from tolls.

Hope I was able to help !

Posted from my mobile device

DavidTutorexamPAL · Answer

Hey Probus!
Think of it this way: 
Problem: plan will cost more than it makes in revenue. 
We are looking to solve this problem - i.e. something that ensures that revenue will in fact be greater than expenses. 
(C) does the opposite - giving tax breaks is forgoing revenue, giving up money - this means revenue will be smaller, which will only make the problem worse! 
(A) on the other hand provides an additional revenue stream (tolls), which should increase the overall revenue

Does this help?

guptakashish02 · Answer

Probus  - Please see if my reasoning can help you
 To overcome this financial problem, we are considering additional option i.e toll system as stated in A.
 We can't consider that poor people will not go to commercial places etc due to high toll prices which will lead to decrease in tax revenue . We don't know these numbers. Maybe they are less or maybe more So we can't consider this.

Similar with option C.
 
We don't know what might happen in long term but we know that if we give tax breaks to the developers, we are hurting the plan of increasing tax revenue.

adityaganjoo · Answer

VeritasKarishma  But what about the reduction in the number of vehicles tolls would cause?
The passage states  "But, to succeed commercially, the development would inevitably create far more road traffic than the existing roads to the waterfront can handle...." . Thus, large traffic is required to make the project commercially feasible. (A) does not account for the reduction in traffic due to tolls

agrasan · Answer

Hi experts  KarishmaB   GMATNinja   MartyMurray

I read all explanations but I am still unclear on option B. Is option B wrong because option A is a suitable option for most of the people who will travel to commercial development in south waterfront whereas option B only favours selected portion of people who live in residential space near that commercial development? Please let me know if this is the reason which makes option A as a better choice here.

GMATNinja · Answer

We have no idea how the residential development would affect traffic. Those residents might only represent a tiny fraction of the potential traffic to the commercial area.

It's  possible  that those residents actually represent a large portion of the traffic, in which case choice (B) would help. But we certainly cannot assume that's the case.

Given the high traffic expectations, it makes sense that tolls would create significant revenue. That would certainly alleviate the problem described in the letter.

(B)  might  help, if we make certain assumptions. (A) is  likely  to help without making any assumptions, so it's a better option.

Letter to the editor: Our city plans to allow major commerci

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