12 Days of Christmas GMAT Competition - Day 10: In an isolated economy

Question

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In an isolated economy, the only two factors that can directly affect the market price of a commodity are changes in its supply and changes in consumer demand. In such an economy, the total consumer demand is directly proportional to the population size.

If the statements above are true, then it is also true that in this isolated economy:

(A) any increase in the market price of a commodity is the result of a decrease in its supply

(B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase

(D) the market price of a commodity is inversely related to the size of the population

(E) whatever changes in supply occur, there will be compensating changes in consumer demand

Bunuel · Accepted Answer

GMAT Club's Official Explanation:

The premise states that in this isolated economy, the market price of a commodity is influenced by two factors: changes in its supply and changes in consumer demand. Additionally, it's established that consumer demand is directly proportional to the population size.

Option (B)  - "if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price" - aligns with the principles outlined. If demand stays constant (due to a constant population size) and the supply of a commodity increases, basic economic principles suggest that the market price of that commodity will decrease. This is due to the increased availability of the commodity relative to the unchanged demand.

This option correctly applies the concept that, other things being equal, an increase in supply with a constant demand leads to a decrease in price, fitting the economic model described in the statements.

SushantPaudel · Answer

Here,

(A) any increase in the market price of a commodity is the result of a decrease in its supply
- This is not necessarily true. An increase in demand could also lead to an increase in the market price. - Incorrect

(B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price
- This is consistent with the given information. If the population size remains constant, and supply increases, it could lead to a decrease in market price due to an increase in availability. - Correct

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase
- This contradicts the information provided. The total consumer demand is directly proportional to the population size. - Incorrect

(D) the market price of a commodity is inversely related to the size of the population
- This is not accurate based on the information provided. The relationship between market price and population size is direct, not inverse. - Incorrect

(E) whatever changes in supply occur, there will be compensating changes in consumer demand
- This is not supported by the information. The statements don't suggest that changes in supply will necessarily be compensated by changes in consumer demand. - Incorrect

So, option (B) is correct answer here.

DongTan · Answer

(A) cannot be inferred from the information given. While changes in supply can affect the market price, it is not specified that an increase in price is solely due to a decrease in supply. Other factors, such as changes in consumer demand, could also influence the market price.

(B) is true based on the information given. In an isolated economy with a constant population size, where total consumer demand is directly proportional to population size, an increase in the supply of a commodity would result in a larger supply relative to the stable consumer demand. This increased supply relative to demand would likely lead to a decrease in the market price of the commodity.

(C) is false based on the information given. In an isolated economy where total consumer demand is directly proportional to population size, a decrease in the population size would result in a decrease in consumer demand. With a decrease in demand and assuming supply remains constant, the market price of commodities would likely decrease, not increase.

(D) is not necessarily true based on the information given. The information states that total consumer demand is directly proportional to population size, but it does not specify the exact relationship between market price and population size. Other factors, such as changes in supply, can also affect the market price.

(E) cannot be inferred from the information given. While changes in supply and consumer demand are the two factors that can directly affect the market price of a commodity, it is not specified that they will always compensate for each other.

Based on this evaluation, the true statement in this isolated economy is (B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price.

bv8562 · Answer

In an isolated economy, the only two factors that can directly affect the market price of a commodity are changes in its supply and changes in consumer demand. In such an economy, the total consumer demand is directly proportional to the population size.

If the statements above are true, then it is also true that in this isolated economy:

(A) any increase in the market price of a commodity is the result of a decrease in its supply (Increase in price can also be a result of change in consumer demand.)

(B)  if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price  -  Yes, this must be true. Since, according to the stimulus, the only two factors that can directly affect the market price of a commodity are changes in its supply and changes in consumer demand. And the total consumer demand is directly proportional to the population size. Thus, if population size increases, the demand increases and vice-versa. And if the population size remains constant, thus the demand remains constant, an increase in the supply of a commodity MUST lead to a decrease in its market price.

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase (If population size decrease, then consumer demand decrease, so market price decrease.)

(D) the market price of a commodity is inversely related to the size of the population (No. It is directly related to size of population)

(E) whatever changes in supply occur, there will be compensating changes in consumer demand (Why? This can't be inferred.)

(D) the market price of a commodity is inversely related to the size of the population -  Opposite answer. If population size increases, the demand increases. And if demand increases, the market price of a commodity increases. Therefore, the market price of a commodity is directly related to the size of the population.

(E) whatever changes in supply occur, there will be compensating changes in consumer demand -  Not necessarily true. Since, the consumer demand is directly proportional to the population size.

Archit3110 · Answer

argument states that
market price = ∆ in supply * ∆ in consumer dd 
and consumer dd = population size

(A) any increase in the market price of a commodity is the result of a decrease in its supply  not necessarily what if demand also falls

(B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price  this can be true

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase  market price will fall in this case

(D) the market price of a commodity is inversely related to the size of the population  no it is directly related

(E) whatever changes in supply occur, there will be compensating changes in consumer demand  if ss increases and demand is same then price can fall and if ss decreases so does dd then price will also fall

OPTION B

rishikavats17 · Answer

(A) any increase in the market price of a commodity is the result of a decrease in its supply
-- Any increase in price need not result from a decrease in supply, it can happen from an increase in demand too. Eliminate.

(B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price
-- Correct, if the population stays constant, the demand stays constant, and therefore an increase in supply will result in a decrease in the market price.

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase
-- The decrease in population does imply a decrease in demand which will reduce the price rather than increase. Eliminate.

(D) the market price of a commodity is inversely related to the size of the population
-- The price and population can be directly related if supply changes. E.g. - If demand increases by 10 units but supply decreases by 100 units then the price will definitely increase since the product will be in a high demand. Eliminate.

(E) whatever changes in supply occur, there will be compensating changes in consumer demand
-- Not necessarily, the change in supply can be offset by a change in price while demand stays the same. Eliminate.

Ans=B.

vishal_gupta · Answer

In an isolated economy, the only two factors that can directly affect the market price of a commodity are changes in its supply and changes in consumer demand. In such an economy, the total consumer demand is directly proportional to the population size.

If the statements above are true, then it is also true that in this isolated economy:
 
(A) any increase in the market price of a commodity is the result of a decrease in its supply (Increase in price can also be a result of change in consumer demand.)
 
 (B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price (Correct. This takes into account both factors, and it keeps one factor constant while correctly inferring from the second factor.)

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase (If population size decrease, then consumer demand decrease, so market price decrease.)

(D) the market price of a commodity is inversely related to the size of the population (No. It is directly related to size of population)

(E) whatever changes in supply occur, there will be compensating changes in consumer demand (Why? This can't be inferred.)

sj296 · Answer

Market price = f(change in supply) & f(change in consumer demand)

Consumer demand = population size

(A)  any increase in the market price of a commodity is the result of a decrease in its supply ..........We can infer this for sure. We don't know what happens to the demand.

(B)  if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price
 ............This seems probable. oversupply leading to a decrease in market price. Keep this.

(C)  if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase
 ...............Demand is low then the market price should increase. This is not true.

(D)  the market price of a commodity is inversely related to the size of the population ........can't say conclusively from the given information.

(E)   Whatever changes in supply occur, there will be compensating changes in consumer demand ..........can't infer from the given information.

Option B should be the answer.

$!vakumar.m · Answer

In an isolated economy 
- The market price of a commodity is directly affected by changes in its supply and changes in consumer demand.
- The total consumer demand is directly proportional to the population size.

If the statements above are true, then it is also true that in this isolated economy:

(A) any increase in the market price of a commodity is the result of a decrease in its supply
this is true provided that the demand is constant or has increased - but we can't assume that - incorrect

(B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price
if the population size remains constant =>demand is constant, then an increase in the supply of a commodity will lead to a decrease in its market price - seems reasonable - good to keep.

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase
decrease in population => decrease in demand, then market price of commodities will increase if we assume that the supply has decreased - but we can't assume this - incorrect

(D) the market price of a commodity is inversely related to the size of the population
This is not supported by the given information. The total consumer demand is directly proportional to the population size, but the market price is influenced by both supply and demand. - incorrect

(E) whatever changes in supply occur, there will be compensating changes in consumer demand
The information doesn't state that changes in supply are always compensated by changes in consumer demand. - incorrect 
Answer B

paulkim46 · Answer

Answer: (B)

(A): Question states that price is directly affected by both supply and demand. Thus, it's illogical to conclude that increase in price must be associated with a change in the supply since demand could be the affecting factor.
(B): Correct. Basic economics follows this logic.
(C): Since population size is directly associated with demand, decrease in size means decrease in demand. If there is a decrease in demand, one would expect an increase in price, not a decrease.
(D): The size of the population is directly associated with demand. Then, the price is also directly associated with population, since demand is directly associated with price, not inversely.
(E): There is no evidence for this.

andreagonzalez2k · Answer

(A) any increase in the market price of a commodity is the result of a decrease in its supply
 not true, if demand of the commodity increases, its market price increases

(B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price
 true, population constant, demand constant, supply increases, market price decreases 
 CORRECT

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase
 not true, population decreases, demand decreases and market price decreases

(D) the market price of a commodity is inversely related to the size of the population
 not true, market price is directly related to the size of the population

(E) whatever changes in supply occur, there will be compensating changes in consumer demand
 not true, changes in supply can be compensated via demand or via market price

IMO B

Kinshook · Answer

In an isolated economy, the only two factors that can directly affect the market price of a commodity are changes in its supply and changes in consumer demand. In such an economy, the total consumer demand is directly proportional to the population size.

If the statements above are true, then it is also true that in this isolated economy:

Since there are only two factors that can directly affect the market price of a commodity are changes in its supply and changes in consumer demand. Therefore, any increase in the market price of a commodity can not be attributed to a decrease in its supply alone.
Incorrect

If the population size remains constant, the consumer demand will remain constant and any increase in supply will result in decrease in market price.
Correct

A decrease in population size will result in decrease in consumer demand, resulting in decrease in market price of commodities.
Incorrect

The market price of a commodity is directly proportional to consumer demand which is directly proportional to the size of the population.
Incorrect

Any changes in supply may result in corresponding changes in prices and NOT in compensating changes in consumer demand. This may be the case with essential commodities.
Incorrect.

IMO B

mayankdgmat · Answer

IMO answer is (B)

Only 2 factors that affect price - Change in supply, change in demand

Consumer demand Directly proportional to population size

(A) any increase in the market price of a commodity is the result of a decrease in its supply

since demand is also one factor we don't know it's supply only.

(B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price

Population size not changing means demand remain constant; so now only supply can affect the price. Hence looks good.

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase

demand is decreasing, supply is constant. it will affect price but "must" is an issue here, instead if there is no demand price would decrease.

(D) the market price of a commodity is inversely related to the size of the population

that means price is inversely proportional to demand. price is factor of demand and supply so we can't say this.

(E) whatever changes in supply occur, there will be compensating changes in consumer demand

This is out of scope. because demand will compensate supply or not we don't know.

rd1009 · Answer

In an isolated economy, the only two factors that can directly affect the market price of a commodity are changes in its supply and changes in consumer demand. In such an economy, the total consumer demand is directly proportional to the population size.

If the statements above are true, then it is also true that in this isolated economy:

(A) any increase in the market price of a commodity is the result of a decrease in its supply
 other factor ie, changes in consumer demand may act in a contradicting way -- not covered in the option

(B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price
 correct deduction regarding decrease in market price with the increase in supply ( Note : - since constant population size means constant consumer demand)

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase
 'other tings being equal' is too vague a phrase to align with prediction regarding the supply of the commodity

(D) the market price of a commodity is inversely related to the size of the population
 an overreaching inference -- can't be inferred

(E) whatever changes in supply occur, there will be compensating changes in consumer demand
 changes in consumer demand and changes in supply are independent factors impacting the market price

(B) is the answer

missionmba2025 · Answer

(A)  any increase  in the market price of a commodity is the result of a decrease in its supply

We can't conclude that 'any increase' is as a result of decrease in supply. The premise outlines two factors that control market price.

(B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price

As population size remains constant, there is no fluctuations in the demand. Hence, the only factor that can affect market price is supply. So this can be true.

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase

We can't infer this. Eliminate.

(D) the market price of a commodity is inversely related to the size of the population

We can't infer this. The passage doesn't provide any details if the correlation is positive or negative. Eliminate.

(E) whatever changes in supply occur, there will be compensating changes in consumer demand

No such information is present in the passage.

IMO B

DG1989 · Answer

In an isolated economy, the only two factors that can directly affect the market price of a commodity are changes in its supply and changes in consumer demand. In such an economy, the total consumer demand is directly proportional to the population size.

If the statements above are true, then it is also true that in this isolated economy:

(A) any increase in the market price of a commodity is the result of a decrease in its supply
  Explanation:   This isn't necessarily true. While a decrease in supply can lead to a price increase, it's not the only possibility. An increase in consumer demand can also cause a price hike.   INCORRECT

(B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price
  Explanation:   This choice is likely true. If the population (and therefore total demand) remains constant, an increase in supply will exceed existing demand, putting downward pressure on the price.   CORRECT

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase
  Explanation:   Even though this option talks about keeping other factors equal, a decrease in population size means decrease in demand which will reduce the price of the commodities and not increase it.   INCORRECT

(D) the market price of a commodity is inversely related to the size of the population
  Explanation:   This is not inherently true. While the total demand in this economy is directly proportional to the population, some commodities with niche demand might not always exhibit this trend.   INCORRECT

(E) whatever changes in supply occur, there will be compensating changes in consumer demand
  Explanation:   This isn't guaranteed. While price adjustments may eventually lead to adjustments in demand, it's not automatic or immediate.   INCORRECT

Option B   is the right answer.

sanjitscorps18 · Answer

(A) any increase in the market price of a commodity is the result of a decrease in its supply
-- this is not the only factor

(B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price
 -- this is plausible

(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase
-- this would be inverse of what is mentioned in the argument

(D) the market price of a commodity is inversely related to the size of the population
-- this also depends on the supply factors too

(E) whatever changes in supply occur, there will be compensating changes in consumer demand
-- this cannot be inferred from the argument

Option B

Lalykys · Answer

(A) any increase in the market price of a commodity is the result of a decrease in its supply

This is not necessarily true. An increase in the market price could be caused by an increase in demand or a decrease in supply.
(B) if the population size remains constant, an increase in the supply of a commodity will lead to a decrease in its market price

This is consistent with the information given. If the population size is constant, an increase in supply could lead to a decrease in market price due to an excess in supply.
(C) if there is a decrease in the population size, then, other things being equal, the market price of commodities must increase

This is not necessarily true. The total consumer demand is directly proportional to the population size, but changes in supply could offset changes in demand.
(D) the market price of a commodity is inversely related to the size of the population

This is not supported by the given information. The total consumer demand is directly proportional to the population size.
(E) whatever changes in supply occur, there will be compensating changes in consumer demand

This is not necessarily true. The given information does not imply that changes in supply will always be compensated by changes in consumer demand.

rish_dutton · Answer

So this question assumes the traditional relationship between the supply and demand curves. That is not common knowledge.. At least not upto GMAT standards. Poor question.

12 Days of Christmas GMAT Competition - Day 10: In an isolated economy

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12 Days of Christmas GMAT Competition - Day 10: In an isolated economy

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