Due to a sharp rise in the price of gasoline, commuters who

Question

Due to a sharp rise in the price of gasoline, commuters who drive to work in the center of the city are facing a large increase in transportation expenses that will limit the funds they have available to spend in other areas. In order to forestall a slowdown in the local economy, the city council has decided that fares on all forms of public transportation will be suspended for the next three months. Clearly, if commuters can get to work more cheaply, they will have more money left over to spend in other sectors of the economy, and the city’s finances on the whole will not be negatively affected by higher gasoline prices.

If all of the statements above are true, which of the following is most likely to be damaged by the city council’s plan?

A. A local chain of service stations, which will see fewer customers during the daily commute.
B. Members of the bus drivers’ union, who will be forced to add more routes and work longer hours.
C. The city council’s budget, which will be unbalanced after receiving no revenue from transit fares for three months.
D. Commuters who already use public transportation daily and who will face crowded conditions and travel delays.
E. Commuters who do not live near public transportation routes and will not be able to take advantage of the suspended fares.

ykaiim · Answer

Question is asking which can most likely to be damaged by the plan:
1. City economy treasury
2. Auto business outfits such as car acessories stores, gas stations, auto services stations/garage
3. Paid/salaried drivers for private auto

Argument says - NO FARES for 3 months. So, I will look for case (1) in the following choices.

dalmba · Answer

A. It's the most objective answer there in more ways than one. The rest are irrelevant or based on a lot of subjective reasoning. My reasoning:

dalmba · Answer

I never said "completely!"

I'm hesitant in C because we know zippo about the budget. Nothing at all except the lack of transit fare revenue. We don't know how leveraged the city is, where it's investments lie, what its industry ties are. The city could have been running a huge surplus for years and can easily absorb the "damage"

But for A, we know that these are local service stations. We know that service stations make all their money from gas sales (pretty much all peripheral sales are made from people also buying gas). Sure, there will be some people who drive anyway... the cost of using public transportation (inconvenience, smelly, whatever) outweighs the high price of gas. Fine for them. But it is not much of a leap to assume that there will be a large chunk of people who do decide to leave the car at home. It is not a leap to assume the local service stations will lose business.

Yes, the fare revenue is tied to the city budget. But gasoline sales are tied to the overall sustainability of a service station in a critical way. I'm sure the city won't go bankrupt from the temporary revenue drop. I'm not so sure about the service stations who might not be able to weather the drought as well as their national competitors.

dalmba · Answer

But the question asks you to state what you think is "most likely" to be damaged. So you sort of have to project scenarios in order to assess the probability. All things told, in my mind the gas sellers will suffer more than a city when demand for gas drops.

I really don't this is a valid thing to assume at all - we don't know enough about the city. However it is perfectly reasonable to assume that the gasoline sales are related to the success of the service stations in a very critical way - we know enough about what a service station does. That juncture is a major deciding factor for me. Yeah, it's an assumption, but a solid one. Without some sort of projection into the unknown you could call the ambiguity card on all the answers. To me, A has the least amount of ambiguity in that the damage will be most prominent.

I don't think your three scenarios for the gas station have equal probability at all. (1) is almost a 0 probability (obviously they wont lose ALL business), and we can quibble over the spread between (2) and (3) though I don't see how it is possible that the city's move wont affect them at all.

As for the city, remember what the overarching goal is? To stave off the microrecession it anticipates if the gas price issue is not dealt with. So they're literally doing what they are doing in order to try and IMPROVE or at least stabilize local business overall. Since the question tells us that we can assume everything in the opener is true, it's actually quite likely that the sacrifice in transport revenues will be made up for in terms of a better overall economy!

Sometimes it's good to take a more objective approach like you're suggesting, and try to find the answer that has the least amount of ambiguity. But in this case I don't think that's necessary since enough stated and implied and inferable facts exist to make the case that direct sellers of gas will be the most affected (aka damaged).

But I have been grossly wrong before, and I suppose the OA will settle it. Watch it be D or something :wink:

dalmba · Answer

Another, more analytic way to approach it could go like this:

(also I've reread the question, and it DOES NOT say that we can assume anything in the opener is true, but it does say ASSUME ALL THE STATEMENTS are true. This is interesting since it means the bus union folks WILL be adding routes and the commuter delays WILL happen and the budget WILL be unbalanced and the gas stations WILL lose customers - basically my first post here has to go in the garbage.. but I still think it comes down to A, C and maybe D... ).

So we're debating on who gets a rougher deal, local gas shops or the city (and now again the bus people and the commuters).

We do not have either entity's financial statements so we must create checklists of what we do know about them an how they operate business:

City:
 
- Fact: It's big enough to need a transportation system.
- Assumption: It probably runs its finances like any other largish city. That is to say it has a diversified portfolio and stakes in many other businesses, government loans/bonds, bank notes, etc.
- Assumption: The city has the financial flexibility to be able to forgo transport fee revenue for three months. Otherwise, they wouldn't be able to do it. 
- Fact: It will "damage" them in terms of the council budget balance. 
- Likely Consequences: budgets become unbalanced all the time, especially with large entities like cities. but overall, what's going to happen to the city council? Are the members going to go hungry? Lose their jobs? Over a deficit? From a movement aimed at helping the economy (and environment too, if you think about it)? I really doubt there will be any lasting or even noticeable "damage" done. They're too diversified, and any city that relies on transport fees as a significant source of revenue (as opposed to say, property tax...) is a city doomed to failure anyway.

Service Stations

- Fact: They're a local chain, so they have no national reserves or back up
- Fact: The MAIN driver of revenue, and the largest one is gas sales.
- Fact: Gas prices are abnormally high
- Fact: Service stations are price takers. Typically one service station cannot charge so much as a tenth of a cent more than a proximate competitor without losing a serious amount of business.
- Assumption: Taking the last two facts together, we can assume that gas prices are not high because services stations are jerks. Obviously their costs have gone up dramatically as well. If they didn't raise the price they'd be losing money.
- Fact: They will see fewer customers during the daily commute.
- Fact: This is going to directly impact their bottom line. Less gas is being sold. Most revenue comes from selling gas (close to all of it, probably)
- Assumptions: They might fail to make enough money to cover the rising costs. 
- Likely Consequences: They might have to shut down for the three months if the national gas station chains are able to offer a price 3 tenths of a cent less because of their nationalized infrastructure, or just because it's cheaper to be closed than to be open. These are palpable dangers. The likelihood is unknown, but it is not zero. The likelihood of the city shutting down is very close to zero.

I think we have ignore absolute measurements of financial impact and focus on relative ones, because the city can probably take a millions dollar hit, but John's pizza shop down the road goes under if he loses $20,000 in a year. Obviously the millions was more absolute money but John suffered more damage, relatively.

In light of my rereading the question I have to reconsider my reasoning for B and D's rejections .

B: It might be stressful for the bus folks to work longer and make new routes, but they are unionized so you know they are getting compensated for it. No real damage there.

D: Collectively, the social/physical/emotional stress of the delays and crowding is very real. But it's not really possible to assess damage. It's not like it's a unheard of situation for humans to be in. The commuters will adapt. Maybe a store clerk gets fired for being late. I still think a chain of gas stations facing a serious threat to cash flow is more evident of damage.

Egads. Post the OA already would ya? Heh.

dalmba · Answer

Welp, I stand corrected (multiple times)!

After going over all the reasons you guys gave for the right answer, I still can't convince myself of it. So I'll have to try and go back and poke holes in my own reasoning.

The simplest way of looking at it I guess is that we can't measure the gas stations' loss of business but we can be sure that the city council budget will be off balance (says so right in the statement). And if you stop there it seems fine. But what I can't get over is that point of absolute vs relative damage, namely: how do you justify that the unbalancing is more damaging that even a 1% decline in business to the service stations? You can't, so you have to make a judgement call. OA and you guys see it being C, and I'd love a really good breakdown of why it isn't A.

Cheers!

waffle808 · Answer

I chose A at first, but searched on here and it seems to be OA is (C) .

I think what I got hung up on was

...and the city’s finances on the whole will not be negatively affected by higher gasoline prices

So, the general idea is the city wants people to spend money in the city so the city can collect the $. People cant do this if they are spending all their money on gas.

I glanced over C and said to myself, '' true, the budget wont balance coming from the transit end, but considering that the 'above' statements were true i thought people would spend the difference in the city economy and the city would recoup $ via economic growth in businesses, etc. '' 
 once again i over-analyze CR and pay the price.

hacker · Answer

Due to a sharp rise in the price of gasoline, commuters who drive to work in the center of the city are facing a large increase in transportation expenses that will limit the funds they have available to spend in other areas. In order to forestall a slowdown in the local economy, the city council has decided that fares on all forms of public transportation will be suspended for the next three months. Clearly, if commuters can get to work more cheaply, they will have more money left over to spend in other sectors of the economy, and the city’s finances on the whole will not be negatively affected by higher gasoline prices.

The argument is "city’s finances on the whole will not be negatively affected by higher gasoline prices."

In above argument ..tricky part is 'on the whole'

If all of the statements above are true, which of the following is most likely to be damaged by the city council’s plan?

• A local chain of service stations, which will see fewer customers during the daily commute.- Incorrect nothing to do with the argument.
• Members of the bus drivers’ union, who will be forced to add more routes and work longer hours. - incorrect- same as A
• The city council’s budget, which will be unbalanced after receiving no revenue from transit fares for three months. -  Correct -Due to this plan some citizen might be able to save trasport cost. however , as a whole city's finace i.e. economy will be impacted becauseof loss of revenue from transport • Commuters who already use public transportation daily and who will face crowded conditions and travel delays. - incorrect ..well travel delays and crowded condition will no have impact on city's finance.
• Commuters who do not live near public transportation routes and will not be able to take advantage of the suspended fares.

eybrj2 · Answer

Due to a sharp rise in the price of gasoline, commuters who drive to work in the center of the city are facing a large increase in transportation expenses that will limit the funds they have available to spend in other areas. In order to forestall a slowdown in the local economy, the city council has decided that fares on all forms of public transportation will be suspended for the next three months. Clearly, if commuters can get to work more cheaply, they will have more money left over to spend in other sectors of the economy, and the city’s finances on the whole will not be negatively affected by higher gasoline prices.

If all of the statements above are true, which of the following is most likely to be damaged by the city council’s plan?

a) A local chain of service stations, which will see fewer customers during the daily commute.

b) Members of the bus drivers’ union, who will be forced to add more routes and work longer hours.

c) The city council’s budget, which will be unbalanced after receiving no revenue from transit fares for three months.

d) Commuters who already use public transportation daily and who will face crowded conditions and travel delays.

e) Commuters who do not live near public transportation routes and will not be able to take advantage of the suspended fares.

Why not d? 
I thought more people who used to drive to work use public transportation because of free fare of public transportation, so commuters who already use public transportation will be dameged by crowded condition.

Also, I thought that goverment will receive more tax from increased spending, and the increased tax revenue will supplement the unbalaced budget.

Did I think too much? ;;;;

tuanquang269 · Answer

D is really out of scope because the argument here is focus on status in finance of citizens and the city. Whether public transportation is crowed or not does not affect to the standard of living.

In choice C, you think that the city increase tax, but this increase does not mention in argument. If you think that the citizen will have more savings to spend on other sectors, this does not mean that the tax revenue of the city will increase because the citizens still have the same amount of money REMAINS (approximately) after or before suspending transporation fare. Moreover, the city only stop fare of transportation to the commuter, it will lack of money. So, this event will affect adversely the city's finance

Commonproject · Answer

So as I'm navigating through the Gmatclub questions, I noticed something on certain types of CR. A question like the below would never appear on the actual GMAT, because there is clearly more than 1 correct answer here. On the actual GMAT, even if it says most likely, there should be 1 answer that damages the plan and 4 that do not. Anyone agree?

Due to a sharp rise in the price of gasoline, commuters who drive to work in the center of the city are facing a large increase in transportation expenses that will limit the funds they have available to spend in other areas. In order to forestall a slowdown in the local economy, the city council has decided that fares on all forms of public transportation will be suspended for the next three months. Clearly, if commuters can get to work more cheaply, they will have more money left over to spend in other sectors of the economy, and the city’s finances on the whole will not be negatively affected by higher gasoline prices.

If all of the statements above are true, which of the following is most likely to be damaged by the city council’s plan?

(1) A local chain of service stations, which will see fewer customers during the daily commute.
(2) Members of the bus drivers’ union, who will be forced to add more routes and work longer hours.
(3) The city council’s budget, which will be unbalanced after receiving no revenue from transit fares for three months.
(4) Commuters who already use public transportation daily and who will face crowded conditions and travel delays.
(5) Commuters who do not live near public transportation routes and will not be able to take advantage of the suspended fares.

mikemcgarry · Answer

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

My friend, I will tell you: when I make recommendations to Magoosh students, I tell them that I recommend the math questions on GMAT Club tests. Bunuel is a super-genius, and it appears that he has vetted everything on the mathematics side, so it is all high quality. Unfortunately, I do not recommend the Verbal side. Some of the questions are good. Others are truly abysmal and should be taken out back and shot, such as the one you cite here. I would not recommend relying on the Verbal question in the GMAT Clubs tests to give you a thorough preparation. Once again, you can rely on the math questions, because they are very good. Does this make sense? Mike :-)

sunny91 · Answer

Hi, can you please explain why the OA is C and not A. We know from the premise that the city’s finances on the whole will not be negatively affected by higher gasoline prices.So, how does the city council's budget is effected. he is getting more returns from other sectors and so the budget allocation can be spent wisely.
In A, we clearly have a sector who is getting effected as more commuters will prefer public transport, which is free of charge.

GDT · Answer

VeritasKarishma

I selected D thinking that the plan itself will not work because rather than facing delay they might start using cars

KarishmaB · Answer

Not a typical GMAT CR question. Ignore.

CJCC9WA11 · Answer

here if we dont know anything about their budget how can we say that their budget will be unbalanced ? i am little confused

Akshayyjain · Answer

Correct Answer C.

Which of the following will be most damaged ?

i.e. which of the below scenarios would be weakened or may not be true, if argument states correct facts.

C tells : The city council’s budget, which will be unbalanced after receiving no revenue from transit fares for three months.

NO, it is not so. City council's budget may not be unbalanced as people will spent the saved money (stated in argument) in local economy, which may further come to council in the form of taxes etc.

A, B, D & E are true choices which can definitely happen but C need not.

Again not the perfect answer but best among given.

VerbalBot · Answer

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