Suriland cannot both export wheat and keep bread plentiful and afforda

Official Explanation

Argument Evaluation

To keep bread affordable in Suriland, the country's government requires that wheat farmers in the country sell their wheat to the government for one dollar per bushel less than the world market price.

This question requires us to identify a statement that seriously weakens the argument. The conclusion of the argument is that, if these wheat farmers could legally sell their wheat on the world market, they would make a dollar per bushel more, minus additional transportation and brokerage costs.

However, this argument assumes that the world market price for wheat is fixed and would not be affected by introducing Suriland's wheat supply. That is, it is possible that the world market price per bushel for wheat might decline as a result of an increase in the wheat supply available on that market. If this were the case, it would severely weaken the argument.

A. This choice is outside the scope of the argument: the argument is about Suriland's wheat farmers increasing how much money that can receive per bushel, not about how these farmers' costs compare to the costs of farmers in other countries. In any case, this claim does not indicate that Suriland's wheat farmers could make a dollar more, minus any additional transportation and brokerage costs, than they do now.

B. Correct. An increase in supply on the world market with no increased demand could easily depress the price of wheat on the market. It is still possible that Suriland's farmers would make more than they do now, even after subtracting additional transportation and brokerage costs. But the argument specifically says that the farmers would make a dollar more, minus those costs, and that does not follow if the claim made in this answer choice is true.

C. Note that the argument suggests that these farmers would make a dollar per bushel more, less any additional transportation and brokerage costs they would have to pay. That could still be true no matter what those costs are.

D. Whether Suriland's wheat is sold to near or distant countries is immaterial to the argument; note that the conclusion includes the qualification less any additional transportation costs.

E. This indicates that Suriland wheat farmers might sometimes lose money on their wheat if selling on the world market. This does not indicate, however, that they would not lose less on the world wheat market than they would selling to the government. Note that the government's price for wheat is pegged to the world market, so the price the world market offers and the price the government offers will always differ by the exact same amount: the government pays one dollar less.

The correct answer is B.

Dear
VeritasKarishma
i think this answer is flawed.
Suppose wheat price in world market 1.1 dollar
farmers selling to Govt is 0.1 dollar
If farmers sold all wheat they may get 1.1 dollar
as per Ans B-
If all wheat is sold outside the price may go down to 1.09 dollar or 1.08 dollar or anything , but still the farmers can make profit.
so how we can conclude that seeling all wheat will lower the price to such an extent that it will be nonprofitable.
Please explain ...

Conclusion: if the farmers could sell their wheat on the world market, they would make ($1 - Transportation) extra.

If the wheat price outside depresses, they will not make ($1 - Transportation) extra. They may make ($0.9 - Transportation) extra or ($0.8 - Transportation) extra and so on ...
And this weakens the conclusion. The conclusion does not say that the farmers will make something extra. It says they will make (($1 - Transportation) extra. If we can say that the farmers may make only ($0.9 - Transportation) extra, that weakens the conclusion.

Suriland cannot both export wheat and keep bread plentiful and affordable in Suriland. - Suriland has to compromise on one of two fronts. If the country exports wheat, bread would no longer remain abundant and affordable locally. If it keeps enough bread for local consumption, the country would not be able to export wheat.

Accordingly, Suriland’s wheat farmers are required to sell their crop to the government, which pays them a dollar per bushel less than the price on the world market. - Farmers are required to sell wheat to the government – and that too at a price cheaper than the price on the world market. The word ‘accordingly’ indicates this requirement is due to the constraint mentioned in the first statement.

Therefore, if the farmers could sell their wheat on the world market, they would make a dollar per bushel more, less any additional transportation and brokerage costs they would have to pay. - If the farmers were not bound to sell to the government, they would make one dollar more per bushel (less the additional costs).

Gist: The government requires farmers to sell wheat to it at $1/ bushel less than the world market price (support), If the farmers could sell on the world market, they would make $1/ bushel more than they currently do, less the additional costs (conclusion).


The argument assumes that if the farmers could sell on the world market, they would. There are a few underlying assumptions here:

1. Of their government and the world market, the farmers will sell to whoever pays them a higher price.
2. The selling price of wheat on the world market will remain higher than the price at which the government buys from the farmers.
3. The additional costs will not go beyond the additional revenue they’d generate on the world market.

Taking some of the assumptions one step further:

• What if the farmers, in the best interest of their country, wish to continue selling to the government?
• What if the additional costs per bushel were higher than a dollar, disincentivizing the farmers from selling on the world market?

The usual caveat: there could be other assumptions and other ways to attack the assumptions.


(A) Suriland's wheat farmers have higher production costs than do farmers in many other wheat-producing countries.
Incorrect. The argument deals with whether the farmers would make the additional dollar (less costs) per bushel if they were allowed to sell on the world market. How these farmers’ production costs compare with farmers from other countries has no bearing on the argument.

(B) Sale of a substantial proportion of Suriland's wheat crop on the world market would probably depress the price of wheat.
Correct. In the hypothetical scenario, if farmers sold a substantial proportion of wheat crop on the world market, wheat’s price would likely decrease. If wheat’s price did decrease, farmers would no longer make $1/ bushel more (less additional costs) than what they made when their government was paying them on exporting wheat. They’d earn according to the new, reduced price of wheat.

(C) The transportation and brokerage costs that Suriland's farmers would face if they sold their wheat outside Suriland could amount to almost a dollar per bushel.
Incorrect. The costs ‘could’ amount to ‘almost a dollar’ → the additional costs would still remain less than a dollar. So, the farmers would still make a higher revenue on selling the wheat on the world market. While, the closer the costs are to one dollar, the lower the incentive of farmers to go to the world market, as long as the farmers still make more money, they would have the added incentive to sell outside.

(D) Suriland is surrounded by countries that do not import any wheat.
Incorrect. What are the transportation costs associated with exporting to countries that do import wheat from Suriland? Do none of the countries around Suriland import wheat? Just ‘cause Suriland is surrounded by countries that do not import any wheat, doesn’t necessarily mean that all surrounding countries do not import any wheat. (I am surrounded by geniuses doesn’t imply everyone surrounding me is a genius.) Moreover, do none of the not-so-near countries import wheat? Doesn’t seem so, given the argument. Thus, while this piece of information might indicate that the additional transportation costs would not be miniscule, the option at best just mildly weakens the argument.

(E) The price of a bushel of wheat on the world market occasionally drops below the average cost of producing a bushel of wheat in Suriland.
Incorrect. How the price on the world market compares with the cost of production is irrelevant. The government pays $1 less than the world market price. So, if the farmers could sell on the world market, they still would – after all, they’d at least make a smaller loss selling on the world market than they would selling to their government.


If you have any doubts regarding any part of this solution, please feel free to ask.

Can't we say that in option A- if the production cost is higher than the production cost in other parts, so in the wheat market,the farmers would not get the desired price and the govt. is already buying on more than the price on world market.

Regards,
Gaurav

GMATNinja, could you please help with answer choice E? I do understand that it is somehow weaker than answer choice B, but still can't fully accept it.

Thank you.

The unfortunate fact for wheat farmers in Suriland is that the government always pays a dollar below the world market price. If the world price dips down, then the government price dips down $1 lower.

So, even if (E) were true, the farmers would make more money (or at least lose less money) on the world market than by selling wheat to the government.

(E) doesn't weaken the argument that the farmers would make a dollar more on the world market, so we can eliminate (E).

I hope that helps!­

Hi Gaurav,

Let's say the price per wheat bushel on the world market is $X.

So, if farmers from any place sell their wheat on the world market, they will get $X/bushel.

Government in Suriland is buying it at $(X-1).

Irrespective of the production cost, Suriland's wheat farmers will get a dollar more/bushel if they sell their wheat on the world market.




Hope that helps,
Regards

Hello Expert,

In option B, the language says that "Sale of a substantial proportion of Suriland's wheat crop on the world market would probably depress the price of wheat." If we see only the market as a stand-alone entity, then yes, this statement will be diminishing the profit percentage of the farmer over what is being said in the statement. However, we are comparing the price farmer will be getting from the world market as opposed to the government. In this case, as we do not know what will be the price government will be issuing to buy off the crop, we cannot compare if the farmer will be getting $1 minus the transportation or not. Said that, if the government is paying a dollar less right now, the government may as well as pay a dollar less in respect to the market price, whatever it may be. In this case, our reasoning falls apart.

However, if we consider option C, which clearly states that although the world market is paying a dollar extra in absolute cost, the overheads match the net profit of the farmers to what the government is paying; farmers would have no reason to go and sell the crop in the world market. This is assuming that the inferred conclusion of the passage is infact that the farmers are willing to export to gain higher profit.

I am very confused as to the right reasoning to mark the answer correctly, and because it is an official GMAT question, I cannot regard this as poor question stem too. Can you please help clarify the same.

VeritasKarishma
GMATNinja
GMATNinjaTwo

The conclusion says that if the farmers sell outside in the world, they would make a dollar - expenses more.

Option (C)
Saying that expenses could come up to be almost to a dollar doesn't weaken it. If expenses are $0.9, the farmers will make $0.1 extra. If expenses are $0.95, farmers will make $0.05 extra. The conclusion stays as is.

Option (B)
But what if selling outside reduces the extra dollar that is the difference in the price? Then the extra amount may not be 1 - Expenses.
There is no reason to believe that the Govt. would change their price. The option doesn't indicate anything about that.

Hi VeritasKarishma,

Thank you for your explanation. However, I am still confused with the reasoning. We have a premise that selling price to the government always $1 less than world price, and so even when the world price drops because of overwhelming supply, world price is always $1 higher than local price. Hence, farmers still get ($1 - additional expense) more if they sell to world market than if they sell to the government. and the conclusion still stands.

Would you please help to clarify this? Thank you.

We are not given that the Govt will always give 1$ less than the world price at that time.

What we know is that currently, say the Govt gives $10 per bushel while in the world market we get $11 per bushel.
If the farmers start selling outside, the extra supply in the world market may bring down the price of wheat. So outside, we may start getting $10 per bushel.
In fact, if the supply to the Govt reduces, the Govt may start paying more for wheat, we don't know.

Hi VeritasKarishma,

I also think that the reason above is more reasonable. But OG confuses me with its official explanation in option E.

"Note that the government's price for wheat is pegged to the world market, so the price the world market offers and the price the government offers will always differ by the exact same amount: the government pays one dollar less."

Is this an error from GMAC? LoL

Cheers,

Compared with the kind of thought that is put into making the official questions, the explanations fall short by a big margin. It's alright to ignore the official explanations. Derive your own logic from what is reasonable.

Therefore, if the farmers could sell their wheat on the world market, they would make a dollar per bushel more, " less any additional transportation and brokerage costs they would have to pay".
does the above statement mean, we need to eliminate the transportation and other costs while calculating whether the farmers make an additional $1?
Also, is it the same reason why option C is wrong?

The portion of the passage that you mention qualifies (or adds reservations to) the conclusion. In other words, it indicates that Suriland’s wheat farmers would make a dollar per bushel more minus the transportation/brokerage costs. So, if those costs added up to 25 cents per bushel, then Suriland’s wheat farmers would make 75 cents (1 dollar — 25 cents) more per bushel.

This statement is why (C) is wrong. The conclusion has already considered that Suriland’s farmers won’t quite make $1 more because they’ll have to pay transportation/brokerage costs. So, we can eliminate (C).

I hope that helps!

VeritasKarishma GMATNinja

For
(B) Sale of a substantial proportion of Suriland's wheat crop on the world market would probably depress the price of wheat.
...
doesn't this answer choice depend on the assumption that the government's purchasing of wheat is fixed? Else, despite the world's prices decreasing, the government will always pay 1$ less? Thus, this will strengthen the argument?

Isn't this assumption a stretch? Or am I missing something here?