Question: The cotton farms of Country Q became so productive that the market could not absorb all that they produced. Consequently, cotton prices fell. The government tried to boost cotton prices by offering farmers who took 25 percent of their cotton acreage out of production direct support payments up to a specified maximum per farm.
The government's program, if successful, will not be a net burden on the budget. Which of the following, if true, is the basis for an explanation how this could be so?
(A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits.
(B) Cotton production in several countries other than Q declined slightly the year that support-payment program went into effect in Q.
(C) The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level in the base year for the program.
(D) The specified maximum per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms.
(E) Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop
The cotton farms of Country Q became so productive that the market could not absorb all that they produced. - is a GMAT Critical question. This particular GMAT Critical Reasoning topic has been taken from ‘The Official Guide for GMAT Verbal Review 2015’. GMAT critical reasoning questions is examining how well a candidate can analyze the argument, find its flaws, and develop a plan of action. In GMAT critical reasoning an assumption is an implied hypothesis. So we are looking for something that is implied in the argument. In case it is wrong or maybe disable the argument. The GMAT CR section contains 10 -13 GMAT critical reasoning questions out of 36 GMAT verbal questions.
Answer: A
Explanation: In this GMAT critical reasoning question, we need to find out the correct answer as per the explanation in the passage. GMAT CR checks how well a candidate can analyze the argument, find its flaws, and develop a plan of action. Let’s look at the conclusion and choose the one that fits the best.
The conclusion states that if the government's program is successful, it will not be a net burden on the budget. Let's review what we have so far.
We can also understand that the only way the government will NOT lose money is if the plan also somehow increases the government's revenue. The plan will NOT be a net burden, if the revenue is as much as the increased costs.
So, we can see that the conclusion states that the plan will not be a net burden. We will look for something that could explain why the revenue increased, if the plan succeeds:
(A) Depressed cotton prices meant operating losses for cotton farms, and the government lost revenue from taxes on farm profits. - The option states that depressed cotton prices means loss for the farmers. This means that with low cotton prices, the government's revenue from taxes of the products is also reduced. However, if the prices go up, the government's revenue will also go up since taxes will go up. Hence, the plan might increase the government's costs, but it will also increase its revenue. Hence, this is the correct option.
(B) Cotton production in several countries other than Q declined slightly the year that support-payment program went into effect in Q. - This option proves that the plan will have limited success in the first year. However, we are not looking for this in our conclusion. Hence, this is incorrect.
(C) The first year that the support-payment program was in effect, cotton acreage in Q was 5% below its level in the base year for the program.- We are looking for an explanation which states that if the plan succeeds, how the government will avoid loss. This option tells us that the plan had some success during the first year. Hence, this is also incorrect.
(D) The specified maximum per farm meant that for very large cotton farms the support payments were less per acre for those acres that were withdrawn from production than they were for smaller farms. - The option states that smaller farms might have more incentive to accept the payments. It might reduce their cotton acreage than larger farmers. This option explains why smaller farms can reduce their cotton acreage. This is also incorrect.
(E) Farmers who wished to qualify for support payments could not use the cotton acreage that was withdrawn from production to grow any other crop - This option explains why the plan might fail. However, this is not what we tried to explain, making it incorrect.
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