According to conventional economic theory, the economic value of a good or service is determined by the extent to which...
GMAT Reading Comprehension : (RC) Questions
According to conventional economic theory, the economic value of a good or service is determined by the extent to which individuals desire the good or service. For goods and services (such as groceries) that are soon "used up," and that are traded in well-functioning markets in which consumers understand the product and its benefits reasonably well, market valuations can readily be calculated. But calculating the economic value of ecological goods (natural resources) and services (such as wetland preservation or global climate control) is more difficult, since they may last indefinitely and are generally not traded in markets (no one owns the air or water). Nor do individuals well understand the personal benefits of natural resources and ecological services. To determine the value of such goods and services, economists ask individuals what they would be willing to pay in a hypothetical market-for example, the maximum fees that they would be willing to pay to use national parks. This approach is problematic not only because of individuals' imperfect understanding of the benefits to themselves but also because of its inability to address possible future changes in people's willingness to pay for ecological goods and services. Moreover, individuals' willingness to pay for natural resources may depend on such factors as whether the expense is borne by all taxpayers or only by those individuals who pay user fees.
The author of the passage would be most likely to agree with which of the following statements about ecological goods and services?
1. Passage Analysis:
Progressive Passage Analysis
| Text from Passage | Analysis |
|---|---|
| According to conventional economic theory, the economic value of a good or service is determined by the extent to which individuals desire the good or service. | What it says: The more people want something, the more valuable it is economically. What it does: Establishes the foundation principle for the entire passage Source/Type: Statement of established economic theory (factual premise) Connection to Previous Sentences: This is our starting point - no previous information to connect to Visualization: • High demand item (iPhone) = High economic value ($1000) • Low demand item (old newspaper) = Low economic value ($0.50) Reading Strategy Insight: This opening sentence gives us the "rule" that the rest of the passage will examine and complicate What We Know So Far: Basic economic principle about value What We Don't Know Yet: How this applies to different types of goods, what problems might arise |
| For goods and services (such as groceries) that are soon "used up," and that are traded in well-functioning markets in which consumers understand the product and its benefits reasonably well, market valuations can readily be calculated. | What it says: For everyday items like food that people buy regularly and understand well, it's easy to figure out their economic value. What it does: Provides the "easy case" where the opening principle works smoothly Source/Type: Author's explanation with concrete example Connection to Previous Sentences: This builds on sentence 1 by showing WHERE the basic principle works well - it's not contradicting, it's giving us a successful application Visualization: • Groceries: People buy weekly, know what they're getting → Easy to price at $3.50 for cereal • Well-functioning market: Clear transactions, informed buyers Reading Strategy Insight: The author is being helpful here - showing us a simple, familiar example before introducing complications What We Know So Far: Basic principle + where it works easily What We Don't Know Yet: Where this principle might have problems |
| But calculating the economic value of ecological goods (natural resources) and services (such as wetland preservation or global climate control) is more difficult, since they may last indefinitely and are generally not traded in markets (no one owns the air or water). | What it says: But for environmental things like protecting wetlands or controlling climate, pricing is much harder because these things last forever and nobody buys/sells them in stores. What it does: Introduces the contrasting "difficult case" that will be the focus of the passage Source/Type: Author's analysis of a problem Connection to Previous Sentences: This contrasts directly with sentence 2 - we're moving from the "easy case" (groceries) to the "hard case" (environment) • Sentence 2: Easy to calculate (groceries) • Sentence 3: Difficult to calculate (environmental goods) Visualization: Easy Case: Groceries → $3.50 for cereal (clear market price) Hard Case: Clean air → $??? (no store sells it, lasts forever) Reading Strategy Insight: The "But" signals we're getting to the main challenge the passage will explore What We Know So Far: Basic principle + easy application + difficult application What We Don't Know Yet: How economists try to solve this difficulty |
| Nor do individuals well understand the personal benefits of natural resources and ecological services. | What it says: Also, people don't really understand how environmental things benefit them personally. What it does: Adds a second reason why environmental valuation is difficult Source/Type: Author's continued analysis of the problem Connection to Previous Sentences: This builds on sentence 3 - giving us another layer of why environmental goods are hard to value • Sentence 3: Hard because no markets exist • Sentence 4: Hard because people don't understand benefits Visualization: Groceries: "I know cereal gives me breakfast" → Easy to value Wetlands: "Wetlands do... something good?" → Hard to value Reading Strategy Insight: Feel confident here - this is just adding to the same point about difficulty, not introducing a new complex concept What We Know So Far: Basic principle + easy case + hard case with two specific problems What We Don't Know Yet: How economists attempt to solve this |
| To determine the value of such goods and services, economists ask individuals what they would be willing to pay in a hypothetical market-for example, the maximum fees that they would be willing to pay to use national parks. | What it says: So economists try to solve this by asking people "How much would you pay for this if there were a market?" like "What's the most you'd pay to visit a national park?" What it does: Introduces the economists' attempted solution to the problems just described Source/Type: Description of economists' methodology Connection to Previous Sentences: This directly responds to the problems outlined in sentences 3-4 • Sentences 3-4: Here's why it's difficult • Sentence 5: Here's how economists try to solve it Visualization: Problem: No market for clean air Economist's Solution: Survey → "How much would you pay for clean air if there were a store?" National Park Example: "Maximum you'd pay for park access = $50" Reading Strategy Insight: This is the logical next step - after explaining problems, we get the attempted solution What We Know So Far: Problem + attempted solution with concrete example What We Don't Know Yet: Whether this solution works well or has its own problems |
| This approach is problematic not only because of individuals' imperfect understanding of the benefits to themselves but also because of its inability to address possible future changes in people's willingness to pay for ecological goods and services. | What it says: This solution has problems though - people still don't understand the benefits (problem we already knew) AND people's willingness to pay might change in the future. What it does: Critiques the economists' solution by pointing out its flaws Source/Type: Author's critical analysis Connection to Previous Sentences: This critiques sentence 5's proposed solution • Sentence 5: Here's how economists try to solve it • Sentence 6: But that solution has these problems • Notice: "imperfect understanding" restates the problem from sentence 4 Visualization: Today's Survey: "I'd pay $50 for park access" Future Reality: Climate change makes parks more valuable → Should be $200 Problem: Survey can't predict this change Reading Strategy Insight: Feel relieved - "imperfect understanding" is just restating sentence 4, plus one new issue about future changes What We Know So Far: Problem + attempted solution + why that solution fails What We Don't Know Yet: Are there additional problems with the solution? |
| Moreover, individuals' willingness to pay for natural resources may depend on such factors as whether the expense is borne by all taxpayers or only by those individuals who pay user fees. | What it says: Also, people's answers about willingness to pay change depending on who's actually paying - everyone through taxes vs. just the users paying fees. What it does: Adds one final criticism of the economists' survey approach Source/Type: Author's continued critical analysis Connection to Previous Sentences: This continues sentence 6's critique - it's a third problem with the survey solution • Sentence 6: Problem 1 (understanding) + Problem 2 (future changes) • Sentence 7: Problem 3 (who pays affects willingness) Visualization: Survey Question: "How much for park access?" Response A: "$50" (if I'm paying directly) Response B: "$200" (if everyone pays through taxes) Problem: Same person, different answers depending on payment method Reading Strategy Insight: This completes the author's argument - we now have a full critique of the economists' approach What We Know So Far: Complete argument about why environmental valuation is difficult and why current solutions are inadequate |
2. Passage Summary:
Author's Purpose:
To explain why it's difficult to determine the economic value of environmental goods and services, and to show that current methods economists use to solve this problem are flawed.
Summary of Passage Structure:
The author builds their argument by contrasting easy and difficult cases of economic valuation:
- First, the author establishes the basic rule of economics - that value comes from how much people want something.
- Next, they show where this rule works easily - with everyday items like groceries that people buy and understand well.
- Then, they contrast this with environmental goods like clean air and wetlands, explaining why these are much harder to value - no one buys or sells them, and people don't understand their benefits.
- Finally, they describe how economists try to solve this problem by asking people what they would pay in surveys, but then point out three major flaws with this approach.
Main Point:
The current method that economists use to value environmental goods - asking people what they would be willing to pay - doesn't work well because people don't understand the benefits, their opinions might change over time, and their answers depend on who they think will actually pay the bill.
3. Question Analysis:
The question asks us to identify which statement about ecological goods and services the author would most likely agree with. This requires us to understand the author's perspective on environmental valuation and find the answer choice that best aligns with the specific points made in the passage.
Connecting to Our Passage Analysis:
Our passage analysis reveals several key insights about the author's views on ecological goods and services:
- The author establishes that ecological goods are fundamentally different from regular market goods because they "may last indefinitely and are generally not traded in markets"
- The author identifies that "individuals well understand the personal benefits of natural resources and ecological services" is a major problem
- The author critiques economists' survey approach, pointing out three specific flaws with asking people about willingness to pay
- Most importantly, the final sentence reveals that "individuals' willingness to pay for natural resources may depend on such factors as whether the expense is borne by all taxpayers or only by those individuals who pay user fees"
Prethinking:
Based on our passage analysis, the author's main argument is that current methods for valuing ecological goods are problematic. The author specifically emphasizes that people's willingness to pay changes based on the payment structure (taxes vs. user fees). This suggests the correct answer should relate to how cost distribution affects valuation. The author doesn't suggest any method works well, so answers claiming certain approaches are "best" would be wrong. The author also doesn't claim the main obstacle is any single factor, but rather identifies multiple problems with current approaches.