In an effort to lower the average price over the long term for electricity generated from wind turbines, the national...

GMAT Critical Reasoning : (CR) Questions

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Critical Reasoning

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In an effort to lower the average price over the long term for electricity generated from wind turbines, the national government of Mongrove plans to offer large, temporary tax reductions to companies that sell wind-generated electricity, which will allow those companies to lower prices to competitive levels and thus increase the amount of wind-generated electricity they sell. An economist argues that this approach will not yield the desired long-term result. She claims that the tax reductions will keep prices for wind-generated electricity artificially low, and thus that prices will return to their previous levels as soon as the taxes do.

Which of the following information would be most valuable to know in evaluating the economist's argument?

Whether enough wind turbines could be installed during the period covered by the tax reduction to satisfy the demand for wind-generated electricity in Mongrove

Whether there is currently an effective marketing campaign in Mongrove for wind-generated electricity

How the price of wind-generated electricity in Mongrove is affected by the amount of it produced there

How many Mongrovian customers currently pay for wind-generated electricity even though it costs more than other forms of electricity

Whether other energy industries in Mongrove received similar tax breaks in the past

Solution

Passage Analysis:

Text from Passage	Analysis
In an effort to lower the average price over the long term for electricity generated from wind turbines, the national government of Mongrove plans to offer large, temporary tax reductions to companies that sell wind-generated electricity	What it says: Mongrove's government wants to cut wind electricity prices long-term by giving temporary tax breaks to wind companies What it does: Sets up the government's plan and goal What it is: Government policy proposal Visualization: Current wind electricity: $\$120/\mathrm{unit}$ → With tax breaks: $\$80/\mathrm{unit}$ (competitive level)
which will allow those companies to lower prices to competitive levels and thus increase the amount of wind-generated electricity they sell	What it says: Tax breaks help companies cut prices to compete better and sell more wind electricity What it does: Explains how the government's plan is supposed to work What it is: Government's reasoning for the policy Visualization: Lower prices ($\$80/\mathrm{unit}$) → More sales (from $1000$ units to $2500$ units sold)
An economist argues that this approach will not yield the desired long-term result	What it says: An economist disagrees - she thinks the plan won't work for the long term What it does: Introduces opposition to the government's plan What it is: Economist's counter-claim
She claims that the tax reductions will keep prices for wind-generated electricity artificially low	What it says: The economist thinks tax breaks create fake low prices, not real competitive prices What it does: Starts explaining why the economist thinks the plan will fail What it is: First part of economist's reasoning
and thus that prices will return to their previous levels as soon as the taxes do	What it says: Once tax breaks end, prices will jump back up to where they started What it does: Completes the economist's argument about why the plan won't work long-term What it is: Economist's prediction/conclusion Visualization: Tax period ends → Prices jump back: $\$80/\mathrm{unit}$ → $\$120/\mathrm{unit}$ (original high prices)

Argument Flow:

We start with the government's plan and reasoning, then get the economist's disagreement and her counter-reasoning. The flow moves from proposal to opposition.

Main Conclusion:

The economist's conclusion is that Mongrove's tax reduction approach won't achieve long-term lower wind electricity prices.

Logical Structure:

The economist uses a cause-and-effect argument: tax reductions create artificial price drops (not real competitiveness), so when taxes return, prices will bounce back to original high levels, defeating the long-term goal.

Prethinking:

Question type:

Evaluate - We need to find information that would help us determine whether the economist's argument is strong or weak. The economist claims that temporary tax breaks won't create lasting price reductions because prices will bounce back to original levels once the tax incentives end.

Precision of Claims

The economist makes a specific claim about timing and causation - that prices will return to 'previous levels' as soon as taxes return to normal levels. This is a precise prediction about what happens when the temporary policy ends.

Strategy

For evaluate questions, we need to think of key assumptions the economist is making and create scenarios that would either validate or invalidate her prediction. We should focus on what could make wind electricity prices stay low permanently versus what would cause them to snap back up after tax breaks end.

Answer Choices Explained

Whether enough wind turbines could be installed during the period covered by the tax reduction to satisfy the demand for wind-generated electricity in Mongrove

This focuses on supply capacity during the tax period, but doesn't help us evaluate whether prices will return to previous levels afterward. The economist's argument is about what happens when tax breaks end, not about meeting demand during the tax period. This information doesn't address the core question of long-term pricing sustainability.

Whether there is currently an effective marketing campaign in Mongrove for wind-generated electricity

Marketing effectiveness doesn't relate to the economist's argument about pricing dynamics after tax incentives end. The economist's claim is specifically about cost structures and artificial price support, not about consumer awareness or marketing success. This information is irrelevant to evaluating her prediction.

How the price of wind-generated electricity in Mongrove is affected by the amount of it produced there

This is exactly what we need to evaluate the economist's argument! If increased production leads to economies of scale that permanently reduce costs, then prices might stay low even after tax breaks end (weakening the economist's argument). But if production volume doesn't significantly affect pricing, then the economist's prediction that prices will snap back up becomes more credible. This information directly tests the key assumption underlying the economist's claim.

How many Mongrovian customers currently pay for wind-generated electricity even though it costs more than other forms of electricity

Current customer behavior doesn't help us evaluate what will happen to pricing after the tax period ends. The economist's argument is about supply-side cost dynamics and pricing sustainability, not about current demand patterns or customer willingness to pay premium prices.

Whether other energy industries in Mongrove received similar tax breaks in the past

While historical precedents might provide some insight, this doesn't directly address the specific dynamics of the wind electricity market or the relationship between temporary incentives and long-term pricing. The economist's argument requires evaluation of the underlying cost structure and market dynamics specific to wind electricity, not general patterns from other industries.

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