In Region X, all rights to use water from the Dusty River were allocated to farms at a government auction...
GMAT Critical Reasoning : (CR) Questions
In Region X, all rights to use water from the Dusty River were allocated to farms at a government auction held more than a century ago. To increase long-term tax revenue generated by the region's farms, the government now plans to allow holders of water rights to sell those rights freely. The government reasons that this will ensure that more water is allocated to those farms able to use it more profitably.
To assess how successful the government's plan, if implemented, is likely to be in increasing tax revenue, it would be most helpful to know
Passage Analysis:
| Text from Passage | Analysis |
| In Region X, all rights to use water from the Dusty River were allocated to farms at a government auction held more than a century ago. |
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| To increase long-term tax revenue generated by the region's farms, the government now plans to allow holders of water rights to sell those rights freely. |
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| The government reasons that this will ensure that more water is allocated to those farms able to use it more profitably. |
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Argument Flow:
The passage starts with background info about how water rights were originally distributed, then presents the government's new plan to allow free trading of these rights, and finally explains the government's reasoning for why this plan will increase tax revenue.
Main Conclusion:
The government believes that allowing free trading of water rights will increase long-term tax revenue because water will flow to more profitable farms.
Logical Structure:
This is the government's reasoning: Free trading of water rights → Water moves to more profitable farms → Higher farm profits → Higher tax revenue. The argument assumes that profitable farms will buy water rights and that higher profits automatically lead to higher tax revenue.
Prethinking:
Question type:
Evaluate - We need to think of key assumptions underlying the government's plan and create scenarios that would either strengthen or weaken the conclusion when we know more information about them
Precision of Claims
The government's plan relies on a chain of assumptions: water will move to more profitable farms → higher profits → higher tax revenue. Each link in this chain involves specific claims about market behavior, profitability relationships, and tax structures
Strategy
Since this is an evaluate question asking what would be 'most helpful to know,' we need to identify the critical assumptions in the government's reasoning and think of information that could either strongly support or undermine the plan's success. The government assumes profitable farms will buy water rights, that more profitable use leads to higher taxes, and that the market will work efficiently
This tells us about the historical distribution of water rights from over a century ago. While this provides background information, it doesn't help us assess whether the current plan will increase tax revenue. Knowing which farms got the most water initially doesn't tell us anything about whether those farms are currently profitable, whether they'll sell their rights, or how taxes relate to profits.
This focuses on the negative effects on farms that lose water rights. While this might be relevant for other policy considerations, it doesn't directly help us evaluate whether the plan will increase tax revenue. Even if some farms are adversely affected, the plan could still succeed in its goal of increasing overall tax revenue if the gains outweigh any losses.
This asks whether the sale of water rights themselves would be taxable. While this could provide some additional revenue, it's a one-time transaction tax rather than the "long-term tax revenue" the government is targeting. The government's plan specifically focuses on increasing ongoing farm tax revenue through better water allocation, not transaction taxes.
This asks about alternative methods to increase tax revenue from farms. However, the question asks us to evaluate how successful this specific plan will be, not whether there are better alternatives. Information about other possible steps doesn't help us assess whether the water rights trading plan will work.
This directly addresses the critical assumption in the government's reasoning. The entire plan depends on the idea that when farms become more profitable (through better water allocation), tax revenue will increase accordingly. If we knew that farm taxes are fixed amounts regardless of profits, the plan would fail. If taxes increase with profits, the plan could succeed. This information is essential for evaluating whether the chain of reasoning (better water allocation → higher profits → higher tax revenue) will actually work.