To protect certain fledgling industries, the government of country Z banned imports of the types of products those industries were...

GMAT Critical Reasoning : (CR) Questions

Source: Official Guide

Critical Reasoning

Inference

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To protect certain fledgling industries, the government of country Z banned imports of the types of products those industries were starting to make. As a direct result, the cost of those products to the buyers, several export-dependent industries in Z, went up, sharply limiting the ability of those industries to compete effectively in their export markets.

Which of the following conclusions about country Z's adversely affected export-dependent industries is best supported by the passage?

Profit margins in those industries were not high enough to absorb the rise in costs mentioned above.

Those industries had to contend with the fact that other countries banned imports from country Z.

Those industries succeeded in expanding the domestic market for their products.

Steps to offset rising materials costs by decreasing labor costs were taken in those industries.

Those industries started to move into export markets that they had previously judged unprofitable.

Solution

Passage Visualization

Passage Statement	Visualization and Linkage
To protect certain fledgling industries, the government of country Z banned imports of the types of products those industries were starting to make.	Establishes: Government protective policy Concrete Example: Country Z's new steel industry produces basic steel at $\$800/\mathrm{ton}$. Foreign steel costs $\$600/\mathrm{ton}$. Government bans all steel imports to protect domestic producers. Key Pattern: Import ban eliminates cheaper foreign alternatives
As a direct result, the cost of those products to the buyers, several export-dependent industries in Z, went up	Establishes: Causal relationship - price increase for domestic buyers Concrete Example: Car manufacturers in Z previously bought steel at $\$600/\mathrm{ton}$ (imported). Now forced to buy domestic steel at $\$800/\mathrm{ton}$ - a $33\%$ price increase ($\$200$ more per ton) Critical Link: Export industries become victims of protectionist policy
sharply limiting the ability of those industries to compete effectively in their export markets	Establishes: Final consequence - competitive disadvantage internationally Concrete Example: Z's cars now cost $\$200$ more per ton of steel to produce. Foreign competitors still access cheap steel at $\$600/\mathrm{ton}$. Z's car exports become uncompetitive due to higher input costs. Export Performance: Severely damaged by domestic protection policy
Overall Implication	Economic Paradox Revealed: Protecting domestic industries creates a zero-sum internal conflict - fledgling industries benefit while export industries suffer competitive disadvantage. The policy creates internal winners and losers, with export industries bearing the cost burden of protectionism through higher input prices and reduced international competitiveness.

Valid Inferences

Inference: The export-dependent industries were forced to pay higher prices for their inputs because they could no longer access cheaper imported alternatives.

Supporting Logic: Since the government banned imports of products that the export industries needed to buy, and since this directly caused the cost of those products to go up for the buyers, therefore the export industries lost access to what were presumably cheaper imported options. The sharp limitation in their export competitiveness confirms that their production costs increased relative to their international competitors who still had access to lower-priced inputs.

Clarification Note: The passage establishes that higher input costs damaged export competitiveness, but does not specify the underlying reasons why domestic products were more expensive or whether this price difference might change over time.

Answer Choices Explained

Profit margins in those industries were not high enough to absorb the rise in costs mentioned above.

This choice states that profit margins weren't high enough to absorb the cost increases. This is strongly supported by the passage. We know that rising costs 'sharply limited' the industries' ability to compete in export markets. If these companies had sufficient profit margins to absorb the higher input costs, then their export competitiveness wouldn't have been so severely damaged. The fact that their competitive position deteriorated tells us they couldn't internally handle the cost increases, meaning their profit margins were insufficient. This is correct.

Those industries had to contend with the fact that other countries banned imports from country Z.

This suggests that other countries banned imports from country Z. The passage gives us no information about other countries' import policies toward Z. The export competitiveness problem described stems entirely from Z's own import ban raising domestic input costs, not from foreign countries restricting Z's exports. This introduces new information not supported by the passage.

Those industries succeeded in expanding the domestic market for their products.

This claims the industries succeeded in expanding their domestic market. The passage focuses entirely on how the export-dependent industries were hurt by rising costs, specifically in their export markets. We're told nothing about their domestic market performance, and given that they're described as 'export-dependent,' domestic expansion seems unlikely to be their primary focus or a solution to their problems.

Steps to offset rising materials costs by decreasing labor costs were taken in those industries.

This suggests these industries took steps to offset rising material costs by decreasing labor costs. The passage provides no information about any cost-offsetting measures these industries may have taken. We only know that costs went up and export competitiveness was sharply limited - nothing about their strategic responses or labor cost adjustments.

Those industries started to move into export markets that they had previously judged unprofitable.

This claims the industries moved into previously unprofitable export markets. Again, the passage gives us no information about the industries exploring new markets. We're only told that their ability to compete effectively in their export markets was limited - this suggests difficulty in existing markets, not expansion into new ones.

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