PrepTest 135, Section 2, Question 22
Most economists believe that reducing the price of(47 more words not shown)
Which one of the following,(19 more words not shown)
- AEconomists' studies of(14 more words not shown)
- BFew merchants of(17 more words not shown)
- CConsumers are generally(15 more words not shown)
- DImported wines in(13 more words not shown)
- EAn increase in(17 more words not shown)
Reading the argument
Could the price itself send a message about the wine?
Imagine seeing a $5 bottle beside a $100 bottle and assuming the expensive one must taste better. That needn't be true, but it could influence what you buy. A domestic wine's price cut might therefore make the imported wine look more attractive by comparison. That's one possible explanation I'd be curious about.
First, though, keep the actual report straight. The domestic and imported wines had comparable prices. Merchants lower the domestic wine's price, and sales of the imported wine frequently rise afterward. The economists' general view is that lowering a product's price tends to stimulate demand for that product.
What we’re looking for
We need to reconcile those observations. My initial thought is about buyers treating price as a sign of quality, but the answer has to address what the passage actually reports.
Working the answers
- A
Leaving alcoholic beverages out of some studies could make us question how well the economists have examined this market. It doesn't show how the economists' belief and the wine merchants' observation can both fit. We need an explanation of the relationship, not simply a reason the subject might be understudied.
- B
Merchants don't need detailed economic training for prices and demand to behave in a particular way. Their knowledge of the theory doesn't explain the sales pattern or resolve the apparent conflict.
- C
'Superior' means better quality, not higher price. This says consumers will sacrifice other purchases to obtain better wine. It doesn't say they treat a higher price as evidence of better wine, or explain what changes when domestic prices fall. It sounds close to the quality hypothesis only if we supply that missing connection ourselves.
- D
Actual quality and customers' purchasing response are different matters. Imported wines could match the quality of cheaper domestic wines without buyers recognizing the equivalence or responding in any particular way. This doesn't explain the observed increase or connect it to the economists' belief.
- ECorrect
What if demand for both kinds of wine rises? The passage never says domestic wine sales fell. I could easily hear 'the imports sold more' and silently turn it into 'the domestic wines sold less,' but those aren't equivalent.
Perhaps the wine market is growing overall: cheaper domestic wine attracts more purchases, and imported wine also gains buyers. That's a possible situation, not an established cause of the growth. It shows how the economists could be right about demand for the discounted product while merchants also observe rising sales of its competitor. E resolves the apparent conflict without requiring the price-as-quality explanation I first considered.
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