PrepTest 140, Section 2, Question 7
If grain prices double then the average price(23 more words not shown)
Which one of the following(13 more words not shown)
- AFarmers engaged in(19 more words not shown)
- BThe wholesale price(15 more words not shown)
- CThe labor and(26 more words not shown)
- DOnly an insignificantly(19 more words not shown)
- EThe vast majority(24 more words not shown)
Reading the argument
Grain gets twice as expensive, but bread rises only a little. That isn't necessarily strange: grain is only one thing a baker pays for. Labor, shipping, and selling the loaf can still cost the same.
Why does grain-fed beef react so differently? Perhaps feeding cattle takes much more grain, making grain a much more important part of the cost of producing the beef. If most of the expense is feeding the animals, doubling that expense could make a large difference to the final price.
What we’re looking for
That's what I'd look for in an explanation: a reason the grain-price increase matters much more to beef than to bread. We need to understand the different changes in price, not just learn that beef and bread already have different prices.
Working the answers
- A
Trying to reduce labor costs doesn't tell us how large those costs are or how successful the attempts have been. It also gives us no comparison with bread production. We still don't know why a grain-price increase has such a different effect on the two products.
- B
A higher starting price doesn't explain a larger percentage increase. Something costing ten dollars could rise by 10 percent, while something costing one dollar could double. We need to know how grain contributes to each product's costs, not merely their prices per pound.
- CCorrect
Most of bread's cost comes from labor and marketing, whereas most of beef's production cost comes from feeding cattle. Doubling grain prices therefore affects a relatively small part of the bread's costs and a much larger part of the beef's costs.
For a simplified illustration, suppose grain accounts for one dollar of a ten-dollar loaf. Doubling that one dollar adds only a dollar if everything else stays the same. If feed accounts for nine dollars of ten in producing beef, doubling that expense adds nine dollars. These are illustrative figures, not the actual prices; they show why the share of the cost matters.
- D
We are specifically comparing grain-fed beef with bread. How much grass-fed beef exists in the broader market doesn't explain why the price of this grain-fed beef responds so strongly to grain prices.
- E
Small bakers and large meat processors might have different businesses, but their size doesn't tell us their cost breakdowns. We'd have to invent assumptions about how each supplier responds to rising grain prices. C gives us the relevant difference directly.
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