frankdio
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Q12 - The consumer price index is

by frankdio Mon Mar 28, 2011 10:28 pm

This stimulus really slowed me down. I took way too long on this question b/c I struggled trying to understand the economics and didn't really see the scope shift right away. Is there a pattern I'm missing here? I felt a little lost going into the Answer Choices is this normal?
 
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Re: Q12 - The consumer price index is

by giladedelman Tue Mar 29, 2011 3:25 pm

Thanks for your question!

I do think your struggle on this one is perfectly normal, and I don't think there's some magic pattern you're missing. Some stimuli are going to take us longer to wade through than others, and that's fine. This one took me a little longer, too. However, while it's important to identify and evaluate the core before heading to the answer choices, we also don't have the luxury of spending as much time as we need to fully comprehend the argument; sometimes, we have to power through to the answer choices, even if we feel a little lost. What I find is that even when I haven't 100% locked down the stimulus, I'm still able to rule out some answers as long as I've squarely identified the premise and conclusion.

In fact, let's think about how that might work. The core here isn't too hard to spot, even if we don't fully understand it:

CPI doesn't consider innovations that may reduce production costs of some goods --> government benefits are sometimes greater than warranted

Okay, let's see if there are any answers we can get rid of even if we don't see the flaw right away:

(A) doesn't appear to affect the argument. The conclusion here is that government benefits are sometimes greater than they should be; so what if there are some years when the CPI doesn't change?

(B) is easy to get rid of, because since when is the argument obligated to explicitly catalogue which goods and services are included?

(C) might give us pause, but I think we can say it's out of scope, because the argument never distinguishes between usual and unusual goods. All we know is that the CPI is tied to goods and services in general, and that innovations may reduce the production costs of some goods -- who knows whether these are common or unusual ones?

(D) looks like a nice LSAT flaw, but let's see if we can back it up with what's in the stimulus ... nope! It never mentions things that have been true in the past, and it doesn't make any predictions about the future. It's talking about the present the whole time.

All right, so that leaves us with (E): [the argument] makes an irrelevant shift from discussing retail prices to discussing production costs.

Hmm, can we find evidence that that shift takes place? When does it talk about retail prices? Oh, that's in the first sentence: the CPI is based on changes in retail prices. But the core says that benefits are sometimes higher than they should be because the CPI doesn't take production costs into account. But why does that matter? As long as it takes retail costs into account, and benefits are tied to cost of living, we don't need to know anything about changes in production costs in order to determine benefits using the CPI.

So (E) makes sense, but it's fine if you didn't see that right away; by at least identifying the core, and working from wrong to right, you'll often be able to arrive at the correct answer even when you feel a bit lost.

Does that help at all?
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Re: Q12 - The consumer price index is

by WaltGrace1983 Thu Jan 23, 2014 9:55 pm

I cannot explain it any better than giladedelman did above. However, I would say that (C) could also be eliminated because we are talking about the retail prices of goods. Retailers could sell "unusual" goods too! I think (C) would only be right if we knew for certain two things:

#1: that the consumer price index doesn't take into account the goods that retirees (who depend on it) generally buy
#2: that the consumer price index gives a better "value" to these goods, and thus gives more money than what the goods are worth.


Anyway, I have a question about this one. Let's say this was a necessary assumption question. Would the necessary assumption be that "retailers often couple dwindling production costs with dwindling retail prices." The argument is saying that, BECAUSE the price index doesn't consider the reduction in production costs, there is a greater value to the price index. This seems to make sense.
 
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Re: Q12 - The consumer price index is

by rpcuhk Thu Aug 14, 2014 2:54 am

WaltGrace1983 Wrote:Anyway, I have a question about this one. Let's say this was a necessary assumption question. Would the necessary assumption be that "retailers often couple dwindling production costs with dwindling retail prices." The argument is saying that, BECAUSE the price index doesn't consider the reduction in production costs, there is a greater value to the price index. This seems to make sense.


I think you are assuming that the price is set solely by retailer. What about the wholesale price that decided by producer? So I think a necessary assumption only needs to say that "the reduced production costs are reflected in reduced retail price"
 
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Re: Q12 - The consumer price index is

by hayleychen12 Thu Mar 30, 2017 1:46 am

Hi! I do notice the shift from retail prices to cost of production when reading the stimulus, but still end up choosing B instead of E.
Here is my original thoughts on E: Say that the retail price for milk is 2, the cost of producing it was reduced from 1 to 0.5, thus if the government is still paying the benefits according to 2, it is greater than warranted by the true change in costs. So I thought that this shift from discussing retail prices to cost of production is legitimate.
For B, I think in order to come down to the conclusion, we need to know in the premises that the price index includes things of which the production cost is reduced by technological innovations.

On second thought, I think I know why the shift is not right: The cost of living of people (which is related to government benefits) is determined by the retail price of goods, so no matter how low the cost of production is , if the retail price is not changed, neither should the government benefits.

Am I on the right track?

Can someone help me out! Thx!!! :(
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Re: Q12 - The consumer price index is

by ohthatpatrick Thu Mar 30, 2017 12:51 pm

Sounds like you've got it, at the end.

Your example
Say that the retail price for milk is 2, the cost of producing it was reduced from 1 to 0.5, thus if the government is still paying the benefits according to 2, it is greater than warranted by the true change in costs. So I thought that this shift from discussing retail prices to cost of production is legitimate.

If the cost lowers but the price remains the same, that means that the company that makes the good now has a higher profit margin.

But to the consumer, nothing has changed.

And since this is a "CONSUMER price index" and it's meant only to reflect cost of living, all we would care about is how much it costs to buy stuff at the store (not how much it costs to manufacture it).

I see your point about wanting to make sure that "at least some of the goods/services in the CPI are subject to the changing production costs". The first sentence kinda makes it sound like the CPI measures everything, so I don't think we're supposed to be worried about that.

Even if we were, (B) would not be doing a great job of specifying what it is you're demanding.

(B) wants a full list of which good and services are included. That list, by itself, wouldn't tell us whether any of those goods and services are subject to technology reducing production costs.

We'd need a separate list of all the goods/services for which tech might lower production costs so that we could cross reference the two lists to see if there are any common members. :)

You'd really want the answer to say
"fails to make explicit whether any goods and services measured by the consumer price index are subject to having their production costs reduced by technology"