Reading ComprehensionDifficulty: Hard

PT138 S1 P3 Q22 Explanation

The Invisible Hand

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Passage

David Warsh’s book describes a great contradiction inherent in economic theory since 1776, when Adam Smith published The Wealth of Nations. Warsh calls it the and the Invisible Hand.

Using the example of a pin factory, Smith emphasized the huge increases in efficiency that could be achieved through increased size. The pin factory’s employees, by specializing on narrow tasks, produce far more than they could if each worked independently. Also, Smith was the first to recognize how a market economy can to please people but because doing so enables them to make money in a competitive marketplace.

These two concepts, however, are opposed to each other. The parable of the pin factory says that there are increasing returns to scale—the bigger the pin factory, the more specialized its workers can be, and therefore the more pins the factory can produce per worker. But increasing returns create a natural tendency always get it right depends on the assumption that returns to scale are diminishing, not increasing.

For almost two centuries, the assumption of diminishing returns dominated economic theory, with the Pin Factory de-emphasized. Why? As Warsh explains, it wasn’t about ideology; it was about following the line of least mathematical resistance. Economics has always had scientific aspirations; economists have always sought the rigor and clarity that comes from formalism, while those of increasing returns—the Pin Factory—are notoriously hard to represent mathematically.

Many economists tried repeatedly to bring the Pin Factory into the mainstream of economic thought to reflect the fact that increasing returns obviously characterized many enterprises, such as railroads. Yet they repeatedly failed because they could not state their ideas rigorously enough. Only since the late 1970s has this “underground river”—a term ways to describe the Pin Factory with the rigor needed to make it respectable.

What this question is testing

Weaken

Your task

Find the choice that makes the argument's conclusion less likely to be true.

Common trap

Answers that look negative but attack a claim the argument never relied on.

Winning move

Find the assumption the argument depends on, then pick the choice that undermines it.

Reading along? Open the full official question in LawHub — we show a fragment here and keep the reasoning in our own words.

The question
22.

Which one of the following, if true, would most undermine the connection that the author draws between increased

Answer choices

  1. Weak Impact20% picked this

    In some industries, there are businesses that are able to exert monopoly power in one geographical region even though there are larger businesses in

    This gives some evidence of the existence of a smaller business having monopoly, which goes against the author's general connection between larger businesses and monopoly. But it has pretty weak strength, since it sounds like the smaller business may just have a local monopoly because there aren't competing larger businesses in this certain geographical region.

  2. No Impact2% picked this

    As the tasks workers focus on become narrower, the workers are not able to command as high a salary as when they were

    This answer's focus on narrowness of tasks and size of workers' salaries has no direct impact on the conversation about larger businesses having more access to increasing returns and that trending towards monopoly power.

  3. Strengthens, if anything12% picked this

    When an industry is dominated by only a few players, these businesses often collude in order to set prices as high

    This answer still goes along with the author's suggested relationships: "increased size -> more increasing returns -> smaller firms who can't keep up with lower costs disappear -> industry becomes dominated by just a few players -> monopoly" In order for this sort of idea to weaken, it would need to say that once an industry is dominated by only a few players, the other ones can't drive each other out of business, and so it never gets down to being dominated by only one company (a true monopoly).

  4. No Impact9% picked this

    The size that a business must reach in order to begin to achieve increasing returns to scale varies

    This is the classic wishy-washy answer we see on Strengthen / Weaken tasks that feels like, - differences exist - things happen - changes occur It just provides a vague idea that doesn't have any clear impact. Even if the threshold for achieving increasing returns varies widely from industry to industry, it might still be true that the bigger companies have more increasing returns than the smaller ones, which is all the author is saying about that.

  5. Correct57% picked this

    If a business has very specialized workers, any gains in productivity achieved by making workers even more specialized are offset by other factors such

    Why this is right

    This is tough to like on a first pass, in part because we need to use or remember the sentence before the author starts talking about monopoly: the bigger the pin factory, the more specialized its workers can be, and thus the more productive (more pins per worker) each worker can be. This was the author's basis for the first connection in her causal chain: "increased size -> more increasing returns -> smaller firms who can't keep up with lower costs disappear -> industry becomes monopolized by just a few players". This answer is going against that link by saying, "Sure, as you get bigger, you get more specialized, and so you might derive more productivity out of each worker. But -- that doesn't necessarily give your business some comparative advantage over smaller businesses. After all, there are also downsides to becoming more specialized, such as your workers hate their repetitive, specialized jobs and so they more frequently quit and so you more frequently have to pay to find / interview / hire / train new workers." This answer doesn't directly speak to monopoly power; it tries to kill that causal chain farther upstream, denying the basic starting point that bigger businesses, due to their greater ability to specialize workers, start to have an important economic advantage over smaller businesses. This is definitely a "best available" answer situation, where the others don't do anything or go the wrong way, so this one ends up winning by comparison.

    Skill tested: Weaken · how this choice captures the passage's function is the move to repeat next time.

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