Reading ComprehensionDifficulty: Easy

PT140 S4 P2 Q7 Explanation

Online Game Currencies

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TopicsMain PointLaw

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Passage

Passage A is from a source published in 2004 and passage B is from in 2007.

Passage

Millions of people worldwide play multiplayer online games. They each pick, say, a medieval character to play, such as a warrior. Then they might band together in quests to slay magical characters striding across a Tolkienesque land.

The economist Edward Castronova noticed something curious about the game he played: it had its own economy, a bustling trade in virtual goods. Players generate goods as they play, often by killing creatures for longer they play, the wealthier they get.

Things got even more interesting when Castronova learned about the “player auctions.” Players would sometimes tire of the game and decide to sell at online auction sites.

As Castronova stared at the auction listings, he recognized with a shock what he was looking at. It was a form of currency trading! Each item had a value in the virtual currency traded in the game; when it was sold on the auction site, someone was paying cold hard cash for or skinning animals to sell their pelts, they were, in effect, creating wealth.

Passage

Most multiplayer online games prohibit real-world trade in virtual items, but some actually encourage it, for example, by granting in their creations.

Although it seems intuitively the case that someone who accepts real money for the transfer of a virtual item should be taxed, what about the player who only accumulates items or virtual currency within a virtual world? Is “loot” acquired in a game taxable, as a prize or award is? And is given that the economies of some virtual worlds are comparable to those of small countries.

Most people’s intuition probably would be that accumulation of assets within a game should not be taxed even though income tax applies even to noncash accessions to wealth. This article will argue that income tax law and policy support that result. Loot acquisitions in game worlds should not be treated as taxable upon sale. Moreover, in-game trades of virtual items should not be treated as taxable barter.

By contrast, tax doctrine and policy counsel taxation of the sale of virtual items for real currency, and, in games that are intentionally commodified, even of in-world sales for virtual currency, regardless of whether the participant cashes out. This creating a tax shelter for virtual commerce.

What this question is testing

Main Point

Your task

Capture the passage's overall primary point — the claim everything else supports.

Common trap

Answers that are true but too narrow (a single paragraph) or too broad (beyond the passage's scope).

Winning move

Summarize the whole passage in one sentence first, then match it to a choice.

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

The question
7.

Which one of the following pairs of titles would be most appropriate for passage A and

Answer choices

  1. Bad Match for Both3% picked this

    "The Economic Theories of Edward

    "Intellectual Property Rights in Virtual

    We don't know a single economic theory of Edward Castronova. He's just an economist who's talking to us about weird new emerging economies within video games. And Passage B is about whether or not to tax certain aspects of online games, not about intellectual rights.

  2. Correct86% picked this

    "An Economist Discovers New Economic

    "Taxing Virtual

    Why this is right

    Passage A consisted of an economist who couldn't believe his eyes / who was in shock / who discovered something curious: online game economies. So, sure, we could call that passage "an economist discovering new economic territory". Passage B is all about answering the questions laid out in the second paragraph, which are about if, or to what extend, items or virtual currency derived from online games should be taxable. So, sure, we could say entitle that passage "Taxing Virtual Property". Everything but the first paragraph of Passage B is about whether / how online games should be taxed.

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

  3. Weak Matches for Both3% picked this

    "The Surprising Growth of Multiplayer Online

    "Virtual Reality and the

    The title for Passage A captures the shock / surprise / curious tone, but it doesn't do as good a job as (B) does at reflecting what it is we're fascinated by. The surprising thing in Passage A is how these games are creating worlds with their own economies, which are also leaking into the real world one. This answer choice makes it seem like the surprising thing in Passage A was how much online gaming has grown. That would be referring to how big an industry it is / how much video game companies are making. We should be talking about the economies within online games, not how online games fit into our normal economy. Passage B is specifically about taxing online gaming. The title this answer choice offers isn't as precise. It just says we're talking about "the law" more broadly.

  4. Trap3% picked this

    "How to Make Money Playing

    "Closing Virtual Tax

    Bad Match for A / Weak Match for B There is something superficially pleasing about both answers. The Passage A title talks about money & games (and we want it to be talking about the money within online games). The Passage B title talks about taxes in the virtual world, and we want it to be talking about how we should tax online games. But Passage A never offers any advice about "how to make money". It's just an economist saying, "Holy crap -- did you guys realize that these online gamers have their own economy? Some of them are making legit money! They even have currency training. Wow, it's like an actual economy within these games." None of it is written as advice, as this title implies. It's also pretty generic to say "how to make money playing games". Do we mean poker? Scrabble? Or World of Warcraft / Fortnite? The title for Passage B suggests that the author points out a problem -- there are tax shelters in video games (people are hiding their wealth in video games) -- and then the author proposes a solution to getting rid of that problem. Instead, Passage B is more innocently asking unprecedented questions about whether any of the wealth being derived in / from these video games should be considered taxable. In providing its tax guidance, it does say in the final sentence that this would prevent tax shelters from forming. But that's different from closing a tax shelter that's already happening and not the main focus of the passage.

  5. Weak Matches for Both5% picked this

    "A New Economic

    "An Untapped Source of

    The title for Passage A suggests that we would be calling these online gaming economies "a new economic paradigm". That's a little too broad and strong. It's certainly a new economic niche, a new market, a new ecosystem. But are online games actually giving us a whole new framework for how we think about economics? The title for Passage B suggests that the author was suggesting the taxation of online gaming a means to raise some money. The author seems more interested in just figuring out the applicability or inapplicability of tax law to this emerging field of online gaming economies. Casting this as an "untapped source of revenue" makes the author sound more like someone eager to suck money out of online gaming. But the author sounds more like a nerdy lawyer who is counseling us on how courts should think about these new forms of value.

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