Reading Comprehension

PT148 · S2 · P3 · Q16 Insider-Trading

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Passage A Insider-trading law makes it a crime to make stock transactions, or help others make stock transactions, based on information you have ahead of the general public because of your special position within a company.

Topic

Arguments for and against insider trading in the stock market

Framework

Present Debate

Main Point

Passage A argues that insider trading helps make stock prices more accurate and benefits the market, while Passage B argues that insider trading undermines fairness and investor confidence. - The Most Valuable Sentences: - Passage A: (Fourth paragraph) - Passage B: (Second paragraph)

P1 (Passage A): Definition of Insider Trading

Explains what insider trading is—using special, non-public info to trade stocks or help others trade.

P2 (Passage A): Questioning the Logic

Questions whether using exclusive information isn’t just what markets are all about; says the job of a stockbroker is to use information that others may not have yet.

P3 (Passage A): How Markets Work Best

Claims markets work best when information spreads quickly and widely, and that allowing people with good info to act helps prices reflect reality.

16.

The authors would be most likely to agree that

  1. insider trading tends to undermine

    Unsupported Passage A

    Since this is a negative statement about insider trading, we would assume that Passage B would agree and Passage A would disagree. Only Passage B even talks about "investor confidence".

    2% picked this

  2. all information should be available

    Too Strong: all / all / same

    This is just too sizzling. It's an unrealistic idea that 100% of information would ever be available to 100% of market participants at exactly the same time. Neither author would insist on this unrealistic standard. The 3rd paragraph of Passage A says, Stock markets work best when all the relevant information about a company is spread as widely as possible, as quickly as possible. That's not saying 100% of information, just relevant stuff. And it's not saying that 100% of market participants should get it simultaneously. It's saying the maximum percentage possible should get it at the fastest rate that's feasible.

    26% picked this

  3. Correct

    it is appropriate for investors

    Why this is right

    This is a very weak claim, so it's easier for any author to agree to it. It also isn't saying something positive or negative about insider trading, so it's easier for these two authors to agree about it. The 2nd and 3rd sentences of Passage A's second paragraph support this: The entire field is based on people gaining knowledge that others don't have and then using it to profit themselves or their clients. The 3rd sentence of Passage B supports this: Success in the market can then be gained only by skill in analyzing the information and making good investing decisions. So both authors think that one of the basic ideas inherent in the stock market is that investors will try to analyze stocks better than other investors in the same market.

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

    67% picked this

  4. insider nontrading should be regulated

    Unsupported Passage B

    Passage A thinks that insider trading and insider nontrading are essentially the same thing, so she would support the idea that they should be regulated to the same extent (preferably regulated very little, since she thinks both are fine). Passage B, meanwhile, does not like insider trading and never mentions insider nontrading. Since we don't know Passage B's position on insider nontrading, we can't support that he would agree with this.

    2% picked this

  5. insider trading is the best

    Too Strong: best

    We can't support from either passage the extreme claim that insider trading is the best method for disseminating information. We could also reject this one since it's saying something positive about insider trading, so Passage A would be more likely to agree and Passage B would be more likely to disagree.

    3% picked this

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