Logical Reasoning

PT4 · S1 · Q3 Oil analysts predict that

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Oil analysts predict that if the price of oil falls by half, the consumer’s purchase price for gasoline made from this oil will also fall by half.

Prediction

If the price of oil falls by half, the consumer's purchase price for gasoline will fall by half.

Evaluate

Oil analysts are assuming a direct correlation between the price of oil and the price of gasoline. If the price of oil is reduced by half, they predict that gasoline prices will similarly be reduced by half.

To cast doubt on the analysts' prediction, we should look for evidence that breaks this assumed direct proportionality between oil prices and gasoline prices.

Since we're looking to refute this conditional, we want a circumstance where the trigger is true and the outcome is false.

Goal

We need to find an answer that allows us to say it's possible that oil prices fall by half (the cost per barrel of crude oil), but the price at the pump falls by less than half.

Which one of the following, if true, would cast the most serious doubt on the prediction made by the oil analysts?

Improved automobile technology and new
No Impact
This has nothing to do with the relationship between the price of oil and the pump price of gasoline.
2% picked this
Gasoline manufacturers will not expand
Opposite Impact
A potential objection we'd have toward this prediction is, "Who says that if gas manufacturers have to pay 1/2 as much for oil that they'll pass this full savings onto the consumer? Maybe they'll choose to just increase their profit margin!" Since this rules out that possibility, it strengthens.
4% picked this
There are many different gasoline
Strengthens (if anything)
Similar to (B), this makes it less likely that gas companies will just pocket the savings from reduced oil prices. They might be able to do that if they had a monopoly, but with so many companies competing, that will drive down gas prices, making the author's prediction more likely.
3% picked this
Studies in several countries show
No Impact
This has nothing to do with the price of gasoline. It only talks about the quantity of gasoline sold.
15% picked this
Correct
Refining costs, distribution costs, and
Why this is right
Refining, distribution, and tax costs are significant portions of gasoline's price and don't vary with oil prices. Thus, even if the oil cost is halved, gasoline prices won't fall proportionally, as these other factors remain constant. This seriously weakens the analysts' prediction of a direct price drop by half. Let's say a gallon of gas costs $4 to the gas company, $1 - oil $1 - refining $1 - distribution $1 - taxes $4 total expenses So they sell the gas for $5 / gallon (in Los Angeles), so that they can profit $1. If the cost of oil gets cut in half, then now their expenses look like this: $0.50 - oil $1 - refining $1 - distribution $1 - taxes $3.50 total expenses The prediction was that the price of gas would fall by half, so now gas in LA would cost $2.50 / gallon? That doesn't make sense. The gas company would be losing money at that price point.
Skill tested: Weaken · how this choice captures the argument's function is the move to repeat next time.
76% picked this

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