Logical Reasoning

PT8 · S1 · Q9 Complaints that milk bottlers take

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Complaints that milk bottlers take enormous markups on the bottled milk sold to consumers are most likely to arise when least warranted by the actual spread between the price that bottlers pay for raw milk and the price at which they sell bottled milk.

Stimulus

This is an inference question — the stimulus is a set of factual claims, not an argument. The key facts:

(1) Complaints about huge markups arise when the bottled-milk price rises. (2) Bottled-price increases mostly reflect the rising raw-milk price bottlers pay dairy farmers. (3) When raw-milk prices are rising, markups (proportionate to retail) are at their smallest. (4) When raw-milk prices are falling, markups are at their greatest.

Evaluate

Markup is the gap between what bottlers pay for raw milk and what they charge consumers. The puzzle: when raw-milk cost goes down, the gap (markup) gets bigger. The only way that can happen is if bottlers do not lower retail price as fast as their raw-milk cost is dropping — they hold retail high while their cost falls, widening the spread.

Goal

The correct answer should be the claim that must follow from these facts. Look for an answer that captures the bottlers' slow-to-lower retail behavior when raw-milk prices fall.

9.

If all of the statements above are true, which one of the following must also be true on the basis of them?

  1. Consumers pay more for bottled

    Unsupported

    This claims consumers pay more in absolute terms when raw-milk prices are falling than when they are rising. The stimulus only tells us about markups (the proportional gap between cost and retail), not absolute price levels. When raw-milk is falling, retail might still be lower than it was when raw-milk was high — just not lowering as fast as cost is falling. The markup grows even as both cost and retail decline. This goes beyond what the facts support.

    18% picked this

  2. Increases in dairy farmers’ cost

    Contradicted

    This says cost increases for dairy farmers are generally not passed on to consumers. But the stimulus directly contradicts that: bottled-milk price increases "most often merely reflect the rising price of the raw milk that bottlers buy from dairy farmers." Rising farmer/raw-milk costs are passed on. This answer flips the stimulus.

    4% picked this

  3. Milk bottlers take substantially greater

    Unsupported

    This answer is about what happens when the bottled-milk price is low or high for an extended period. The stimulus tells us about markups when the raw-milk price is rising or falling — not about extended periods of high or low retail. The answer swaps in a different variable (retail price level over time) for the one the stimulus actually discusses (raw-milk price direction). Not supported.

    12% picked this

  4. Correct

    Milk bottlers generally do not

    Why this is right

    This is the inference. The stimulus says markups (retail minus raw-milk cost) are greatest when raw-milk prices are falling. For a markup to grow while cost is dropping, retail price must not be dropping in step with cost. So bottlers do not respond to a raw-milk price decrease by quickly and proportionately lowering retail. This must be true given the facts.

    Skill tested: Must be True · how this choice captures the argument's function is the move to repeat next time.

    49% picked this

  5. Consumers tend to complain more

    Out of Scope

    The stimulus mentions complaints, raw-milk prices, retail prices, and markups — but says nothing about dairy farmers' profits. We have no information linking the raw-milk price farmers receive to their costs of production, so we cannot tell when farmer profits are smallest. The answer brings in a variable the stimulus does not discuss.

    17% picked this

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