LSAT 10 | Section 1 | Logical Reasoning: Q14

LR Question 14 Explanation

QUESTION TEXT: Once consumers recognize that a period of inflation has …

QUESTION TYPE: Paradox

PARADOX: When inflation starts, consumers spend more to avoid future high prices. But when it continues for a long time, they start to delay purchases. Why would consumers stop buying even though they still expect prices to rise and they’re earning more?

ANALYSIS: The apparent contradiction disappears once we distinguish earning more money from having more purchasing power. During prolonged inflation, prices can rise faster than consumers’ incomes. Even though consumers earn more, their money buys less, so they may delay purchases because they can no longer afford as much.

___________

1. This just restates a different behavior. It doesn’t explain why consumers suddenly stop spending after initially increasing spending.
2. The question is about what happens after consumers recognize inflation. A time lag before recognition doesn’t help explain the change in spending once inflation is prolonged.
3. This is a philosophical dodge. The question isn’t whether generalizations are perfect. It’s asking for a reason why people stop spending after a while.
4. This is about market effects, not consumer psychology. The question asks why people stop buying, not what happens after they stop buying.
5. CORRECT. Even though salaries rise, if prices rise faster, people effectively have less real purchasing power. So they stop spending not because they don’t expect prices to rise, but because they simply can’t afford to buy as much anymore.