LSAT 135 | Section 2 | Logical Reasoning: Q22

LR Question 22 Explanation

QUESTION TEXT: Most economists believe that reducing the price of any product …

QUESTION TYPE: Paradox

PARADOX: Lowering the price of domestic wine often leads to higher sales of imported wine.

ANALYSIS: Economists say: Lower price → higher demand

Wine merchants observe: Lower the price of domestic wine → imported wine sales increase

So imagine you’re a wine seller in the U.S. You have American wine and Italian wine. When you reduce the price of the American wine, people buy more Italian wine.

That almost sounds like lowering the price of one product somehow hurts demand for that product and helps its competitor.

But notice something important: what’s not said.

The merchants never say what happens to the domestic wine sales. We don’t know that people buy less American wine. We only know they buy more Italian wine.

Those two things can happen at the same time. Domestic demand can increase and imported demand can increase.

Once you realize the economist’s principle only says demand for the cheaper product goes up – not that demand for competing products must go down – the contradiction disappears.

___________

1. This doesn’t explain why both observations can be true.
2. Whether merchants know economics has nothing to do with the observed sales patterns.
3. We don’t actually know which wine is superior. And even so, this might explain why people buy expensive wine, but it doesn’t reconcile the economist’s principle with the merchants’ observation.
4. This concerns quality comparisons, but it doesn’t explain how lowering domestic wine prices could be associated with increased imported wine sales.
5. CORRECT. The economists’ principle says lowering the price of domestic wine increases demand for domestic wine. The merchants only tell us imported wine demand also increased. Those facts are perfectly compatible if demand for both products increased.