LR Question 23 Explanation
QUESTION TEXT: The constitution of Country F requires that whenever…
QUESTION TYPE: Principle
PRINCIPLES:
- The country must sell state owned entities for the highest price possible.
- The country must make sure that citizens of Country F are the majority owners for at least a year after the sale.
ANALYSIS: The setup itself is confusing. Once you understand it clearly, the answers are a lot easier.
The constitution of Country F gives the government two conflicting requirements. It has to sell the entity for the highest price it can get. And it has to make sure citizens still own most of the new company.
How is this a conflict? Suppose foreigners are offering a higher price for shares of the entity. In that case, the government would have to choose between accepting a lower price from citizens or allowing majority foreign ownership.
To be clear: the governments is not required to own any part of the entity after sale. Instead, it’s required to make sure that private citizens of country F have majority ownership of the new company.
___________
- A minority share of StateAir by non-citizens is fine. This situation violates no rules.
- It doesn’t matter where operations take place. It only matters where the new owners of National Silver live. The majority of the shares will be owned by citizens, so this is fine.
- The question is asking which situation necessarily violates a rule. Here, World Oil Company has made “one of” the highest offers for PetroNat. But that doesn’t matter: the government has to accept the highest offer. We don’t know if the highest offer is foreign or domestic, so we can’t say that this situation must lead to a violation.
- The highest bid for National Telephone is fine. Citizens own a majority of the shares.
- CORRECT. This leads to a violation. Either the government will get a lower price, or foreigners will own most of StateRail.
More Resources for Principle Questions
- Intro Course lesson: This intro course lesson covers Principle questions.
- Mastery Seminar lesson: This LR Mastery seminar lesson covers principle questions.
this question is totally BS—you would have to have previous knowledge abt the free market/open market to really know how to answer this question. As zen most clearly points out, the average college graduate could and would assume that just because the price will be reduced due to restrictions, that that price could still be “the highest price it can command on the open market.” The language in answer choice (E) totally leaves room for the constitution to not necessarily being violated (in fact, the LSAT specifically tests you on being able to discern nuances like that in other types of questions, making it even more likely that a test tasker wouldn’t choose E). OK, that’s all. Pretty much just wanted to let others know it’s OK if you missed this question—we’ll have to settle for a 179!!
Even if you hadn’t heard the expression “open market” prior to reading this question, I think it’s fair to assume that a college or university student would at least have some grasp of the concept of market interference by the government, and how that can alter the prices of goods. It’s not a far stretch to jump from one’s first read of the phrase open market to the definition: a market without government interference.
But even if we assume that someone doesn’t make that connection. By your reading, the “open market” could be a market with government restrictions. If that were the case, the government would still be lowering the price in that environment just to ensure the citizens will get majority ownership. That violates one of the conditions. The government must ensure it gets the highest price possible.
Hi Graeme,
I’ve read all the explanations for (C) not being the correct answer, but I’m still confused. Let me lay out my logic so you can pick at it:
I understand that the government MUST accept the highest offer, meaning the first requirement would definitely not be violated. However, the second requirement details “it MUST ENSURE” that citizens of Country F will have majority ownership.
In answer choice (C), it explicitly says the “government cannot determine”, which is in obvious contrast with the requirement’s “it must ensure”. So, regardless of the first requirement being fulfilled, and regardless of whether the selling to World Oil Company might result in a majority ownership for the citizens, the government never ensured it. It literally could not determine. So answer (C) presents an unconditional violation of the second requirement, regardless of the outcome.
(C) makes it very difficult to say with certainty there’s a constitutional violation. We’re told that World Oil has made “one of” the highest offers, but that doesn’t mean that other companies (whose ownership structure is more simple) haven’t made equally (or more) high offers. So, importantly, (C) does not rule out the possibility that another equally high offer could be made that violates no rules. If (C) said something like, “World Oil Company has made THE highest offer for PetroNat”, it’d be a more appealing answer choice — though, I’d still choose (E) because the rule violation is more clear.
Hi Graeme!
Question about B. It doesn’t state in the answer choice that that ‘corporation’ is the highest bidder. Should this just be assumed? This is why I was uncertain on whether to pick E or B.
Since it doesn’t say who is the highest bidder, it means we don’t know there’s a violation. For the answer to be correct, there must be a definite violation.
Hi Graham,
I’m confused about how E is right. It seems that even if the government will receive less due to restrictions, the price it does receive cold still be the “highest price” it could command? I’m thinking: how do we know that bidders will even bid that high? Maybe the price it will get, including restrictions, would still be the highest amount it could get compared to other bids? I’m confused. Thank you!
It’s because E says “will reduce the price the government receives”. That’s not a hypothetical. It’s literally saying they’ll get less money. If they could have gotten more, then they’re not selling for the highest price they could get on the open market.
How are we supposed to know “will reduce the price the government receives for StateRail” equates to the lesser amount they receive (compared to the non-restricted selling) automatically not being the highest price it can command? (E) states it MUST place these restrictions, so it is complying with the “can command on the open market” portion.
For example, StateRail without restrictions: $10
StateRail with restrictions: $8
Second highest bid: $6
^ Successfully complies with “will reduce the price the government receives for StateRail”.
An open market by definition is a market without (or with very limited) barriers to free market activity. So, if the government imposes restrictions and the price they will receive for StateRail consequently goes down, then it’s clearly violating the rule that the government must ensure it receives the highest price it can command on the open market.
So, in your example, “StateRail without restrictions” is the only appropriate option according to the first rule. However, this scenario makes it impossible to simultaneously choose that option and still follow the second rule.
I got questions about answer choice (C).
I agree with the part about price, but doesn’t the latter part of answer choice (C) means that it can’t “ensure that citizens of Country F are the majority owners for at least a year after the sale.”
If what I mentioned is true, then (C) must violate at least one of the requirements.
Looking forward to your reply!!! Thank you.
Nope. Because the government must accept the HIGHEST offer. So if Worldnat isn’t the highest offer, then we don’t need to care about them. The highest offer might have a simple structure.