In the country of Veltria, the past two years’ broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago. Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.
Which of the following, if true, most helps to explain the change between the first and the second year of the recession in the proportion of credit not paid off on time?
(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.
(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.
(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.
(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.
(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.
Solution
Passage Analysis
In the country of Veltria, the past two years’ broad economic recession has included a business downturn in the clothing trade, where sales are down by about 7 percent as compared to two years ago.
This statement begins by telling us that in the country of Veltria, there has been a broad economic recession in the past two years. This recession has included a business downturn in the clothing trade. In the clothing industry, sales have decreased by 7 percent compared to what they were two years ago. So, this part gives us some factual information about how the recession has affected the clothing trade in Veltria over the last two years.
Clothing wholesalers have found, however, that the proportion of credit extended to retailers that was paid off on time fell sharply in the first year of the recession but returned to its prerecession level in the second year.
This statement gives us some additional information about the clothing industry. It says that wholesalers have found that the proportion of credit extended to retailers that was paid off on time fell sharply during the first year of the recession. This part makes logical sense because since sales were down and there was a recession on, it is understandable that some of the retailers could not pay their dues on time.
The second part of this statement says that during the second year of the recession, the proportion of credit that was paid off on time returned to its prerecession level. This seems to be a surprising fact, since this proportion fell sharply during the first year of the recession. So, something must have happened in the second year of the recession to cause this proportion to increase to its precession level.
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Pre-thinking
This is a paradox question that asks us to explain the change in the proportion of credit that was paid back between the first and the second year of the recession. The paradox is created by the second part of the second statement. The question stem asks us to explain something. Which part of the argument do we need to explain? We need to explain the part after ‘but’, which says that the proportion of credit paid off on time returned to its precession level in the second year.
How should we understand this statement? Note that just because the proportion of retailers who could pay their dues on time increased in the second year of the recession, it does not mean that the number of retailers who paid their dues on time also increased. If the total number of retailers decreased in the second year, then the proportion of retailers who could pay off their dues on time could have increased without an increase in the actual number of retailers who could pay on time. So, to resolve the paradox, we need an answer choice that explains why the proportion of credit paid on time increased during the second year of the recession, even though there was a decrease in sales.
Analysis of Option Statements
(A) The total amount of credit extended to retailers by clothing wholesalers increased between the first year of the recession and the second year.
This choice says that the total amount of credit given to clothing retailers went up between year one and year two of the recession. What does this mean? This means that the loan amount taken by retailers went up in the second year. But this does not explain why the proportion of retailers who could pay back their loans in time went up. This choice is incorrect.
(B) Between the first and second years of the recession, clothing retailers in Veltria saw many of their costs, rent and utilities in particular, increase.
This choice says that the expenses borne by the clothing retailers went up in year two of the recession. If this is true, it would only worsen the retailers’ financial situation and make them even more incapable of paying back their credit on time. This choice is incorrect.
(C) Of the considerable number of clothing retailers in Veltria who were having financial difficulties before the start of the recession, virtually all were forced to go out of business during its first year.
This choice seems to be in line with our prethinking. It says that almost all the clothing retailers who were already having financial difficulties before the recession were forced to go out of business during the first year of the recession. This means that during the second year of the recession, the total number of retailers in the clothing industry was lower than the number during the first year. Also, the ones remaining in the industry were not the ones with the worst financial difficulties. So, this choice explains how the proportion of clothing retailers who could pay off their credit on time could have increased during the second year. Since the total number of retailers decreased and probably the retailers in the worst condition disappeared in the first year, the proportion who could pay back their credit on time increased in the second year. This choice is the correct answer.
(D) Clothing retailers in Veltria attempted to stimulate sales in the second year of the recession by discounting merchandise.
There are two reasons that this choice is incorrect. First, it says that clothing retailers tried to increase sales by offering discounts. Just because they tried to increase the sales, it does not mean that their sales actually increased. Also, the passage states that there was a 7 percent decrease in sales. This choice, at worst, contradicts the information given in the passage.
(E) Relatively recession-proof segments of the clothing trade, such as work clothes, did not suffer any decrease in sales during the first year of the recession.
This choice says that there were some segments of the clothing industry that did not suffer any decrease in sales during the first year. But these segments could still have suffered a decrease in sales during the second year, and if they did, then they would have been less likely to pay off their credits in time. So, this choice is essentially irrelevant since it offers no information about the second year of the recession.
Secondly, even if these segments remained unaffected by the recession during the second year, the argument is referring to the clothing industry as a whole. The segments that did not suffer any decrease in sales could constitute a small proportion of the entire clothing industry. Even if these segments did not suffer and the retailers in these segments could pay back their credits on time, this does not tell us anything about the remaining retailers in the industry.
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