Custom Question

[PFWinkler]

Hello – I made this question up. It is a modification of GMAC: Verbal 2015 Supplement. Critical Reason #4 (page 117)

Please note the below represents the question that I made up…

‘The price Walmart pays for its end items purchased from private contracts is determined by a pricing method called ‘commodity cost sensitive’. Commodity cost sensitive allows private contracts to protect their profits by adding a percentage increase, based on the current rate of inflation, to the previous year’s contractual price.

Which of the following statements, if true is the best basis for a criticism of Walmart’s policy of commodity cost sensitive, as an economically rational business practice for pricing items’

--The correct answer is that Walmart MIGHT continue to pay for past inefficient use of funds….

What I fail to see however, is that the question makes no reference toward inefficient uses of funds, and the only reference point we have is that ‘percentage increase, based on the current rate of inflation’ – outside of naturally assuming that Walmart’s use of capital is naturally inefficient – how can we best SEE this inference from the statement.

If you feel this modification violates anything requirements – please feel free to remove it….I tried!

[RonPurewal]

let's say you want to rent an apartment, and the landlord tells you that your rent is going to be whatever the previous renter paid, plus some fixed percentage.

if that were happening to YOU, i bet it would take you about three milliseconds to hit on the key issue ("wait a minute, what if the previous guy paid too much?").

if that situation is more obvious than the one in this problem, you can see what the primary challenge is: you have to make the problems 'come alive', enough to allow your real-world intuition to take over.