#Inference #Financial terms

## Question

Rural households have more purchasing power than do urban or suburban households at the same income level, since some of the income urban and suburban households use for food and shelter can be used by rural households for other needs.

Which of the following inferences is best supported by the statement made above?

(Because of copyrights, the complete official question is not copied here. You can access the question here: GMAT Club)

Difficulty: Low

Accuracy: 95%

Based on: 1618 sessions

## Solution

### The Story

Rural households have more purchasing power than do urban or suburban households at the same income level, – So they’re talking about two sets of households (rural and non-rural) at the same income level. One set of households has more purchasing power than the other. (Despite the same income level, certain households have more purchasing power. I wonder why.)

since some of the income urban and suburban households use for food and shelter can be used by rural households for other needs. – This part gives the reason. A portion of the income non-rural households use for food and shelter can be used by rural households for other needs.
(Non-rural households use a certain amount for food and shelter. Rural households use some of that amount for other needs. So, rural households a smaller amount for food and shelter.)

Author’s logic:
The author gives a reason for why rural households have more purchasing power than do non-rural households at the same income level. The reason is that a portion of the income non-rural households use for food and shelter can be used by rural households for other needs.
Why can a portion of the income be used for other needs by rural households? Either food and shelter would be cheaper, or rural households would have lower expenses – e.g. joint families living together. Essentially, rural households must be spending less on food and shelter than non-rural households do. That’s why they’d have some money left over after spending on food and shelter.

Gap(s) in logic:
What if food and shelter expense is lower in rural areas, but expenses for other needs are higher? To compare purchasing powers based just on food and shelter expenses is incomplete.

### Question Stem

Which of the following inferences is best supported by the statement made above?

Framework
We’re looking for something that follows the passage. We don’t need to think about the gaps. Our job is to figure out something that will follow from the passage. We need to take the passage as given, and then check what can be inferred.

Basically, we’re given that:
1. Rural households have more purchasing power than do urban or suburban households at the same income level
and that is because
2. some of the income urban and suburban households use for food and shelter can be used by rural households for other needs.
We have to find what inference is best supported by this given information.

Incorrect

Selected by: 1%

Is this something that must be true?
The reason for lower expenses could very well be that in rural households on average more people live together and thus their living expenses are lower. However, that doesn’t have to be the reason. For example, rural households could be spending less on food and shelter because food and shelter are cheaper in rural areas. So we cannot infer that the average household size is greater.

Correct

Selected by: 95%

Yup! What we predicted.
Say non-rural households use $1000 for food and shelter. Rural households use some of that income for other needs. So, rural households do not use$1000 for food and shelter. They use a smaller amount. Essentially, rural households spend less on food and shelter than do non-rural households.

Incorrect

Selected by: 1%

Incorrect for the following reasons:
1. There is no distinction made between suburban and urban households.
2. The passage anyway states that rural households generally have more purchasing power than do either suburban or urban households at the same income level. So, the notion that suburban households generally have more purchasing power than do rural households anyway contradicts the passage and thus can’t be inferred.

Incorrect

Selected by: 1%

We do not learn anything about the distribution of income levels in the passage. We just learn that for households with the same income levels, rural households have a higher purchasing power. How do income levels compare? Which kinds of households have a higher median income? No idea.

Incorrect

Selected by: 1%

We do not learn anything about how food and housing expenses compare with other expenses for any of these households.

I recommend that you use your practice questions to develop and learn as much as you can. For example, in case you are not clear about the precise definition of purchasing power, you could look up the definition through a quick Google search (after attempting the question). It might help you more clearly understand the question. Plus, it could help you beyond the GMAT too. So, win-win, no?

If you have any doubts regarding any part of this solution, please feel free to ask in the comments section.

## Anish Passi

GMAT Coach

With over a decade of GMAT training experience, top 1 percentile scores on the CAT and GMAT, and a passion for teaching, I’d like to believe I am quite qualified to be a GMAT coach. GMAT is learnable, and I help students master the GMAT through a process-oriented approach based on logic and common sense. I offer private tutoring and live-online classroom courses. My sessions are often sprinkled with real-world examples, references to movies, and jokes that only I find funny. You’ve been warned 🙂