PrepTest 138 - Section 1 - Passage 3 - Question 20

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David Warsh's book describes a great contradiction inherent in economic theory since 1776, when Adam Smith published . ███ ██████ ██ ████████ █████ █████ ██ ███ ████████ ███████ ███ ███ ███████ ███ ███ █████████ █████

Intro topic · Warsh's book about conflict between Pin Factory and Invisible Hand

Conflict was part of economic theory since Adam Smith's Wealth of Nations.

Pin Factory · Increased efficiency through increased size

Pin factory's employees can make more by specializing on narrow tasks.

Invisible Hand · Acting out of self-interest can lead to common good

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Conflict · Increasing returns from scale (Pin factory) leads to monopoly, which means Invisible Hand doesn't work

Invisible Hand requires many competitors in an industry.

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Assumption underlying idea that free markets always get it right · Returns to scale are diminishing, not increasing

This assumption is the opposite of the Pin Factory model.

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Why Pin Factory was de-emphasized · The model of diminishing returns was easier to represent mathematically

The Pin Factory model was more difficult to represent mathematically.

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Pin Factory now mainstream · Once it could be described with enough math rigor, Pin factory entered mainstream

Passage Style

Single position

Spotlight

20.

Which one of the following ████ ███████████ ███ ███████ ██ ██████████ ███████ ██ █████ █████████ ██ ███ ██████ █████████ ██ ███ ████████

Question Type

Application

P2 describes increasing returns to scale by noting that a pin factory’s employees, by specializing in a narrow range of tasks, can make more than they could if they worked independently. Let’s look for an answer involving specialization in a narrow range of tasks.

A publishing house ██ ████ ██ ███████ ███████ ███ ████████████ ██ ███ ███████ ██ ████████ ███ █████████ ██ █████ █████ ███████ ████ ███████ ████ ██████ ███ ██████████ █████ ██ ██████ ████ █████ ████████

Relaxing standards isn’t similar to specializing in a narrow range of tasks.

A large bee ██████ ██ ████ ██ ███ ████ ████ ██████ ██ █████ ███ ██████ ████████ ████ ███████ ███ ██████ ██ ███████ ████ ███████ █████ ███ ████ █ ██████ ██████ ████ ███ ██████ ██████ ██ ███ ████ ██ ██████████ ███ ███████

This is most analogous because it involves specialization in a narrow range of tasks. Some bees specialize in guarding nectar sources. And the work of processing the nectar is “divided.”

84%

A school district █████████ ███ █████ ██████ ██ ████████ ████ ███ ██ ████████████ ██ █ ██████ ████████ ██ █████████ ██ ██████████ ██████████ ████ █ █████████ ███████ ██ ███ ███████ ████ ██ ████████ ██ ███ █████ █████

It’s not clear that anyone is specializing in a narrow range of tasks.

The lobster industry ██ █ █████ ██ ████ ██ █████ █████████████ ████ ████████ █ ███ ████ ███ ████ ██████ ██ █████ ███████ ████████ ██ ██████████ ████ ███ █████ ██ ███ █████ ██████ ███ ████████ ██ ███ ████████

Advances in technology are not similar to specialization in a narrow range of tasks.

A large ant ██████ ███████ ███ ████████ ███ █████████ ████████ ████ ████ ██████████ ████ █████ ███ ██████████ ██████ ██ ██████ ████ ████ █████████ █████ ████████ ████████ ███████ ████ ████ ████ █████ ████ ███████ ██ ███ ███████

It’s not clear that there’s specialization in a narrow range of tasks. Colonies are divided, but we have no idea whether colonies specialize in different things or whether individual ants specialize in different things.

PrepTest 138 - Section 1 - Passage 3 - Question 20

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