PT138.S1.P3.Q22 > Analytics

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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

22.

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

Question Type

WSE (RC)

The author states that increasing returns creates a tendency toward monopoly, because a large business can achieve larger scale and lower costs than a small business. We want to undermine the author’s position, so let’s look for an answer that suggests a large business might not necessarily be able to achieve larger scale and lower costs than a small business or might not necessarily drive small firms out of business.

In some industries, █████ ███ ██████████ ████ ███ ████ ██ █████ ████████ █████ ██ ███ ████████████ ██████ ████ ██████ █████ ███ ██████ ██████████ ██ ███ ████ ████████ ██ █████ ████████

This gives us an example of monopoly power, so it’s not clear how this would undermine the author’s position.

21%

As the tasks ███████ █████ ██ ██████ █████████ ███ ███████ ███ ███ ████ ██ ███████ ██ ████ █ ██████ ██ ████ ████ ████ ██████████ █ ███████ ███████ ██ ██████

It’s not clear how workers’ salary relates to the author’s position on increasing returns and monopolies.

When an industry ██ █████████ ██ ████ █ ███ ████████ █████ ██████████ █████ ███████ ██ █████ ██ ███ ██████ ██ ████ ██ █ ████ ████████ ██████

This tells us that prices can be as high even when there isn’t monopoly. It’s not clear how this undermines the author’s position that increasing returns to scale is associated with monopoly.

10%

The size that █ ████████ ████ █████ ██ █████ ██ █████ ██ ███████ ██████████ ███████ ██ █████ ██████ ██████ ████ ████████ ██ █████████

This doesn’t suggest that increasing returns might not be associated with monopoly. (D) just indicates that there are different levels of business size to achieve increasing returns; but once those returns are achieved, does business tend toward monopoly? (D) doesn’t suggest an answer.

If a business ███ ████ ███████████ ████████ ███ █████ ██ ████████████ ████████ ██ ██████ ███████ ████ ████ ███████████ ███ ██████ ██ █████ ███████ ████ ██ ██████ ████████ █████ ███ █████████ █████████

This undermines the author’s position by suggesting that even if a large business is able to have its workers specialize, the benefits of specialization are outweighed by other things. So, a large business isn’t necessarily more productive than a small one and wouldn’t necessarily drive small firms out of business.

58%

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PrepTest 138 - Section 1 - Passage 3 - Question 22

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PrepTest 138 - Section 1 - Passage 3 - Question 22

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