ALSOL is a microcredit program in Mexico that makes small loans to female entrepreneurs who lack the collateral and credit...
GMAT Information and Ideas : (Ideas) Questions
ALSOL is a microcredit program in Mexico that makes small loans to female entrepreneurs who lack the collateral and credit history to secure financing from conventional banks. Borrowers use their business proceeds to repay loans in equal weekly installments and incur no penalty for missed payments other than lack of access to larger loans. Economists Gustavo Barboza and Sandra Trejos analyzed ALSOL data and found that rural borrowers, who mostly make and sell handicrafts, miss payments more often than urban borrowers do, partly because they sell their goods less frequently than they could. Barboza and Trejos claim that this behavior reflects strategic decisions that enable rural women to increase their profits per unit sold.
Which finding, if true, would most directly support Barboza and Trejos's claim?
Many marketplaces require entrepreneurs to pay marketplace operators a fixed percentage of each day's proceeds in exchange for permission to sell goods there.
Rural entrepreneurs can typically sell their goods for higher prices in cities than in their home areas, but the number of people selling competing goods tends to be higher in cities.
Due to the lower costs they incur, rural entrepreneurs tend to require smaller initial loans than urban entrepreneurs do.
The cost to rural entrepreneurs to bring their goods to towns with marketplaces is high but largely independent of the number of goods they bring.
Step 1: Decode and Map the Passage
Part A: Create Passage Analysis Table
| Text from Passage | Analysis |
|---|---|
| "ALSOL is a microcredit program in Mexico that makes small loans to female entrepreneurs who lack the collateral and credit history to secure financing from conventional banks." |
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| "Borrowers use their business proceeds to repay loans in equal weekly installments and incur no penalty for missed payments other than lack of access to larger loans." |
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| "Economists Gustavo Barboza and Sandra Trejos analyzed ALSOL data and found that rural borrowers, who mostly make and sell handicrafts, miss payments more often than urban borrowers do, partly because they sell their goods less frequently than they could." |
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| "Barboza and Trejos claim that this behavior reflects strategic decisions that enable rural women to increase their profits per unit sold." |
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Part B: Provide Passage Architecture & Core Elements
Main Point: Economists argue that rural borrowers strategically miss loan payments because selling less frequently actually increases their profits per unit sold.
Step 2: Interpret the Question Precisely
What's being asked? The question asks which finding would most directly support Barboza and Trejos's claim that missing payments reflects strategic profit-maximizing decisions.
What type of answer do we need? Evidence showing there's a logical economic reason why selling less frequently would be more profitable.
Any limiting keywords? "Most directly support" - need the strongest, most relevant evidence for the strategic profit claim.
Step 3: Prethink the Answer
- To support the claim that rural borrowers strategically choose to sell less frequently to increase profits per unit, we need evidence showing there's a logical economic reason why selling less often would be more profitable
- The correct answer should provide an economic incentive that makes strategic sense for why selling less frequently would maximize profits per unit
Many marketplaces require entrepreneurs to pay marketplace operators a fixed percentage of each day's proceeds in exchange for permission to sell goods there.
✗ Incorrect
- Describes marketplace fees as percentage of daily proceeds
- This doesn't explain why selling less frequently would increase profit per unit since percentage fees apply equally regardless of frequency
Rural entrepreneurs can typically sell their goods for higher prices in cities than in their home areas, but the number of people selling competing goods tends to be higher in cities.
✗ Incorrect
- Mentions higher prices in cities but also more competition
- These factors work against each other and don't clearly support strategic timing decisions
Due to the lower costs they incur, rural entrepreneurs tend to require smaller initial loans than urban entrepreneurs do.
✗ Incorrect
- About initial loan amounts needed, not about selling strategies
- Has no connection to why missing payments would be strategic for profit maximization
The cost to rural entrepreneurs to bring their goods to towns with marketplaces is high but largely independent of the number of goods they bring.
✓ Correct
- Creates a cost structure where transportation expenses are high but fixed regardless of quantity
- This means bringing more goods per trip reduces transportation cost per unit, perfectly explaining why strategic timing of sales would increase profits per unit sold