#10 - The government of Penglai, an isolated island

[kristinajohnson@berkeley.edu]

I'm struggling to understand why B is correct. The island merchant(s) IS(ARE) assuming that outdoor advertising increased market share (which isn't the same as volume of business) by diverting trade from competing businesses, NOT by some means other than that! Right?

So, is the reason this choice is THE flaw because 1 it confuses volume of business with market share and 2 (and the thing I'm most struggling with because it makes sense that with a small sign a business probably would attract less people compared with a big sign) because signs aren't the only reason the island merchants volume could decrease? Wow the wording for B!

Thank you.

[Jeff Wren]

Hi kristina,

The argument is making a common numbers/percentages error, specifically assuming that a decrease in a particular business's market share would mean a decrease in total volume of business in the industry (rather than simply shifting the lost market share to other businesses in the industry).

Here's an example that may be helpful.

Imagine three businesses on the island that sell bicycles.

Company A (which uses advertising) sells 60 bicycles a year.
Companies B and C (which do not use advertising) each sell 20 bicycles a year.
The total market volume for bicycle sales is 100 each year.

Based on these facts (that the company that uses advertising sell more bicycles) than the companies that don't, the argument assumes that if advertising were removed, then Company A would sell fewer bicycles (perhaps selling as few as 20), but that Companies B and C would still sell the same amount. In other words, the argument would assume that the 40 extra bicycles that Company A sells is simply due to the advertising and would not otherwise be sold (implying that people on the island are buying extra bicycles from Company A that they really don't need because the advertising is so good).

Instead, what is probably more likely is that people on the island need to buy 100 bicycles per year, and elimination of advertising would probably just shift the distribution of the 100 bicycle sales more evenly among the three companies.

Answer B captures this flaw. This answer means that the argument assumes that the larger market share that the companies with advertising have obtained came from additional sales that otherwise would not have happened (meaning the advertising caused people to buy more than they otherwise would have) rather than simply taking away sales from competing businesses who didn't use advertising.