Complaints that milk bottlers take enormous markups on the bottled milk sold to consumers are most likely to arise wh...

shunhe on January 4, 2021

Hi @liwenong28,

Thanks for the question! So this is a must be true question. Let’s figure out what the stimulus is telling us. The argument starts off with its conclusion, which is that complaints about markups on bottled milk are most likely when they’re least warranted. And how do we tell that they’re the least warranted? Based on the actual spread between the price paid for raw milk and the price they’re selling bottled milk for. When bottled-milk prices go up, it actually just reflects the rising price of raw milk. When raw milk price goes up, the markups are actually smallest proportionate to the retail price. But when the raw-milk price falls, the markups are greatest.
?So this is a lot of econ terminology, but you can tell that milk bottlers don’t respond to a decrease in raw-milk prices by straightaway proportionately lowering the price of the bottled milk they sell. Because if they did, then the ratio would stay the same between high prices and low prices. But we’re told that this doesn’t happen, and so (D) is the correct answer.

Hope this helps! Feel free to ask any other questions that you might have.

liwenong28 on January 5, 2021

Thank you for your explanation!

shunhe on January 16, 2021

Glad you found it helpful! Let us know if you have any further questions.