@Crystal this is a Paradox question, which means there is some discrepancy in the stimulus and the correct answer will serve as a possible explanation for it, i.e. the correct answer will resolve the discrepancy.
So what is the discrepancy here?
Well the discrepancy is that "the lack of proximity either to markets or to raw materials often causes municipalities to lose prospective businesses, whereas having a higher than average business tax rate rarely has this effect."
Why is this a discrepancy? Because businesses look for (1) an educated work force, (2) a high level of services, (3) a low business tax rate, and (4) close proximity to markets and raw materials and each of these considerations has approximately equal importance.
So these are of equal importance but not having (4) is causing municipalities to lose prospective businesses but not having (3) is not.
How can this be?
alymathieuJanuary 3, 2019
Why is there nothing else here
RaviJanuary 3, 2019
@alymathieu,
Happy to help. The stimulus tells us a number of different factors that businesses look for when deciding where to relocate and says that they are considered to be approximately equal in importance. However, the lack of proximity either to markets or to raw materials is often dealbreakers, whereas having a higher than average business rate is rarely a dealbreaker.
The paradox in this question is that if all of the business considerations are weighed equally, then how can some of them frequently be dealbreakers, while others almost always aren't dealbreakers?
The question stem asks us to select an answer that helps us resolve the paradox. We're looking for an answer that helps shed light into how some of the business factors (lack of proximity to either markets or raw materials) can be dealbreakers while others (having a higher than average tax rate) can rarely have a deal-breaking effect.
Answer A is incorrect because we are not worried about municipality tax revenue and the proportion of it that comes from businesses. What we care about is why businesses consider certain things like lack of proximity to either markets or raw materials to be dealbreakers and other things like higher than average tax rate not to be dealbreakers when these factors are supposedly weighed equally by the businesses. This answer does nothing to help us explain this paradox.
Answer B says that in general, the higher the rate at which municipalities tax businesses, the more those municipalities spend on education and on providing services to businesses. If this is true, then this means that when taxes are higher (which is one of the factors), improvements in two of the other factors (educated workforce and providing services to businesses) occur. This would help explain why higher than average tax rates are not a dealbreaker. Although businesses don't like them, the higher than average tax rates tend to improve two of the other factors that the businesses consider. If they're all weighted equally, then it makes sense that the business could overlook this negative. This is the correct answer.
Answer C is incorrect because we already know that businesses sometimes leave a municipality after that municipality has raised its taxes on businesses, as it says that higher than average business tax rates rarely causes municipalities to lose business. In using the word "rarely," the possibility is left open that this occasionally occurs. Answer C is just giving us information that we already know, and it's doing nothing to help us explain why businesses often do not leave a city with higher than average business tax rates. This answer is out.
Answer D is incorrect because it's describing members of the workforce, and we're concerned with why businesses have some factors as dealbreakers and others aren't often dealbreakers. This answer does nothing to help us resolve the paradox we've outlined above.
Answer E is tricky, but ultimately it is incorrect because it is not a strong enough statement to help us resolve the paradox. E says that businesses have sometimes tried to obtain tax reductions from municipalities by suggesting that without such a reduction the business might be forced to relocate elsewhere. if this answer had said that businesses are "almost always succeed in convincing a municipality to lower taxes by threatening to move elsewhere," then this would have worked. However, as the answer is worded, it's way too weak for us and does not allow us to draw a conclusion that helps resolve the paradox. So what if they sometimes try to get tax reductions? Do they succeed or fail at doing this? We can eliminate this answer choice.
Does this help? Let us know if you have any more questions!
