Four Legal Approaches May be Followed in Attempting to Channel GMAT Reading Comprehension

Reading Passage Question

Four legal approaches may be followed in attempting to channel technological development in a socially useful direction: specific directives, market incentive modifications, criminal prohibitions, and changes in decision-making structures. Specific directives involve the government identifying one or more factors controlling research, development, or implementation of a given technology. Directives affecting such factors may vary from administrative regulation of private activity to government ownership of a technological operation. Market incentive modifications are deliberate alterations of the market within which private decisions regarding the development and implementation of technology are made. Such modifications may consist of imposing taxes to cover the costs to society of a given technology, granting subsidies to pay for social benefits of a technology, creating the right to sue to prevent certain technological development, or easing procedural rules to enable the recovery of damages to compensate for harm caused by destructive technological activity. Criminal prohibitions may modify technological activity in areas impinging on fundamental social values, or they may modify human behavior likely to result from technological applications—for example, the deactivation of automotive pollution control devices in order to improve vehicle performance. Alteration of decision-making structures includes all possible modifications in the authority, constitution, or responsibility of private and public entities deciding questions of technological development and implementation. Such alterations include the addition of public-interest members to corporate boards, the imposition by statute of duties on governmental decision-makers, and the extension of warranties in response to consumer action.

Effective use of these methods to control technology depends on whether or not the goal of regulation is the optimal allocation of resources. When the object is optimal resource allocation, that combination of legal methods should be used that most nearly yields the allocation that would exist if there were no external costs resulting from allocating resources through market activity. There are external costs when the price set by buyers and sellers of goods fails to include some costs, to anyone, that result from the production and use of the goods. Such costs are internalized when buyers pay them.

Air pollution from motor vehicles imposes external costs on all those exposed to it, in the form of soiling, materials damage, and disease: these externalities result from failure to place a price on air, thus making it a free good, common to all. Such externalities lead to non optimal resource allocation, because the private net product and the social net product of market activity are not often identical. If all externalities were internalized, transactions would occur until bargaining could no longer improve the situation, thus giving an optimal allocation of resources at a given time.

“Four legal approaches may be followed in attempting to channel technological development”- is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 7 comprehension questions. The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analyzing, and applying information or concepts. Candidates can actively prepare with the help of GMAT Reading Comprehension Practice Questions.

Solution and Explanation

1. The passage is primarily concerned with describing

(A) objectives and legal method for directing technological development
(B) technical approaches to the problem of controlling market activity
(C) economic procedures for facilitating transactions between buyers and sellers
(D) reasons for slowing the technological development in light of environmentalist objections\
(E) technological innovations making it possible to achieve optimum allocation of resources

2. The author cites air pollution from motor vehicles in lines 54-56 in order to

(A) revise cost estimates calculated by including the costs of resources
(B) evaluate legal methods used to prevent technological developments
(C) give examples of costs not included in buyer-seller bargains
(D) refute hypotheses not made on the basis of monetary exchange values
(E) commend technological research undertaken for the common welfare

3. According to the passage, transactions between private buyers and sellers have effects on society that generally

(A) are harmful when all factors are considered
(B) give rise to ever-increasing resource costs
(C) reflect an optimal allocation of natural resources
(D) encompass more than the effects on the buyers and sellers alone
(E) are guided by legal controls on the development of technology

4. It can be inferred from the passage that the author does NOT favor which of the following?

(A) Protecting the environment for future use
(B) Changing the balance of power between opposing interests in business
(C) Intervening in the activity of the free market
(D) Making prices reflect costs to everyone in society
(E) Causing technological development to cease

5. A gasoline-conservation tax on the purchase of large automobiles, with the proceeds of the tax rebated to purchasers of small automobiles, is an example of

(A) a specific directive
(B) a market incentive modification
(C) an optimal resource allocation
(D) an alteration of a decision-making structure
(E) an external cost

6. If there were no external costs, as they are described in the passage, which of the following would be true?

(A) All technology-control methods would be effective.
(B) Some resource allocations would be illegal.
(C) Prices would include all costs to members of society.
(D) Some decision-making structures would be altered.
(E) The availability of common goods would increase.

7. The author assumes that, in determining what would be an optimal allocation of resources, it would be possible to

(A) assign monetary value to all damage resulting from the use of technology
(B) combine legal methods to yield the theoretical optimum
(C) convince buyers to bear the burden of damage from technological developments
(D) predict the costs of new technological developments
(E) derive an equation making costs depend on prices

8. On the basis of the passage, it can be inferred that the author would agree with which of the following statements concerning technological development?

(A) The government should own technological operations.
(B) The effect of technological development cannot be controlled.
(C) Some technological developments are beneficial.
(D) The current state of technological development results in a good allocation of resources.
(E) Applications of technological developments are criminally destructive.

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