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Answer: DSet 1: Command of Evidence (Intermediate)
Explanation
PASSAGE
Economists generally agree that tariffs (taxes on imports) raise prices for consumers. However, a specific tariff on imported steel in Country Y did not lead to higher car prices. Analysts suggest this is because car manufacturers absorbed the cost instead of passing it on.
Which finding supports the analysts' suggestion?
A. The profit margins of car manufacturers in Country Y decreased significantly.
B. Consumers started buying fewer cars.
C. Steel production in Country Y increased.
D. The tariff was repealed after six months.✓ Correct
Detailed Explanation
If manufacturers 'absorbed the cost', their costs went up while their prices stayed the same. This mathematically must reduce their profit margins.
Key Evidence:
• "absorbed the cost instead of passing it on"
Why others are wrong: B (This would happen if prices went UP.), C (Irrelevant to the *price* mechanism.), D (Irrelevant to the economic effect while it was active.).