New home buyers are all financially protected against bankruptcy of the contractor because of a law requiring the contractor to get bank backing to insure all individual investments. An economist argues that this insurance is partly responsible for the high rate of bankruptcies among contractors, since it removes from buyers any financial incentive to find out the financial status of the contractor they are hiring. If buyers were more selective, then contractors would need to be secure in order to compete for buyers. Which of the following, if true, most seriously weakens the economist's argument?

Question

Examsnet · Accepted Answer

Correct Answer is :  When the law did not insure buyers against the bankruptcies of building contractors, frequent bankruptcies occurred as result of depositors' fears of investing money in a newly built house.

GMAT Verbal Reasoning Practice Test 1