Reading comp PrepTest 148 · Section 2 · Question 14

Passage

 . Passage A  .       Insider-trading law makes it a crime to make  . stock transactions, or help others make stock Remaining source text redacted.
Passage walkthrough
Passage Summary

Topic: Legal Studies


Passage A

Paragraph 1

  • Paragraph note
    • A crime is defined
  • Views, minor Meta-Structures, points of intersection, and the author's attitude
    • Insider trading - stock transactions based on special info from working for the company

Paragraph 2

  • Paragraph note
    • Author questions the whether it should be a crime
  • Views, minor Meta-Structures, points of intersection, and the author's attitude
    • Trading based on info only you have - isn’t that part of a functioning market?
    • g. Analyzing a stock and deciding it’s overvalued (did your homework)

Paragraph 3

  • Paragraph note
    • How stock markets work, and when they function best
  • Views, minor Meta-Structures, points of intersection, and the author's attitude
    • Stock market - Reflects everyone’s info
    • Work best - All relevant info is spread widely and quickly

Paragraph 4

  • Paragraph note
    • Tying insider trading to functional stock market
  • Views, minor Meta-Structures, points of intersection, and the author's attitude
    • Insider info → Buy/sell a stock → Get that info out → Good for everyone!

Paragraph 5

  • Paragraph note
    • Insider trading compared to something else
  • Views, minor Meta-Structures, points of intersection, and the author's attitude
    • “Insider nontrading” - when someone doesn’t sell/buy because of what they know
    • More common and clearly legal

Passage B

Paragraph 1

  • Paragraph note
    • A basic principle of the stock market is noted
  • Views, minor Meta-Structures, points of intersection, and the author's attitude
    • Basic principle - Transparency - Everyone has all the info at the same time, and skill determines who makes money

Paragraph 2

  • Paragraph note
    • Insider trading is showed to violate this principle
  • Views, minor Meta-Structures, points of intersection, and the author's attitude
    • Insider trading - Some make decisions that others don’t
    • Author - That’s unfair
    • Outcome - Difficult/impossible for some to make money

Paragraph 3

  • Paragraph note
    • Eventual repercussions of insider trading
  • Views, minor Meta-Structures, points of intersection, and the author's attitude
    • People - Invest to make money
    • People trade with insider info → Investors lose confidence → Stop investing → Market destroyed

Main Points:

Passage A - Because it’s analogous to a practice that should clearly be legal and it gets information out quickly, insider trading is good for the stock market.

Passage B - Because it unfairly compromises the market and doesn’t reward skilled investing, insider trading can cause a loss of investor confidence that will destroy the market.

Key Lines?

Passage A:

  • Lines 6-8 - Rhetorical question that shows Author’s attitude
  • Lines 16-18 - Author’s opinion of when markets work “best”
  • Paragraph 4 - Step-by-step argument of how insider trading helps
  • Lines 35-36 - Author uses comparison to make same point

Passage B:

  • Lines 37-38 - Author states “basic principle[]” of stock market
  • Lines 50-51 - Author states opinion on insider trading (unfair)
  • Paragraph 3 - Step-by-step argument of how insider trading hurts

Meta-Structure? Relationship Between Passages?

Both passages feature strong opinions on the same topic - insider trading. However, their opinions are the opposite of each other. Passage A believes that insider trading is good for the stock market, in that it “helps spread the knowledge” quickly (Lines 24-27). Passage B, on the other hand, argues that it will “destroy the market” through a loss of investor confidence (Lines 55-56).

Causal chain - Both passages feature a causal chain of how insider trading will lead to the outcome they predict, even if that outcome is different. Passage A argues that someone learns insider info, causing them to trade on it, causing others to notice the change in price, causing the information to spread (Paragraph 4). Passage B argues that someone learns insider info, causing them to trade on it, causing others to lose confidence that they can make money without insider info, causing them to stop investing, causing the market to crash (Paragraph 3). These causal progressions will likely feature in at least one question.

Last Thoughts?

Passage A’s comparison to “insider nontrading” is interesting in that it almost functions as a separate argument, and one that falls into a common pattern of reasoning. If that paragraph was removed from the passage, the Author’s initial argument would still stand on its own. And that last paragraph could itself serve as the basis for a separate passage on why insider trading should be legal. It also serves as one of our common methods of reasoning - showing that similar logic in an analogous case leads to a ridiculous outcome (“No one would think to…”).

Question prompt

Both passages are primarily Remaining source text redacted.
Why the credited answer is right

Credited answer: D

The notes below walk through why it fits the stem and how to eliminate the rest.

Question Type

Legal

Strategy Overview

Review the main points of both passages, then identify the overlap that can lead us to the primary concern

Answer Anticipation

Both passages dealt with the same topic - insider trading - so the correct answer will deal with that.Passage A argued that insider trading was good for the market because it leads to insider information getting out to investors quickly (Paragraph 4). Passage B, on the other hand, argued that insider trading is bad for the market because it erodes investor confidence and could eventually destroy the market (Lines 55-56).So both passages answer the question, “Is insider trading good for the market?” While they arrive at opposite answers, it’s what they’re both concerned with, so let’s find an answer posing that question.

Answer choices

  1. A
    How is insider trading Remaining source text redacted.
    Why choice A is not credited

    (A) (Lines 1-5; Lines 46-48) Both passages suggest definitions of insider trading, but they both have opinions on whether it’s good for the market. As such, this question isn’t central to the passages - it’s background that is used to set up a normative argument.

  2. B
    Should there be severer Remaining source text redacted.
    Why choice B is not credited

    (B) (Line 1; Line 31; Line 36) Passage A, in talking about insider-trading law and locking people up, arguably addresses this question, but Passage B doesn’t talk about the penalties. Also, be careful with this answer - it’s about whether there should be severerpenalties. Passage B might imply that there should be penalties for insider trading based on what it says, but since it fails to talk about the current penalties, we can’t infer that the Author thinks they should be more severe.

  3. C
    Why do investors engage Remaining source text redacted.
    Why choice C is not credited

    (C) (Lines 24-26; Lines 51-52) Both passages imply an answer to this question (to make money based on information others don’t have), but neither is centrally concerned with answering it. They both just assume it to be the case rather than exploring the motivations behind it.

  4. D
    Is insider trading harmful Remaining source text redacted.
    Why choice D matches the stem

    (D) (Lines 29-30; LInes 55-56) Both passages are interesting in arguing what effect insider trading has on the stock market. Passage A argues that it spreads information around quickly, which is “good” for the stock market. Passage B argues it erodes investor confidence, which “could ultimately destroy” it. Since this opinion on the topic is the central concern of each passage, this is the correct answer.

  5. E
    What is the best Remaining source text redacted.
    Why choice E is not credited

    (E) (Line 36) Neither passage really talks about how to regulate insider trading, let alone the “best” way to do so. The closest is Passage A’s assertion that it shouldn’t be a crime, but that also doesn’t mean it shouldn’t be regulated.

What this tests

Question analytics

Based on historical answer selection rates for this question.

Answer choice distribution

  1. A 6%
  2. B 2%
  3. C 2%
  4. D Credited 88%
  5. E 2%

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