Reading comp PrepTest 148 · Section 2 · Question 17

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

Which one of the Remaining source text redacted.
Why the credited answer is right

Credited answer: E

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

Question Type

Legal

Strategy Overview

Reiterate the overall position articulated in each passage, then find a law that lines up with the one in Passage A but not in Passage B

Answer Anticipation

First, let’s talk about the question stem, breaking it into two parts. The first part asks us to find an answer that conforms to the argument in Passage A. That’s a fairly straightforward way to phrase a Must be True question - which answer lines up with the information in the passage. The second part asks us to find an answer that doesn’t conform to the argument in Passage B. So we’re looking for something that lines up with the argument in Passage A but not the one in Passage B.What were those arguments?Passage A - That insider trading is good because it gets information out to the rest of the market quickly (Lines 24-30). The Author also says that current laws making this a crime are off-base because “the very definition of a functioning stock market” involves trading on information you have that everyone else doesn’t (Lines 6-8), and that an analogous practice rightfully isn’t a crime and shouldn’t be (Paragraph 5). So the Author of Passage A would think that a law that allows insider trading would be justified, and we should look for an answer saying as much.Passage B - Insider trading could destroy the stock market (Lines 55-56). So Passage B would likely support laws that make it illegal to insider trade.Let’s start by looking for answers that propose laws allowing for insider trading, then focus on the details of those (if there’s more than one) to find the right answer.

Answer choices

  1. A
    a law that prohibits Remaining source text redacted.
    Why choice A is not credited

    (A) (Lines 29-30) The Author of Passage A believes insider trading is good for everyone in the market, and that making it a crime is a bit ridiculous (“No one would think…”), so this answer runs counter to her argument.

  2. B
    a law that permits Remaining source text redacted.
    Why choice B is not credited

    (B) (Lines 4-8; Lines 29-30) The Author of Passage A explicitly notes that insider trading involves information that one has gained because of their position within a company, and she still argues that allowing for that information to serve as the basis of trades is “good for everyone in the stock market.” So she wouldn’t support a law that makes trading based on this info illegal.

  3. C
    a law that prohibits Remaining source text redacted.
    Why choice C is not credited

    (C) (Lines 55-56) The Author of Passage B was the one concerned with investor confidence in the marketplace, so she’d push for such a law. We don’t know the Author of Passage A’s opinion on this subject - she may believe that such a law is warranted, but that insider trading doesn’t hurt investor confidence and thus shouldn’t be banned as a part of this law.

  4. D
    a law that legalizes Remaining source text redacted.
    Why choice D is not credited

    (D) (Lines 24-27) This answer is tricky. In arguing for allowing insider trading, the Author does cite the case of someone having information that would cause the stocks price to drop soon. However, she doesn’t say that the same reasoning doesn’t apply to when the stock should be rising soon - and, in fact, logically, there’s no difference between the two. So this answer is ultimately unsupported.

  5. E
    a law that legalizes Remaining source text redacted.
    Why choice E matches the stem

    (E) (Line 14-15) Passage A argues that insider trading is good for everyone in the marketplace, as it gets information out quickly. So the first half of this answer lines up with her main point, but what about the second part? The Author also argues that trading on insider information is the same as any other type of unique information, including stock analysis, and that doesn’t make you a criminal. However, engaging in theft or other unlawful stuff would make you a criminal, and there’s nothing in Passage A suggesting otherwise. Thus, it conforms with Passage A to make exclusions for illegally gathered information, even if that part of this answer isn’t explicitly stated in Passage A. And Passage B thinks insider trading is destructive, so this answer doesn’t conform with that argument.

What this tests

Question analytics

Based on historical answer selection rates for this question.

Answer choice distribution

  1. A 3%
  2. B 11%
  3. C 4%
  4. D 15%
  5. E Credited 67%

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Discussion

  • Answer Choice E 3 replies

    Started by achalfp97

  • E over D 3 replies

    Started by Meredith

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