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In the year following an eight-cent increase in the federal [#permalink]
27 Aug 2006, 04:24
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In the year following an eight-cent increase in the federal tax on a pack of cigarettes,sales of cigarettes fell ten percent. In contrast, in the year prior to the tax increase, sales had fallen one percent. The volume of cigarette sales is therefore strongly related to the
after-tax price of a pack of cigarettes.
The argument above requires which of following assumptions?
A. During the year following the tax increase, the pretax price of a pack of cigarettes did not increase by as much as it had during the year prior to the tax increase.
B. The one percent fall in cigarette sales in the year prior to tax increase was due to a smaller tax increase.
C. The pretax price of a pack of cigarettes gradually decreased throughout the year before and the year after the tax increase.
D. For the year following the tax increase, the pretax price of a pack of cigarettes was not eight or more cents lower than it had been the previous year.
E. As the after-tax price of a pack of cigarettes rises, the pretax price also rises.