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In the year following an eight-cent increase in the federal

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In the year following an eight-cent increase in the federal [#permalink] New post 04 Feb 2007, 14:41
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A
B
C
D
E

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40% (02:19) correct 60% (02:30) wrong based on 22 sessions
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 the 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 the 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 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 in the previous year.

E. As the after-tax price of a pack of cigarettes rises, the pretax price also rises.
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 [#permalink] New post 04 Feb 2007, 17:25
An assumption is a premise required to make the conclusion in the argument.

Lets says a pack costed 100 cents before the tax increase. If the pre-tax price dropped by 8 cents, then the pre-tax cost would be (100-8)=92 cents. After applying the increased tax, the new price would be 1.00(0.92+0.08).

If this was true, then the federal tax increase would not have made any difference to the price. So, the conclusion that the drop in sales was due to the tax increase would not hold water. For the conclusion to be true, we need to assume that the pre-tax price did not decrease by 8 cents. This can be re-written as

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 in the previous year.

D is the required assumption.

Last edited by ncp on 04 Feb 2007, 20:09, edited 1 time in total.
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 [#permalink] New post 04 Feb 2007, 18:56
Wow, I went for B first, but I see that this seems right. I actually misread 8 cent as 8% when I chose B.

ncprasad wrote:
An assumption is a premise required to make the conclusion in the argument.

Lets says a pack costed 100 cents before the tax increase. If the pre-tax price dropped by 8 cents, then the pre-tax cost would be 0.92(100)=92 cents. After applying the increased tax, the new price would be 1.08(0.92)=99.36.

If this was true, then the federal tax increase would not have made any difference to the price. So, the conclusion that the drop in sales was due to the tax increase would not hold water. For the conclusion to be true, we need to assume that the pre-tax price did not decrease by 8 cents. This can be re-written as

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 in the previous year.

D is the required assumption.
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 [#permalink] New post 05 Feb 2007, 02:12
One more D.
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 [#permalink] New post 20 Feb 2007, 07:37
'D'

if the price is 8 or more cents lower then the cigarette price would be same as prior yr or less. So the pre-tax price should be minimum (prior price - 7 cents or less).
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 [#permalink] New post 23 Feb 2007, 18:13
yes. D) is the best answer for the reasons ncrprasad explained.
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 [#permalink] New post 24 Feb 2007, 11:19
OA is D. good explanation ncprasad
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Re: CR - Cigarette Taxes [#permalink] New post 18 Feb 2009, 23:43
I chose 'D' too, but after reviewing Exam 2 in the GMAT Prep software, it says that 'B' is the correct answer....anyone care to explain? (either the discrepancy or why 'B' is the right/wrong answer)...
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Re: CR - Cigarette Taxes [#permalink] New post 19 Feb 2009, 01:12
The answer is B.

According to the question
"The volume of cigarette sales is therefore strongly related to the after-tax price of a pack of cigarettes."

The question asks how the increase in taxes has an effect on the sales?

According to option D:
The pretax price of a pack of cigarettes, only talks about the pretax price of cigarettes in the previous year (before the tax was increased) and the year (after the tax was increased), the option does not specify a relation between how the price and sales are related.

Only option B, clearly articulates the relation between the cigarette price (the pre-tax price may remain the same for both the years, but due to increase in tax the net cost would be different) and sales.
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Re: CR - Cigarette Taxes [#permalink] New post 13 Mar 2010, 12:09
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+1 for D
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Re: CR - Cigarette Taxes [#permalink] New post 09 Feb 2011, 15:09
One more for B.
D only talks that consumers did have less income, not that they would buy fewer packages of cigarettes
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Re: CR - Cigarette Taxes [#permalink] New post 13 Feb 2011, 22:26
+1 D
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Re: CR - Cigarette Taxes [#permalink] New post 14 Feb 2011, 02:05
I initially went for B. What is the source of this question?
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Re: CR - Cigarette Taxes [#permalink] New post 12 Apr 2011, 02:52
The answer is D.
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Re: CR - Cigarette Taxes   [#permalink] 12 Apr 2011, 02:52
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