Find all School-related info fast with the new School-Specific MBA Forum

It is currently 20 Oct 2014, 13:15

Close

GMAT Club Daily Prep

Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

Events & Promotions

Events & Promotions in June
Open Detailed Calendar

pt question

  Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
Manager
Manager
avatar
Joined: 30 Mar 2007
Posts: 183
Followers: 1

Kudos [?]: 5 [0], given: 0

pt question [#permalink] New post 05 May 2007, 07:10
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 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.
Senior Manager
Senior Manager
User avatar
Joined: 27 Mar 2007
Posts: 329
Followers: 1

Kudos [?]: 21 [0], given: 0

 [#permalink] New post 05 May 2007, 07:40
Year X 8% increase in tax , sales fell 10%.
Year before X sales had fallen 1%.

Conclusion: The volume of cigarette sales is strongly related to the after-tax price of a pack of cigarettes.

A. Out of scope, we don't know.
B. The 1% fall in sales in the year before X was due to a smaller tax increase. Seems logic, best answer!
C. Out of scope, we don't know.
D. Out of scope, we don't know.
E. There is a correlation between tax and sales and not between tax and tax, therefore wrong!
Director
Director
User avatar
Affiliations: FRM Charter holder
Joined: 02 Dec 2006
Posts: 736
Schools: Stanford, Chicago Booth, Babson College
Followers: 7

Kudos [?]: 22 [0], given: 4

 [#permalink] New post 05 May 2007, 07:47
catgmat wrote:
Year X 8% increase in tax , sales fell 10%.
Year before X sales had fallen 1%.

Conclusion: The volume of cigarette sales is strongly related to the after-tax price of a pack of cigarettes.

A. Out of scope, we don't know.
B. The 1% fall in sales in the year before X was due to a smaller tax increase. Seems logic, best answer!
C. Out of scope, we don't know.
D. Out of scope, we don't know.
E. There is a correlation between tax and sales and not between tax and tax, therefore wrong!


I think the answer is D.

If the pre-tax price is less than 8 cents, then effect of taxation would not be felt. In that case, the author cannot say that tax had an effect. For his statement to be valid, the tax should result in higher after tax price.

B cannot be the assumption. He is concluding based on 10% fall with tax, with 1% fall previous year. We cannot not be sure about author's assumption here.

The whole logic here is to make the product expensive, to discourage the consumption.
Senior Manager
Senior Manager
User avatar
Joined: 27 Mar 2007
Posts: 329
Followers: 1

Kudos [?]: 21 [0], given: 0

 [#permalink] New post 05 May 2007, 08:09
aurobindo wrote:

I think the answer is D.

If the pre-tax price is less than 8 cents, then effect of taxation would not be felt. In that case, the author cannot say that tax had an effect. For his statement to be valid, the tax should result in higher after tax price.

B cannot be the assumption. He is concluding based on 10% fall with tax, with 1% fall previous year. We cannot not be sure about author's assumption here.

The whole logic here is to make the product expensive, to discourage the consumption.


I agree, but (D) is about the year following the tax increase, i.e. the year after the tax has been increased 8%. Mustn't it be the year before the tax increase to be valid? I don't know, (B) seems to be the most logical assumption. Any further suggestions? Cheers
Director
Director
User avatar
Affiliations: FRM Charter holder
Joined: 02 Dec 2006
Posts: 736
Schools: Stanford, Chicago Booth, Babson College
Followers: 7

Kudos [?]: 22 [0], given: 4

 [#permalink] New post 05 May 2007, 08:13
catgmat wrote:
aurobindo wrote:

I think the answer is D.

If the pre-tax price is less than 8 cents, then effect of taxation would not be felt. In that case, the author cannot say that tax had an effect. For his statement to be valid, the tax should result in higher after tax price.

B cannot be the assumption. He is concluding based on 10% fall with tax, with 1% fall previous year. We cannot not be sure about author's assumption here.

The whole logic here is to make the product expensive, to discourage the consumption.


I agree, but (D) is about the year following the tax increase, i.e. the year after the tax has been increased 8%. Mustn't it be the year before the tax increase to be valid? I don't know, (B) seems to be the most logical assumption. Any further suggestions? Cheers


The impact can be seen after the increase only. I mean the next year. No?
Senior Manager
Senior Manager
User avatar
Joined: 27 Mar 2007
Posts: 329
Followers: 1

Kudos [?]: 21 [0], given: 0

 [#permalink] New post 05 May 2007, 08:20
aurobindo wrote:

The impact can be seen after the increase only. I mean the next year. No?


Okay, I see. Assuming that the tax would be less than 8%, the sale would increase again. I understand your reasoning and you are probably right. (D) is good, but I would choose (B) on test day. Thanks for the discussion and Cheers!
Manager
Manager
User avatar
Joined: 01 Dec 2006
Posts: 61
Followers: 1

Kudos [?]: 0 [0], given: 0

 [#permalink] New post 14 May 2007, 11:38
one more B
  [#permalink] 14 May 2007, 11:38
    Similar topics Author Replies Last post
Similar
Topics:
1 Experts publish their posts in the topic Didnt finish 2 questions on quant - approx value in pts? AbeinOhio 2 28 Feb 2012, 07:27
2 questions regarding to Stern PT Application suddenlyisee 1 27 Apr 2010, 20:17
1 Interesting Kellogg PT Questions AliJafri 4 14 Jan 2010, 20:14
Question on applying to PT program umbdude 2 26 Apr 2007, 05:41
Some Haas PT Questions mylady 4 19 Feb 2007, 16:16
Display posts from previous: Sort by

pt question

  Question banks Downloads My Bookmarks Reviews Important topics  


cron

GMAT Club MBA Forum Home| About| Privacy Policy| Terms and Conditions| GMAT Club Rules| Contact| Sitemap

Powered by phpBB © phpBB Group and phpBB SEO

Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.