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The government should stop permitting tobacco companies to

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The government should stop permitting tobacco companies to [#permalink]

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New post 09 May 2012, 10:39
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The government should stop permitting tobacco companies to subtract advertising expenses from their revenues in calculating taxable income. Tobacco companies would then have to pay more taxes. As a consequence, they would raise the prices of their products and this price increase would raise the prices of their products and this price increase would discourage tobacco use.
Which of the following is an additional premise required by the argument above?
(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.
(C) People would not continue to buy tobacco products if these products were no longer advertised.
(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.
(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.
[Reveal] Spoiler: OA

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Re: The government should stop permitting tobacco [#permalink]

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New post 10 May 2012, 00:22
Clear A - the argument assumes that prices will have to be raised to offset additional tax costs. This may not happen if the tobacco companies are able to meet the increased costs through cost cuts. They will then not have to increase prices.
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Re: The government should stop permitting tobacco [#permalink]

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New post 19 May 2012, 09:38
Conclusions :
Removing Tax rebate on advertise expenses would compel companies to increase the prices of the product.

So any implicit assumption that would contribute in making this conclusion viable would be the right answer

Let's try to explore options :
(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
- So conclusion would hold true - CORRECT

(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.
- Conclusion may not hold true because companies may stop advertising to save money and in-turn prices will not rise - INCORRECT

(C) People would not continue to buy tobacco products if these products were no longer advertised.
- Not directly relevant - INCORRECT

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.
- Irrelevant, how that money would be used - INCORRECT

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.
- This may be true but doesn't make the premise for conclusion to hold true - INCORRECT
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Re: The government should stop permitting tobacco [#permalink]

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New post 22 Aug 2012, 04:53
Expert's post
anordinaryguy wrote:
Conclusions :
Removing Tax rebate on advertise expenses would compel companies to increase the prices of the product.

So any implicit assumption that would contribute in making this conclusion viable would be the right answer

Let's try to explore options :
(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
- So conclusion would hold true - CORRECT

(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.
- Conclusion may not hold true because companies may stop advertising to save money and in-turn prices will not rise - INCORRECT

(C) People would not continue to buy tobacco products if these products were no longer advertised.
- Not directly relevant - INCORRECT

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.
- Irrelevant, how that money would be used - INCORRECT

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.
- This may be true but doesn't make the premise for conclusion to hold true - INCORRECT


How can you say that C is irrelevant. If people continue to buy products which aren't being advertised, then there isn't any need for these companies to advertise these products and therefore no higher taxes. I am still confused between A and C. Both seem correct to me.
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Re: The government should stop permitting tobacco [#permalink]

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New post 22 Aug 2012, 06:15
siddharthasingh wrote:
anordinaryguy wrote:
Conclusions :
Removing Tax rebate on advertise expenses would compel companies to increase the prices of the product.

So any implicit assumption that would contribute in making this conclusion viable would be the right answer

Let's try to explore options :
(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
- So conclusion would hold true - CORRECT

(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.
- Conclusion may not hold true because companies may stop advertising to save money and in-turn prices will not rise - INCORRECT

(C) People would not continue to buy tobacco products if these products were no longer advertised.
- Not directly relevant - INCORRECT

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.
- Irrelevant, how that money would be used - INCORRECT

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.
- This may be true but doesn't make the premise for conclusion to hold true - INCORRECT


How can you say that C is irrelevant. If people continue to buy products which aren't being advertised, then there isn't any need for these companies to advertise these products and therefore no higher taxes. I am still confused between A and C. Both seem correct to me.


Refer to the conclusion drawn above. Statement C may be true or be a relevant fact but it is not relevant in reference to conclusion drawn above.
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Re: The government should stop permitting tobacco companies to [#permalink]

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New post 22 Aug 2012, 06:49
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I guess the conclusion is : they would raise the prices of their products and this increase would raise the prices of their products and this PRICE RISE WOULD DISCOURAGE TOBACCO USE.
Now if the people who buy tobacco, keep on doing so even if the price rises, then this conclusion falls apart.
Let me know if I am missing something.
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Re: The government should stop permitting tobacco companies to [#permalink]

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New post 26 Jan 2013, 05:43
option C states that people will stop buying tobacco when product is no longer advertised. But there is mention in the statements that company is stopping the ads.

Marcab wrote:
I guess the conclusion is : they would raise the prices of their products and this increase would raise the prices of their products and this PRICE RISE WOULD DISCOURAGE TOBACCO USE.
Now if the people who buy tobacco, keep on doing so even if the price rises, then this conclusion falls apart.
Let me know if I am missing something.


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Re: The government should stop permitting tobacco companies to [#permalink]

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New post 26 Jan 2013, 19:18
A is the lesser of all the evils IMO.

We assume that the tobacco will pass on the cost to consumers, and not reduce cost or absorb it altogether.

So A is clearly the correct answer.

I was thinking about E for a second though. I looked at E as an implication that the consumer may not purchase the product at a higher price. Higher cost>>Higher price>>Consumer don't buy. But the answer choice does to address the consumer, so I threw it out and went with A.
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Re: The government should stop permitting tobacco companies to [#permalink]

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New post 22 Mar 2016, 23:01
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Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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Re: The government should stop permitting tobacco companies to   [#permalink] 22 Mar 2016, 23:01
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