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# In the year following an 8-cent increase in the federal tax

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Re: In the year following an 8-cent increase in the federal tax [#permalink]

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15 Aug 2012, 12:05
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Hi,
Sorry to bump into a very old thread. I am just not able to figure out the meaning of the choice D; what does choice D wish to say. The language seem difficult to me. Would someone please explain the meaning and intent of the author.
Thanks.
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Re: In the year following an 8-cent increase in the federal tax [#permalink]

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26 Apr 2014, 20:26
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Re: In the year following an 8-cent increase in the federal tax [#permalink]

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17 Jun 2015, 10:46
Hello from the GMAT Club VerbalBot!

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: In the year following an 8-cent increase in the federal tax [#permalink]

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22 Jul 2015, 03:22
Even I got confused by the meaning of D. Can someone explain what is pretax price and how does it impact the conclusion.
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Re: In the year following an 8-cent increase in the federal tax [#permalink]

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27 Jul 2016, 15:58
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Nevernevergiveup wrote:
Even I got confused by the meaning of D. Can someone explain what is pretax price and how does it impact the conclusion.

Hello, Nevernevergiveup and ankitatlnm

It was always helpful to me to rephrase the argument in more simple words for better understanding.

IMHO, in this case, it will be really useful to imagine yourself in this situation:

We are two businessmen. We have a drink and I tell you a story about my business:

"Look, buddy. My sales in 2015 year have fallen by 1%. But still, It was the good business.
But now, in the beginning of 2016, a tax was increased by 0,08 cents and we already lost 10%.
What a bastards work in government: they destroy my business by the tax increasing."

(I also wrote a scheme on the napkin to buttress my words:
Attachment:

2016-07-28 01.01.38.jpg [ 434.79 KiB | Viewed 479 times ]

Does my speech ring a bell in your mind? As a usual bad businessman, I see the problems only outside and not inside of me.
Sure thing the first questions from you will be:
1) Are you sure that only tax increase is the reason of losing your sales?
2) Or maybe you raised a price on cigarettes at the beginning of 2016 year and because of this, you lost sales?
3) Or maybe your competitors decrease prices on the same cigarettes and you didn't react on this?
4) Or maybe you decide to lower quality of cigarettes and lost your customers because of this
or maybe...

So, we have a link in the businessman's mind: "I lost sales only because of tax increasing."

We should do something with this link: strengthen, weaken or find an assumption. It doesn't matter. The key is to find a link and work with it.

So, we should find a confirmation that all our four questions about other reasons are wrong and the tax is the only reason why sales were lost.

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.
It looks like a strong contender but here is the example why this is the wrong answer:
2015 - the price of one pack equal to $10 and was increased to$15 .
1% of smokers decide that $15 is too much and stop buying this type of cigarettes. 2016 - tax increase$0,08 and price increase $4,99. Final price$20,07 - 10% of smokers switch to another type of cigarettes.
This is quite obvious that the main reason for losing sales is not the tax but price increasing.

B. The one percent fall in cigarette sales in the year prior to tax increase was due to a smaller tax increase.
It can be true, but what if the price of cigarettes was increased by 10 dollars in 2016?
2015 - the price of one pack equal to $10. 1% of smokers stop buying this type of cigarettes. 2016 - the tax increase$0,08 and price increase by $10. Who is the guilty? Definitely not the tax. C. The pretax price of a pack of cigarettes gradually decreased throughout the year before and the year after the tax increase. This answer makes this question very doubtful and maybe this is not a really GMAT Prep question. I think, authors of this question wanted to say that price was increased between the years and because of it this answer is wrong. D. For the year following the tax increase, the pretax price of a pack if cigarettes were not eight or more cents lower than it had been the previous year. Let's negate this one: 2015 - price of pack equal to$1
2016 - tax increase $0,08 and price was lowered on$0,07

If the tax (t) increases by 8 cents (from 25 cents per pack to 33 cents per pack) and the pre-tax price (p) remains unchanged, the after-tax price (a) will go up by 8 cents (a = p + t = 4.75 + .33 = 5.08). But what if the pre-tax price (p) decreases from $4.75 to$4.67? In that case, the after-tax price (a) will remain unchanged, despite the tax increase (a = p + t = 4.67 + .33 = $5.00). What if the pre-tax price (p) decreases from$4.75 to $4.50? In that case, the after-tax price (a) will decrease from$5.00 to $4.83 (a = p + t = 4.50 + .33 = 4.83). Hopefully that helps you make sense of the passage and answer choice D! _________________ www.gmatninja.com Join us for the verbal experts' live chat every Wednesday, 8 am PST/8:30 pm IST! Details available here. Subscribe to GMAT Question of the Day: E-mail | RSS Manager Joined: 26 Dec 2015 Posts: 118 Location: United States (CA) Concentration: Finance, Strategy WE: Investment Banking (Venture Capital) Followers: 0 Kudos [?]: 23 [0], given: 1 Re: In the year following an 8-cent increase in the federal tax [#permalink] ### Show Tags 02 Apr 2017, 09:40 GMATNinjaTwo wrote: Quote: whats tripping me up is the sheer number of variables: > volume of cigarette sales (on both sides of the 8-cent increase in federal taxes) > pre-tax price of cigarettes > after-tax price of cigarettes Hi LakerFan24, maybe this will help you keep track of the variables... a = the after-tax price of cigarettes p = the pre-tax price of cigarettes t = the tax The after-tax price is equal to the pre-tax price plus the tax, so a = p + t. For example, if the pre-tax price of a pack is$4.75 (p = 4.75) and the tax on each pack is $0.25 (t = 0.25), the after-tax price is$5.00 (a = p + t = 4.75 + 0.25 = 5.00).

If the tax (t) increases by 8 cents (from 25 cents per pack to 33 cents per pack) and the pre-tax price (p) remains unchanged, the after-tax price (a) will go up by 8 cents (a = p + t = 4.75 + .33 = 5.08). But what if the pre-tax price (p) decreases from $4.75 to$4.67? In that case, the after-tax price (a) will remain unchanged, despite the tax increase (a = p + t = 4.67 + .33 = $5.00). What if the pre-tax price (p) decreases from$4.75 to $4.50? In that case, the after-tax price (a) will decrease from$5.00 to \$4.83 (a = p + t = 4.50 + .33 = 4.83).

Hopefully that helps you make sense of the passage and answer choice D!

do you seriously track all these variables and equations in your head? i don't write down notes for the verbal section, i only map out a chart for A/C A:E and i track the # of questions (make a note for #10/15/20/25/30/35/40...)
- is there another way of doing this problem in which you don't have to rely on these calculations?
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Re: In the year following an 8-cent increase in the federal tax [#permalink]

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02 Apr 2017, 16:34
LakerFan24, those calculations are certainly not necessary. The point is to understand that the after-tax price is comprised of two parts: 1) the pre-tax price and 2) the tax. Therefore, if we only know that the tax increased by 8 cents, we do not know if the after-tax price increased, remained the same, or decreased (because we do not know how much the pre-tax price changed, if at all). If we make the assumption given in choice D, then we know that the after-tax price must have also increased when the tax was increased. The argument makes sense once we establish that the after-tax price increased. Those variables and equations are not necessary; I simply used them as an example to clarify the logic. I hope that helps!
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Re: In the year following an 8-cent increase in the federal tax [#permalink]

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16 May 2017, 23:25
Hi,
In option D, the phrasing is the "for the year following the tax increase". Doesn't that mean the argument is talking about the next year? Since what happens in next year is irrelevant to the argument, I eliminated this choice.
The choice would have made complete sense had it said "during the year of tax increase". Am I thinking in the wrong direction or thinking too much?
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Re: In the year following an 8-cent increase in the federal tax [#permalink]

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20 May 2017, 10:58
abhijay wrote:
Hi,
In option D, the phrasing is the "for the year following the tax increase". Doesn't that mean the argument is talking about the next year? Since what happens in next year is irrelevant to the argument, I eliminated this choice.
The choice would have made complete sense had it said "during the year of tax increase". Am I thinking in the wrong direction or thinking too much?

Yes, choice (D) refers to "the year following the tax increase", but so does the argument in the passage: "In the year following an 8-cent increase in the federal tax". So choice (D) is consistent with the the argument.
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Re: In the year following an 8-cent increase in the federal tax   [#permalink] 20 May 2017, 10:58

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