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In the year following an 8-cent increase in the federal tax on a pack

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

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New post Updated on: 14 Oct 2018, 00:37
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In the year following an 8-cent increase in the federal tax on a pack of cigarettes, sales of cigarettes fell 10%. In contrast, in the year prior to the tax increase, sales had fallen 1%. 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 if cigarettes were 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.

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Originally posted by Swagatalakshmi on 26 Nov 2006, 17:10.
Last edited by hazelnut on 14 Oct 2018, 00:37, edited 3 times in total.
Renamed the topic and edited the question.
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Re: In the year following an 8-cent increase in the federal tax on a pack  [#permalink]

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New post 27 Jul 2016, 14:58
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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
2016-07-28 01.01.38.jpg [ 434.79 KiB | Viewed 3590 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.

Let's analyze answers:

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 $0,07
The final price equal to 1,01$.
So the businessman did all he can do (he decreased price) but the tax is killed his sales.

E. As the after-tax price of a pack of cigarettes rises, the pretax price also rises.
In this case, the price can be the reason why sales were lost.


P.S. During pre-analysing of the question we made questions about quality, competitors and so on.
But when we read the answers we find only variants about prices so we should drop all our ideas about other reasons and focus on prices only.
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Re: In the year following an 8-cent increase in the federal tax on a pack  [#permalink]

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New post 26 Nov 2006, 20:47
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Swagatalakshmi wrote:
In the year following an 8-cent increase in the federal tax on a pack of cigarettes, sales of cigarettes fell 10%. In contrast, in the year prior to the tax increase, sales had fallen 1%. 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 if cigarettes were not eight or more cents lower than it had been the previous year.

If the pretax price was less than 8 cents or more then the increase in tax would not have any impact and that impact can't be attributed to drop in sales. Tax can have impact only when there is overall increase in the price.

E. As the after-tax price of a pack of cigarettes rises, the pretax price also rises.

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

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New post 06 Aug 2011, 11:56
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If the pre tax price was 8 or more cents lower. Cigarettes would cost just as much or less than they did before. If thats true then the conclusion cannot stand on its own. After tax price would not be the cause of slower sales .
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Re: In the year following an 8-cent increase in the federal tax on a pack  [#permalink]

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New post 26 Nov 2011, 22:42
Why not B ?
Also A is very confusing :(
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Re: In the year following an 8-cent increase in the federal tax on a pack  [#permalink]

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New post 27 Nov 2011, 07:16
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Went with D.

This is a perfect question to apply Assumption negation technique to find the correct assumption. Choices B and D are contenders. Negating the choices, it is clear that B will not have any affect on the conclusion. D on the other hand would weaken the conclusion considerably. D wins !!!

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

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New post 12 Dec 2011, 23:09
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Practicegmat wrote:
Why not B ?
Also A is very confusing :(


The premise: tax fee/pack of cigarette = 8 cent ==> sales decrease 10%
no tax ===> sales decrease only 1%

Conclusion: Tax correlate with sales


I will negate A and B:
A. During the year following the tax increase, the pretax price of a pack of cigarettes INCREASED by as much as it had during the year prior to the tax increase.

Last: pretax price 110 cent (increase 10 cent from 100 cent in the previous year) => price after tax: 118
Now: pretax price 120 cent (also increase 10 cent) => price after tax: 128

This fact does not reflect add tax into pretax price of cigarette pack will make the sale decrease

B. The one percent fall in cigarette sales in the year prior to tax increase was due to a smaller tax increase.

In contrast, in the year prior to the tax increase, sales had fallen 1%. (from the argument). In fact the year before tax increase, there is no tax increase. The tax keep constant. That explains why choice B is wrong answer.
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Re: In the year following an 8-cent increase in the federal tax on a pack  [#permalink]

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New post 22 Jul 2015, 02:22
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 on a pack  [#permalink]

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New post 29 Mar 2017, 17:47
i got lost on this question. i understand we're trying to negate, and therefore attack the conclusion.

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

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New post 31 Mar 2017, 18:08
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!
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Re: In the year following an 8-cent increase in the federal tax on a pack  [#permalink]

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New post 02 Apr 2017, 08:40
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 on a pack  [#permalink]

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New post 02 Apr 2017, 15:34
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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 on a pack  [#permalink]

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New post 16 May 2017, 22:25
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 on a pack  [#permalink]

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New post 20 May 2017, 09:58
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 on a pack  [#permalink]

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New post 12 Jun 2017, 08:20
yup, this is all about sales correlate with taxes.
The conclusion of the argument discusses the correlation between sales and after-tax (after-tax = pre-tax + taxes),
then the assumption is the pre-tax does not change.
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Re: In the year following an 8-cent increase in the federal tax on a pack  [#permalink]

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New post 06 Sep 2018, 22:09
2015-
Price without tax(pretax)- 50
Tax- 50
Final price-100
Sales-100

2017-
Price without tax(pretax)- x
Tax-58 (8cents increase)
Final price - X+58
Sales-90

Now conclusion - correlation between sales and total price.

Now if X is lower than or equal to 8 less than pretax of 2015 the final price will be 100
X+58= (50-8) +58 = 42+58 = 100

Therefore final price is same. But sales has decreased.therefore there is no correlation between sales and final price.

Option D

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Re: In the year following an 8-cent increase in the federal tax on a pack &nbs [#permalink] 06 Sep 2018, 22:09
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