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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]

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04 Feb 2007, 15:41
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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.
[Reveal] Spoiler: OA
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Re: In the year following an eight-cent increase in the federal [#permalink]

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04 Feb 2007, 18:25
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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, 21:09, edited 1 time in total.
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Re: In the year following an eight-cent increase in the federal [#permalink]

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04 Feb 2007, 19:56
Wow, I went for B first, but I see that this seems right. I actually misread 8 cent as 8% when I chose B.

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

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05 Feb 2007, 03:12
One more D.
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Re: In the year following an eight-cent increase in the federal [#permalink]

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20 Feb 2007, 08:37
'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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Re: In the year following an eight-cent increase in the federal [#permalink]

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23 Feb 2007, 19:13
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Re: In the year following an eight-cent increase in the federal [#permalink]

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24 Feb 2007, 12:19
OA is D. good explanation ncprasad
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Re: In the year following an eight-cent increase in the federal [#permalink]

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19 Feb 2009, 00:43
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: In the year following an eight-cent increase in the federal [#permalink]

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19 Feb 2009, 02:12

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

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13 Mar 2010, 13:09
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+1 for D
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Re: In the year following an eight-cent increase in the federal [#permalink]

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09 Feb 2011, 16:09
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: In the year following an eight-cent increase in the federal [#permalink]

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13 Feb 2011, 23:26
+1 D
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Re: In the year following an eight-cent increase in the federal [#permalink]

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14 Feb 2011, 03:05
I initially went for B. What is the source of this question?
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Re: In the year following an eight-cent increase in the federal [#permalink]

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12 Apr 2011, 03:52
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Re: In the year following an eight-cent increase in the federal [#permalink]

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24 Aug 2014, 11:26
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Re: In the year following an eight-cent increase in the federal [#permalink]

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20 Nov 2014, 11:19
Gmatprep question. Original question is Strengthen but its modified for assumption.

Final sale price = Pre tax price + Tax

Tax increased by 8 cents

Conclusion: Volume sales strongly related to after tax price

The argument links the sales decrease to increase in the price. D says that the pre tax price did not reduce by 8 cents or more. Negate this: If pre tax price decreased by 8 cents or more, the final price would have been the same as it was before the tax increase. So cant attribute the decline in sales to increase in tax

A: Attractive choice. Even if the increase happened it wouldn't break the conclusion
B: playing with your mind. We dont know that
C: Goes opposite to the conclusion
D: Correct
E: Don't know what happens to pre tax price. Negation wont break the conclusion
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Re: In the year following an eight-cent increase in the federal [#permalink]

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16 Dec 2014, 17:10
buckkitty wrote:
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.

Price Increased -->sales dropped --> Volume of sales is related to the after tax price

what if the pre-tax price (After) was lower than the pre-tax price (Before). In that case, the after tax price would be equal of lower than the after tax price of previous year.
in that case, the volume of sales would not be related to the after tax price.
D removes that point by saying that the pre-tax price (after) was not lower than the pre-tax price (before).
Hence D is the assumption.
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Re: In the year following an eight-cent increase in the federal [#permalink]

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28 Aug 2015, 16:23
The argument is little tricky because it talks about an increase in tax by 8 cents in one year and describes the fall in consumption for the following year.
We are provided with no info. about the tax in the following year.

D exactly fills that logical gap.

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

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27 Jul 2016, 09:35
buckkitty wrote:
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.

Conclusion talks about the Volume of C sales, which is related to After T price (no necessarily the increase in price)

Option A. Pretax price increase in the year prior to T increase > Increase during year following T increase

This does not impacts the conclusion. Although the increase in the prior year could be 10% and in next year it could be 8%, the post tax price will be higher in the next year due to a 8 cent tax addition

Option B. 1% drop was due to small tax increase

Tempting, but non relevant

Option C. Pre Tax price continued to decrease gradually over last two years

a very generic statement: a gradual decrease may not make up for the eight cent increase in tax.

Option D. This is it. If the pre tax price decreased by 8 or more cents it could make up for the tax increase and therefor nullify the conclusion.

Option E. : Could be strengthening the statement, as the overall price increase is higher leading to a lower sales volume
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Re: In the year following an eight-cent increase in the federal [#permalink]

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27 Nov 2016, 08:22
+1 for D.

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. --> negate: if we see price of cig increased as much as it had in the year prior to the tax, then it would explain why sales have decreased and they are being forced to lower their volume per cigarette package to make up for those that aren't buying the product. ELIMINATE.

B. The one percent fall in cigarette sales in the year prior to the tax increase was due to a smaller tax increase. -->irrelevant; we don't care about whether there was a tax before - unless we know the company's response (aka pre-tax = price of cigarettes) we cannot use this info; we need to know how people are responding to the product before the shock takes place.

C The pretax price of a pack of cigarettes gradually decreased throughout the year before and after the tax increase --> this isn't helpful as it doesn't give us any relation between pre-tax and after-tax

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. --> Correct! Negate: if the pre-tax price was 0.08+ lower, then the price of the product would be roughly the same as the prior year (if not lower). Based on the law of demand we know that as P decreases --> Q increases, which challenges the conclusion drawn out in the prompt. The prompt is having us infer that because this tax took place, and the Co. kept their Priceproduct the same, that less people were willing to buy the product. They were facing a higher Priceproduct (pre-tax same + new after-tax amount = Priceproduct) and as result Quantity decreased.

E. As the after-tax price of a pack of cigarettes rises, the pretax price also rises. --> Similar to discussion in D, if we negate: pretax price doesn't right as after-tax price rises --> great, doesn't help us. People are responding exactly how we would predict they would and this doesn't challenge the conclusion.
Re: In the year following an eight-cent increase in the federal   [#permalink] 27 Nov 2016, 08:22
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