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

Question

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.

Harley1980 · Accepted Answer

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: 2016-07-28 01.01.38.jpg 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.

GMATNinjaTwo · Answer

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!

ncp · Answer

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.

ak_idc · Answer

Detran · Answer

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 .

Practicegmat · Answer

Why not B ? Also A is very confusing

tuanquang269 · Answer

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.

KapTeacherEli · Answer

Hi thebigr,

Step 1: Identify the question type.

The word "assumption" makes it clear that we are dealing with, appropriately enough, an assumption question! This is a member of the "Argument" question family, so knowing this helps up read and plan strategically.

Step 2: Untangle the stimulus.

Because this is an argument question, we know that the assumption the unstated gap between the authors main conclusion and his cited evidence. So, we'll start with his conclusion: that the tax increase is responsible for the reduction of cigarette sales. And his evidence? Well, there was an 8 cent tax boost, and that 8 cent increase correlated to a steep decrease in cigarett sales.

So what's missing? Well, a tax is only part of the story when it comes to cigarette prices! After all, the cigarettes themselves cost money, too. Who knows how much people are paying out-of-pocket for cigarettes today.  This is a classic GMAT critical reasoning pattern , and we know the assumption: that the base price of the cigarettes has not dropped enough to offset the tax increase!

Step 3: Make a prediction.

For Assumption questions, the assumption is our predictions. We predict an answer choice that says that the untaxed price of cigarettes hes stayed constant or risen.

Step 4: Evaluate the answer choices.

That's (D). And one of the great things about making a prediction in step 3 is that we don't get distracted by (B) here! Of course, we could rule out (B) for being out of scope--the cause of the 1% decrease last year is irrelevant to the argument at hand. But it's much easier to spot 1 match than to rule out 4 wrong choices, so that's what we should aim for.

Hope this helps!

Nevernevergiveup · Answer

Even I got confused by the meaning of D. Can someone explain what is pretax price and how does it impact the conclusion.

law258 · Answer

+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.

LakerFan24 · Answer

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

LakerFan24 · Answer

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?

GMATNinjaTwo · Answer

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!

jayarora · Answer

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?

GMATNinjaTwo · Answer

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.

Rakesh1987 · Answer

The trick to good score in GMAT is not just to solve a CR question right but to solve it fast. This is how I would approach this question: Paraphrasing the question: Tax on cigarettes increased by 8% and sales fell by 10%. Therefore, sales volume is strongly related to after tax price. Common knowledge: After tax price= Pre tax price (1 + tax rate/ 100) As conclusion says sales is strongly related to "after tax price" which was drawn on basis of tax increase, then the after tax price must has increased due to tax rate. Therefore Pretax price didnt fall by >=8%. Lets evaluate options, bearing in mind that it is an assumption question which tests what is required for the conclusion to be true: (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. Evaluation: The pretax price of cigarettes has increased but by a lessor amount than in previous years. Is pretax price increase required for the conclusion to be true. no. Even without a pre tax price increase, the post tax price can increase due to tax and conclusion talks about relation between post tax price and sales. (B) The one percent fall in cigarette sales in the year prior to tax increase was due to a smaller tax increase. Evaluation: In previous year, tax increase led to price increase. Do i require that during previous year a tax increase should decline sales by 1% for drawing the conclusion. No (C) The pretax price of a pack of cigarettes gradually decreased throughout the year before and the year after the tax increase. Evaluation: The pretax price decreased. This can actually harm the conclusion if the pretax price decrease was more than 8%, then the post tax price of cigarettes could have reduced and thus the drawn conclusion can fall apart. (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. Evaluation: This is the required assumption that the pre tax price were not eight or more cents lower , or there would not be a post tax price increase and the drawn conclusion will fall apart. (E) As the after-tax price of a pack of cigarettes rises, the pretax price also rises. Evaluation: Even if the pretax price doesnt rise, the post tax can still rise. This is not a required assumption. Please hit +1 Kudos if you liked the Explanation.

KarishmaB · Answer

Year 0 - Pretax price was $4 and tax was say 50 cent. After tax price = $4.50 Sales fell by 1% Year 1 - Tax increased by 8 cent to 58 cents. After tax price = $4.58 (presumably) In year 1, sales decreased by 10%. Conclusion: Volume of sales is strongly related to after tax price. The data only tells us that the tax increased by 8 cents in one year in which sales fell 10%. But the conclusion is concluding about the sales being related to the entire "after tax price". To conclude that sales is related to after tax price, we need to assume that the after tax price did increase because of which sales dipped. What in year 1, the pretax price was $3.92 and hence after tax price was still $4.50. Then can we say that sales depends on after tax price? No. This is given in option (D). Hence that is the answer. (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. Even if the pretax price increased more this year, it just means that after tax price was higher this year and hence the sales decreased. We don't need to assume that pre tax price did not increase as much as it had in the previous year. (B) The one percent fall in cigarette sales in the year prior to tax increase was due to a smaller tax increase. 1% change in sales is too little to comment on. It kind of implies stable sales only. We need to assume that the 1% fall was due to smaller increase in tax. (C) The pretax price of a pack of cigarettes gradually decreased throughout the year before and the year after the tax increase. We are assuming that the pretax price did not decrease. (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. As we discussed above, this is correct. Let's negate it to confirm. Negated: For the year following the tax increase, the pretax price of a pack of cigarettes was eight or more cents lower than it had been in the previous year.  Now we know that pretax price reduced by 8 cents and tax increased by 8 cents. So after tax price of the cigarette stayed the same. But we still saw a 10% decrease in sales. This means that after tax price and sales are not closely related. This breaks our conclusion. Correct. (E) As the after-tax price of a pack of cigarettes rises, the pretax price also rises. We don't need to assume this. The pretax price could stay stable. Answer (D) Discussion on Assumption Questions: https://youtu.be/O0ROJfljRLU A pair of difficult assumption questions: https://youtu.be/ZQnhC4d5ODU

Bunuel · Answer

Similar questions: https://gmatclub.com/forum/in-the-year- ... 70306.html https://gmatclub.com/forum/in-the-year- ... 43124.html

dcummins · Answer

The argument presupposes a correlation on the basis of a comparable pre-tax price.

IF the situation were as below:
Pre-tax price in 2008 : $100
pre-tax price in 2009 : $99.2

Add tax:
2008: $100.01 (1% decrease)
2009: $100 (10% decrease)

Then the outcome would be that a 10% decrease was caused in the year after the tax increase, overall prices were lower, but there was still a 10% decrease, so there must have been something else to blame.

Assumption D is absolutely mathematically necessary.

B is wrong as the logic is analogous to saying "X is correlated to Y because X caused Y". The conclusion, that cigarette sales are strongly correlated to tax increases, is based on analysis of the relationship between TWO consecutive tax increases and demand. We need the second data point, not the first year's tax increase in isolation.

E is incorrect as it may not be 100% true. Prices may be put up for various reasons aside from tax. Conversely, what if cigarette vendors ate the tax increase cost? I.e. what if they didn't pass this cost onto consumers.

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

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

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