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One state adds a 7 percent sales tax to the price of most products pur

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One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   Updated on: 13 Jan 2020, 03:36
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One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.

The conclusion above would be properly drawn if which of the following were assumed as a premise?


(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.

(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.

(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.

(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.

(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.
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A

Originally posted by SudiptoGmat on 18 Jan 2010, 07:10.
Last edited by Bunuel on 13 Jan 2020, 03:36, edited 3 times in total.
Renamed the topic and edited the question.
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   03 Jul 2011, 14:14
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achan wrote:
One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.
The conclusion above would be properly drawn if which of the following were assumed as a premise?
(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.
(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.
(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.
(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.

Provide detailed explanations to your answer.


On a purchase of $100 product, Larry, whose income is $1000, spends $7 because of the interest on the product.

On the purchase of same $100 product, Alisa, whose income is $100000, spends $7 because of the interest on the product.

Now,
$7 of 1000 IS MUCH MUCH higher than $7 of 100000. Thus, Larry is paying a greater percentage of his income for this tax than Alisa is. This entire scenario is exactly opposite to the federal tax paradigm, where a higher earner spends a greater percentage against his/her tax.

What did we assume here; we assumed that both Alisa and Larry paid only "$7" for the product. What if the price of the taxable products vary. We know the tax doesn't vary but the product price itself may vary.

A product that Larry purchase is priced at $100. Larry pays $7 in tax. $7 of 1000 is 0.007
And, the same product if bought by Alisa can be priced at $100000, as it is purchased by a high earner. She pays 7000 in tax. 0.07 of her income.
Who paid more tax now; Alisa of course.

Thus, if we assume that the prices of the taxable products are constant across all income levels, the conclusion can properly be drawn.

Ans: "A"
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   31 May 2012, 12:10
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piyushksharma wrote:
One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.
The conclusion above would be properly drawn if which of the following were assumed as a premise?
(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.
(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.
(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.
(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.

Provide detailed explanations to your answer.



You have to really understand the structure of the sentence here in order to figure out what direction you're going.
If you read this sentence with the part following the ":" as describing the federal income tax, you would be wrong.

The portion after the ":" is actually describing "this tax". We just know that "this tax" has the reverse effect of "federal income tax" - why? Because of the material after the ":" - higher % taxes when income is lower.

So, it's "this tax" that has higher % of taxes when income is lower....NOT that federal income tax has higher % tax rate on lower income people.

How do we know that "this tax" has a higher % of taxes? Well, we have one statement/fact that sales tax is 7%. In order to support and strengthen the link between assumption and argument (ie sales tax being 7% affecting "this tax" having higher tax % for lower income ppl)?

Well, if we know that everyone spends the same amount on products and pays the same amount in sales tax (in terms of actual dollar figures), then we know for sure that the % on the lower income ppl is going to be higher.

$10 in sales tax on $100 income is 10%.
$10 in sales tax on $1000 income is 1%.
Clearly, the rich guy is paying lower sales tax as a percentage of overall income, while paying equally in terms of actual sales tax dollars paid.

The reason why this matters is it can be entirely true that rich ppl buy more products and as a result pay more in overall sales taxes. It's quite possible that rich ppl pay $100 in sales taxes because they buy more, and as a % of overall income it's equal to poor people at 10%.

By introducing the fact that everyone spends the same, we eliminate this possibility leaving the only possibility that poorer people pay higher % of their income toward these sales taxes.
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   18 Jan 2010, 12:43
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The question asks what assumption should be made for the validity of the passage.

A) In order to draw a conclusion on the relative effect on low and high income earners, one must assume how these two groups spend their money. If low income earners were to spend all their money outside the jurisdiction, while the high income earners were to spend some of it in the jurisdiction, the conclusion made in the statement would be wrong. This statement makes an assumption regarging the spending habits of the two groups, and if it were true, the statement would be true as well. Right answer.

B) The passage actually states the opposite of B, but this is ininfluential, since the comparison between the two types of taxes is the conclusion of the passage, and not an assumption. Wrong answer.

C) The author is not arguing about affordability, but about the fiscal effect of the tax increase on two different earner groups. Wrong answer.

D) No assumption needs to be made regarding income redistribution among earners groups. Wrong answer.

E) If this assumption were true, the passage would be wrong. Wrong answer.

My answer is A
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   16 May 2012, 22:15
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My Answer : A

Premise : One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax

Conclusions : the lower the income, the higher the annual percentage rate at which the income is taxed.

So here assumption is : Everybody, regardless of income level, would spend equal amount on goods they buy.

For Ex.
A person who earns $1000 / month, spend $ 100 to purchase a good so He would be paying 7$ as Sales tax, which, if considered, Income tax would be 0.70%

A person who earns $2000 / month, spend $ 100 to purchase a good so He would be paying 7$ as Sales tax, which, if considered, Income tax would be 0.35%
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   07 Jul 2012, 01:13
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One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.
The conclusion above would be properly drawn if which of the following were assumed as a premise?

(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.

Consider two citizens - Mr R ( Mr rich) and Mr P ( Mr Poor)
Income of R per year : $1000
Amount of money spent on different products by R per year = $10
Amount of sales tax R has to pay = 7% of $10 = $ 0.7
Annual percentage on which the income of R is taxed = .07/1000 * 100 = .007%
Income of P per year: $100
Amount of money spent on different products by P per year = $10
Amount of sales tax R has to pay = 7% of $10 = $ 0.7
Annual percentage on which the income of R is taxed = .07/100 * 100 = .007%

So, we find that if the amount of money citizens spend on products subject to the state tax tends to be equal across income levels, then the lower the income, the higher the annual percentage rate at which the income is taxed.
Hence (A) is indispensible for the conclusion. So, this is the correct answer choice
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.
This option does not give a quantitative analysis as to how there would be higher annual percentage rate of taxation when income is lower.
(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.
We are not concerned whether people can afford to pay the tax or not. We are interested to now why there would be higher annual percentage rateof taxation when income is lower.
(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.
This is out of scope. We are not bothered whether income is redistributed from the more affluent citizens to the rest of society.
(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.
This is also out of scope. This doesnt explain why there would be higher annual percentage rate of taxation when income is lower.
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   17 Jun 2020, 09:22
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SudiptoGmat wrote:
One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.

The conclusion above would be properly drawn if which of the following were assumed as a premise?


(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.

(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.

(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.

(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.

(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.



If one understands the prompt, the answer automatically jumps out at you:

Consider A who earns 500$
Consider B who earns 5000$
Both purchase a product worth 100$ that sells at 107$ owing to the tax. The argument concludes, as a proportion of the income, the percentage (107 out of 500) is higher for A in comparison to compared to B's percentage (107 out of 5000). What is the assumption? People do not buy stuff in proportion to their income. i.e B who earns 10 times more than A has purchased goods worth the same amount. Hence (A)
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   20 Jan 2021, 18:29
Quote:
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.


For negate technique, what should be negate of above option?
1. The federal income tax DOES NOT favor citizens with high incomes, whereas the state sales tax favors citizens with low incomes.
2. The federal income tax DOES NOT favor citizens with high incomes, whereas the state sales tax DOES NOT favor citizens with low incomes.
3. The federal income tax favors citizens with high incomes, whereas the state sales tax DOES NOT favor citizens with low incomes.


In this particular question, I know B is not relevant and can be eliminated easily. Just out of curiosity, if we have such an option, then we expect either it would be an irrelevant option or any of negate option would destroy the conclusion, if at all it could be right answer.

Hi AndrewN sir GMATNinja

Please suggest.
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   21 Jan 2021, 10:48
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imSKR wrote:
Quote:
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.


For negate technique, what should be negate of above option?
1. The federal income tax DOES NOT favor citizens with high incomes, whereas the state sales tax favors citizens with low incomes.
2. The federal income tax DOES NOT favor citizens with high incomes, whereas the state sales tax DOES NOT favor citizens with low incomes.
3. The federal income tax favors citizens with high incomes, whereas the state sales tax DOES NOT favor citizens with low incomes.


In this particular question, I know B is not relevant and can be eliminated easily. Just out of curiosity, if we have such an option, then we expect either it would be an irrelevant option or any of negate option would destroy the conclusion, if at all it could be right answer.

Hi AndrewN sir GMATNinja

Please suggest.

You want my suggestion, imSKR? Rather than get caught up in how to negate an answer choice, if it is not immediately clear to you, then just skip that answer choice and test the other answer choices instead. I have been outspoken from the beginning about my lack of fondness for the negation technique. It might work fine for others, but I prefer to engage with the answers directly to see if I can make the proper connection between what is presented in the passage and what the question is asking. Sometimes, there may be multiple targets for negation, as we see here. I think forward momentum is more important than mastering a one-step-removed technique to take on a single type of question. (Just my opinion.)

Thank you for thinking to ask me, nonetheless.

- Andrew
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   30 May 2022, 06:01
One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.

What does the following sentence refer to: "This tax" or "federal income tax"?
the lower the income, the higher the annual percentage rate at which the income is taxed

As per my understanding, it should refer to "federal income tax", but it is screwing up the entire understanding of the given passage.
Quoting from Manhattan SC Guide book - Whatever needs explanation should be placed as close to the colon as possible.
For example (as mentioned in the guide book):
Three factors affect the rate of a reaction: concentration, surface area, and temperature. [WRONG]
The rate of a reaction is affected by three factors: concentration, surface area, and temperature. [CORRECT]

Can you please enlighten me? AndrewN


SudiptoGmat wrote:
One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.

The conclusion above would be properly drawn if which of the following were assumed as a premise?


(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.

(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.

(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.

(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.

(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   30 May 2022, 08:59
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Pankaj0901 wrote:
One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.

What does the following sentence refer to: "This tax" or "federal income tax"?
the lower the income, the higher the annual percentage rate at which the income is taxed

As per my understanding, it should refer to "federal income tax", but it is screwing up the entire understanding of the given passage.
Quoting from Manhattan SC Guide book - Whatever needs explanation should be placed as close to the colon as possible.
For example (as mentioned in the guide book):
Three factors affect the rate of a reaction: concentration, surface area, and temperature. [WRONG]
The rate of a reaction is affected by three factors: concentration, surface area, and temperature. [CORRECT]

Can you please enlighten me? AndrewN


SudiptoGmat wrote:
One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.

The conclusion above would be properly drawn if which of the following were assumed as a premise?


(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.

(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.

(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.

(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.

(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.

I can see why you are confused, Pankaj0901. First, I would advise you not to hold CR or RC passages or answer choices up to SC standards. I have noticed several turns of phrase in RC passages that take liberties that I would not expect to see in a correct answer to a question in SC. Second, and the more important point, you should lean on context for guidance more than on grammar to interpret the meaning a sentence may convey. It should be clear from the context of the passage that the unnamed speaker is commenting on the unfairness of the state sales tax. The topic sentence, the first one, mentions the state tax; the next sentence begins with this tax in reference to the same; and, if you prefer a grammatical interpretation, a colon is used in this sort of sentence to emphasize or explain a point that has already been made. The point of the second sentence is that the state income tax has the reverse effect of the federal income tax, and the explanation of that reversal follows the colon.

Perhaps the question makes more sense now. Thank you for thinking to ask.

- Andrew
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   30 May 2022, 18:54
Quote:
The conclusion above would be properly drawn if which of the following were assumed as a premise?

The way the question is worded is unusual.

Most Assumption questions in the GMAT require us to choose an assumption that is NECESSARY for the conclusion to be true.
This question requires us to choose an assumption that is SUFFICIENT for the conclusion.

The question stem tells us this: If the right answer is added to the premises, then the conclusion will be properly drawn.

In this case, the conclusion may be properly drawn in other cases too, and the negation technique will not work.

More typical Assumption questions are worded something like this: "The argument depends on assuming which of the following?"
The phrase "depends on" tells us that we need an assumption that is necessary.

Back to the current question. This is the conclusion:
Quote:
the lower the income, the higher the annual percentage rate at which the income is taxed.

This is the right answer:
Quote:
(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.
It is possible that citizen with lower incomes pay a higher proportion of their income for this tax even if everyone does not spend equal amounts on the products that incur this tax.

For example, it is possible that people with lower incomes spend 10% more (or 10% less) on products that incur this tax.
The conclusion will still be true (probably); people with lower incomes will still pay a greater percentage of their incomes for this tax.


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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   30 May 2022, 20:28
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SudiptoGmat wrote:
One state adds a 7 percent sales tax to the price of most products purchased within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax: the lower the income, the higher the annual percentage rate at which the income is taxed.

The conclusion above would be properly drawn if which of the following were assumed as a premise?


(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.

(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.

(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.

(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.

(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.


Two main take-aways for me compared to most of the discussion in this thread:

First, I wouldn't categorize this as an Assumption question; I'd put it in the Strengthen bucket. We are asked for something that, if true, would make the argument sound. We could word the question, "Which of the following, if true, would most strengthen the conclusion?" Just because the word "assumption" is in there doesn't mean we should treat it as an "assumption" question (similar to the difference between "A conclusion" and "THE conclusion").

Second, a LOT of the responses use numbers. On the majority of arguments, I think the majority of students are better off using logic rather than numbers. We can usually get where we want to by pushing some assumption to all vs. nothing rather than coming up with some example in between that requires any actual calculations.

Conclusion:
lower income --> higher annual tax rate (tax rate is tax paid / income)

Premise:
none given

Fact:
7% sales tax on most purchases

Let's look at the answer choices:
(A) The amount of money citizens spend on products subject to the state tax tends to be equal across income levels.
If everyone spends the same on taxable products, everyone pays the same dollar amount of tax. That's the numerator of our tax paid / income fraction. As the denominator grows, the fraction shrinks. That's exactly what the conclusion says. Depending on my pacing strategy, this one is likely strong enough to pick it and move on. If not, keep it.
(B) The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes.
The argument says the opposite. This weakens. Eliminate.
(C) Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low.
We aren't trying to conclude what people can afford to pay. We are only asked whether the effective tax rate is higher using a sales tax approach or an income tax approach. Eliminate.
(D) The lower a state’s sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of society.
What does this have to do with effective tax rates between sales tax and income tax? Eliminate.
(E) Citizens who fail to earn federally taxable income are also exempt from the state sales tax.[/quote]
Only applies to a subset of citizens; the argument is much broader in scope. This doesn't strengthen the conclusion. Eliminate.

Answer choice A.
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   13 Jun 2023, 10:04
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How do you suggest one tackles these high order thinking questions if faed during an exam? I was not able to quite make sense of the argument
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   24 Jul 2023, 16:26
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kittle wrote:
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How do you suggest one tackles these high order thinking questions if faed during an exam? I was not able to quite make sense of the argument

This is a tough one, mainly because it's asking for something quite different than a "normal" GMAT assumption question (which might be phrased as, "the argument depends on which of the following assumptions?" or something similar to that). You're very unlikely to encounter a question exactly like this on the modern version of the test.

That said, you're almost certainly going to encounter some tough CR questions on your test. For those, your best bet is to stick to the usual process we recommend as best as you can: break down the structure of the passage, think through the question stem carefully, and then use process of elimination on your answer choices.

If you've gone through the answer choices twice and still can't make a final elimination, it might be worth it to guess and move on. You don't want to get bogged down in one question and cause timing issues that will impact your whole section.

For more on how to approach CR in general, check out this video or this article.

I hope that helps a bit!
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink] New post   02 Mar 2024, 21:19
Consider the following:
Income category Low. Medium. High
Annual Income 1000. 10000. 100000
Spend on local tax. 100. 100. 100
Tax. 7. 7. 7

Effective tax rate: 0.7%. 0.07%. 0.007%­
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Re: One state adds a 7 percent sales tax to the price of most products pur [#permalink]
02 Mar 2024, 21:19
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