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Studies have shown that a 10% increase in the price of cigarettes

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Studies have shown that a 10% increase in the price of cigarettes  [#permalink]

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New post Updated on: 07 Jun 2017, 01:24
8
00:00
A
B
C
D
E

Difficulty:

  95% (hard)

Question Stats:

41% (01:33) correct 59% (02:19) wrong based on 303 sessions

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Studies have shown that a 10% increase in the price of cigarettes, only reduces demand by 4%. On the other hand, the tax imposed on luxury goods in 1991 was also 10%, but the tax revenue fell $97 million short of projection, and yacht retailers saw a 77% drop in sales. Many of those retailers went bankrupt and had to abandon their businesses, with many people losing their jobs. Regardless, tax shifting should always be considered when setting tax policy.

Which one of the following is an assumption upon which the argument relies?

A. Tax shifting plays an important role in increasing the sales of luxury goods.

B. The tax revenue is directly propotional with the amount of sales in any given time period.

C. An increment or decrement in the percentage of tax imposed has no relation with the bankruptcy of the firms.

D. If a tax is levied on a non-price sensitive good or service — like cigarettes — it wouldnot lead to big changes such as factory shutdowns and unemployment.

E. The retailers intentionally went bankrupt in order to reduce their tax burden.

Originally posted by Romannepal on 06 Jun 2017, 22:08.
Last edited by broall on 07 Jun 2017, 01:24, edited 2 times in total.
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Re: Studies have shown that a 10% increase in the price of cigarettes  [#permalink]

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New post 11 Nov 2017, 13:52
1
Romannepal wrote:
Studies have shown that a 10% increase in the price of cigarettes, only reduces demand by 4%. On the other hand, the tax imposed on luxury goods in 1991 was also 10%, but the tax revenue fell $97 million short of projection, and yacht retailers saw a 77% drop in sales. Many of those retailers went bankrupt and had to abandon their businesses, with many people losing their jobs. Regardless, tax shifting should always be considered when setting tax policy.

Which one of the following is an assumption upon which the argument relies?

A. Tax shifting plays an important role in increasing the sales of luxury goods.

B. The tax revenue is directly propotional with the amount of sales in any given time period.

C. An increment or decrement in the percentage of tax imposed has no relation with the bankruptcy of the firms.

D. If a tax is levied on a non-price sensitive good or service — like cigarettes — it would not lead to big changes such as factory shutdowns and unemployment.

E. The retailers intentionally went bankrupt in order to reduce their tax burden.


So. The most important word is "Regardless" - the first word of a conclusion.

It means that the case with such luxury goods as yachts is not that relevant. It has no so much influence in global matter. Tax shifting is possible for happening when setting tax policy.

A. First of all - it does not matter. Second of all - even if we considered shifting (increase in tax in our case) the sales of luxury goods (yachts in our case) would not increase.
B. It is a common information. It does not give us anything. Does not any information from the passage.
C. First of all - it is not important. Second of all - it is simply obviously not true.
E. Maybe. But it unlikely. And not important. And too hard speculation.

D. It is good. Perfectly fits in our conclusion.
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Re: Studies have shown that a 10% increase in the price of cigarettes  [#permalink]

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New post 08 Jul 2018, 16:14
Can you please explain this one, how we can be sure that D is the answer.
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Re: Studies have shown that a 10% increase in the price of cigarettes  [#permalink]

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New post 10 Jul 2018, 10:57
Quote:
Studies have shown that a 10% increase in the price of cigarettes, only reduces demand by 4%. On the other hand, the tax imposed on luxury goods in 1991 was also 10%, but the tax revenue fell $97 million short of projection, and yacht retailers saw a 77% drop in sales. Many of those retailers went bankrupt and had to abandon their businesses, with many people losing their jobs. Regardless, tax shifting should always be considered when setting tax policy.

Which one of the following is an assumption upon which the argument relies?

A. Tax shifting plays an important role in increasing the sales of luxury goods.

B. The tax revenue is directly propotional with the amount of sales in any given time period.

C. An increment or decrement in the percentage of tax imposed has no relation with the bankruptcy of the firms.

D. If a tax is levied on a non-price sensitive good or service — like cigarettes — it wouldnot lead to big changes such as factory shutdowns and unemployment.

E. The retailers intentionally went bankrupt in order to reduce their tax burden.


Approach --

1) Eliminate C and E, negating the choice doesn't impact the conclusion.
2) Eliminate B, out of context. We are not discussing tax revenue.

Between A and D,

negating A --> Tax shifting not necessarily plays an important role in increasing sales of luxury goods but still tax shifting should be considered when setting tax policy holds good.

Therefore, D is correct.
Re: Studies have shown that a 10% increase in the price of cigarettes &nbs [#permalink] 10 Jul 2018, 10:57
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