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

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Joined: 12 Nov 2016
Posts: 29

Kudos [?]: 24 [0], given: 27

Location: Nepal
Concentration: Accounting, Economics
GPA: 3.63
WE: Account Management (Accounting)
Studies have shown that a 10% increase in the price of cigarettes [#permalink]

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New post 06 Jun 2017, 21:08
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  95% (hard)

Question Stats:

43% (01:17) correct 57% (01:50) wrong based on 181 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.
[Reveal] Spoiler: OA

Last edited by broall on 07 Jun 2017, 00:24, edited 2 times in total.
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Posts: 114

Kudos [?]: 32 [1], given: 218

Location: Russian Federation
Concentration: General Management, Strategy
WE: Information Technology (Other)
Re: Studies have shown that a 10% increase in the price of cigarettes [#permalink]

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New post 11 Nov 2017, 12:52
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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.

Kudos [?]: 32 [1], given: 218

Re: Studies have shown that a 10% increase in the price of cigarettes   [#permalink] 11 Nov 2017, 12:52
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Studies have shown that a 10% increase in the price of cigarettes

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