The government of Country X recently implemented a series of measures

Hi samagra__ I got this one wrong too, since (B) was tempting. This is a tough question! But let me try explaining why I think C is a better answer after thinking about it more:

The prediction of the health officials is that the tax on cigarettes is going to reduce the incidence of smoking related illnesses by deterring new smokers from smoking or by encouraging existing smokers to quit smoking or reduce their consumption. The tobacco industry argues that there will be no such change once the tax gets implemented because cheaper cigarettes will be smuggled in, thus avoiding the tax.

(B) says that the majority of smokers in Country X are low income individuals and are most sensitive to price increases. If we think about this carefully in scope of the tobacco industry's argument about importing of cheaper cigarettes to avoid the tax, it certainly seems plausible that we could have a scenario where the tobacco consumption of these people is not reduced, but perhaps stays the same or even increases given that smuggling of cheaper cigarettes could be going on, which brings in cigarettes that these people can afford. This means the incidence of smoking-related illnesses may not actually decrease, given that these low income smokers may still be smoking cigarettes that could be as potent or perhaps even more potent than the more expensive cigarettes (we don't have any evidence to say that they're any less potent). Thus, this answer choice seems to strengthen the tobacco industry's position, if anything, which is not the position we're trying to strengthen here. Since the tobacco industry's point of view is not outright dismissed and remains as a possibility, we can rule this out.

(C) most directly connects to the wording of the health officials' prediction in the argument. It says that there is a lesser likelihood of teenagers to start smoking when the price of cigarettes is prohibitively high. This would accomplish one of the goals of the plan, which is to reduce the number of new smokers in Country X as a result of an increase in cigarette prices. Now, the only keywords to be careful about here are "prohibitively high", which we may not be entirely convinced about from the initial read of the passage, but we know that the prices are rising "significantly" and the goal of increasing these prices is to reduce the incidence of smoking-related illnesses via deterring new smokers from smoking, so this works out. It is the best answer choice left, so we can choose it with confidence.

Let me know if this helps and leave a kudos if it helped! Also, KarishmaB and GMATCoachBen let me know if this is a good analysis or if I'm missing something.

 

I don't know what the source of this question is but it is an example of why I ask my learners to stick to ONLY official questions. Such questions cause more confusion than they are worth. 
I would select (B) but I know that (C) makes sense too. 
I need to strengthen this: "the health officials' prediction that the increase in cigarette taxes will reduce the incidence of smoking-related illnesses"

B. Surveys indicate that the majority of current smokers in Country X are low-income individuals who are the most sensitive to price increases.

If majority of current smokers are sensitive to price increases, then we are likely to see a reduction in incidence of smoking and hence smoking related illnesses (which occur due to long term smoking) if price increases. 

C. Research shows that teenagers are less likely to start smoking if the price of cigarettes is prohibitively high.

Will increased tax make the price "prohibitively high," I don't know? Also, "starting smoking" isn't linked directly to "smoking related illnesses"

Hence if I had pick between the two, I would pick (B). 
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