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The government should stop permitting tobacco companies to subtract ad

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The government should stop permitting tobacco companies to subtract ad  [#permalink]

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The government should stop permitting tobacco companies to subtract advertising expenses from their revenues in calculating taxable income. Tobacco companies would then have to pay more taxes. As a consequence, they would raise the prices of their products and this price increase would raise the prices of their products and this price increase would discourage tobacco use.

Which of the following is an additional premise required by the argument above?


(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.

(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.

(C) People would not continue to buy tobacco products if these products were no longer advertised.

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.

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Originally posted by shikhar on 09 May 2012, 10:39.
Last edited by Bunuel on 06 May 2018, 01:02, edited 1 time in total.
Renamed the topic and edited the question.
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 28 Feb 2019, 01:09
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(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.

This sounds nice, but we don't need this to be true for the conclusion to follow. If we negate this statement ("Tobacco companies WOULD continue to advertise"), it doesn't hurt the argument. In fact, the author's logic assumes that companies WILL keep advertising, and hence will have to increase prices.

(C) People would not continue to buy tobacco products if these products were no longer advertised.

This one doesn't matter, since there is no indication that advertising will end, nor any prediction of what would happen if it did.

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.

This also sounds very nice, but it isn't necessary to the argument. If we did NOT use the tax revenue for public health education, the author's prediction still might play out as described.

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.

We don't need the tobacco companies to keep their profit stable. As long as the companies raise their prices at all, the author's prediction is unharmed.
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 10 May 2012, 00:22
Clear A - the argument assumes that prices will have to be raised to offset additional tax costs. This may not happen if the tobacco companies are able to meet the increased costs through cost cuts. They will then not have to increase prices.
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 19 May 2012, 09:38
Conclusions :
Removing Tax rebate on advertise expenses would compel companies to increase the prices of the product.

So any implicit assumption that would contribute in making this conclusion viable would be the right answer

Let's try to explore options :
(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
- So conclusion would hold true - CORRECT

(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.
- Conclusion may not hold true because companies may stop advertising to save money and in-turn prices will not rise - INCORRECT

(C) People would not continue to buy tobacco products if these products were no longer advertised.
- Not directly relevant - INCORRECT

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.
- Irrelevant, how that money would be used - INCORRECT

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.
- This may be true but doesn't make the premise for conclusion to hold true - INCORRECT
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 22 Aug 2012, 04:53
anordinaryguy wrote:
Conclusions :
Removing Tax rebate on advertise expenses would compel companies to increase the prices of the product.

So any implicit assumption that would contribute in making this conclusion viable would be the right answer

Let's try to explore options :
(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
- So conclusion would hold true - CORRECT

(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.
- Conclusion may not hold true because companies may stop advertising to save money and in-turn prices will not rise - INCORRECT

(C) People would not continue to buy tobacco products if these products were no longer advertised.
- Not directly relevant - INCORRECT

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.
- Irrelevant, how that money would be used - INCORRECT

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.
- This may be true but doesn't make the premise for conclusion to hold true - INCORRECT


How can you say that C is irrelevant. If people continue to buy products which aren't being advertised, then there isn't any need for these companies to advertise these products and therefore no higher taxes. I am still confused between A and C. Both seem correct to me.
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 22 Aug 2012, 06:15
siddharthasingh wrote:
anordinaryguy wrote:
Conclusions :
Removing Tax rebate on advertise expenses would compel companies to increase the prices of the product.

So any implicit assumption that would contribute in making this conclusion viable would be the right answer

Let's try to explore options :
(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
- So conclusion would hold true - CORRECT

(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.
- Conclusion may not hold true because companies may stop advertising to save money and in-turn prices will not rise - INCORRECT

(C) People would not continue to buy tobacco products if these products were no longer advertised.
- Not directly relevant - INCORRECT

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.
- Irrelevant, how that money would be used - INCORRECT

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.
- This may be true but doesn't make the premise for conclusion to hold true - INCORRECT


How can you say that C is irrelevant. If people continue to buy products which aren't being advertised, then there isn't any need for these companies to advertise these products and therefore no higher taxes. I am still confused between A and C. Both seem correct to me.


Refer to the conclusion drawn above. Statement C may be true or be a relevant fact but it is not relevant in reference to conclusion drawn above.
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 22 Aug 2012, 06:49
I guess the conclusion is : they would raise the prices of their products and this increase would raise the prices of their products and this PRICE RISE WOULD DISCOURAGE TOBACCO USE.
Now if the people who buy tobacco, keep on doing so even if the price rises, then this conclusion falls apart.
Let me know if I am missing something.
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 26 Jan 2013, 05:43
option C states that people will stop buying tobacco when product is no longer advertised. But there is mention in the statements that company is stopping the ads.

Marcab wrote:
I guess the conclusion is : they would raise the prices of their products and this increase would raise the prices of their products and this PRICE RISE WOULD DISCOURAGE TOBACCO USE.
Now if the people who buy tobacco, keep on doing so even if the price rises, then this conclusion falls apart.
Let me know if I am missing something.


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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 26 Jan 2013, 19:18
A is the lesser of all the evils IMO.

We assume that the tobacco will pass on the cost to consumers, and not reduce cost or absorb it altogether.

So A is clearly the correct answer.

I was thinking about E for a second though. I looked at E as an implication that the consumer may not purchase the product at a higher price. Higher cost>>Higher price>>Consumer don't buy. But the answer choice does to address the consumer, so I threw it out and went with A.
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 25 Oct 2016, 00:22
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shikhar wrote:
The government should stop permitting tobacco companies to subtract advertising expenses from their revenues in calculating taxable income. Tobacco companies would then have to pay more taxes. As a consequence, they would raise the prices of their products and this price increase would raise the prices of their products and this price increase would discourage tobacco use.
Which of the following is an additional premise required by the argument above?
(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.
(C) People would not continue to buy tobacco products if these products were no longer advertised.
(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.
(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.



Clearly A is the answer Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 03 Dec 2016, 18:00
Marcab wrote:
anordinaryguy wrote:
Conclusions :
Removing Tax rebate on advertise expenses would compel companies to increase the prices of the product.

So any implicit assumption that would contribute in making this conclusion viable would be the right answer

Let's try to explore options :
(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
- So conclusion would hold true - CORRECT

(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.
- Conclusion may not hold true because companies may stop advertising to save money and in-turn prices will not rise - INCORRECT

(C) People would not continue to buy tobacco products if these products were no longer advertised.
- Not directly relevant - INCORRECT

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.
- Irrelevant, how that money would be used - INCORRECT

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.
- This may be true but doesn't make the premise for conclusion to hold true - INCORRECT


How can you say that C is irrelevant. If people continue to buy products which aren't being advertised, then there isn't any need for these companies to advertise these products and therefore no higher taxes. I am still confused between A and C. Both seem correct to me.




Option C talks about the case when products are not advertised, but the argument is only concerned about price rise when govt stops permitting rebate related to amount spent in advertising. All the further details mentioned here talks about case when company continue to advertise.

I think because of this reason, option C is irrelevant here.
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 06 May 2018, 00:03
Hello,
In this question, in Option C, I feel that Option C is a weakener. If the tobacco companies no longer advertise, then they don't have to pay additional tax, so the prices don't rise and tobacco usage is not discouraged.

Is my Reasoning correct here?

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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 07 May 2018, 14:57
shikhar wrote:
The government should stop permitting tobacco companies to subtract advertising expenses from their revenues in calculating taxable income. Tobacco companies would then have to pay more taxes. As a consequence, they would raise the prices of their products and this price increase would raise the prices of their products and this price increase would discourage tobacco use.

Which of the following is an additional premise required by the argument above?


(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.

(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.

(C) People would not continue to buy tobacco products if these products were no longer advertised.

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.


Clear A, the author says that the increase in taxes with directly lead to lesser consumption, assuming that the tobacco company would not offset the increased cost elsewhere.
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 16 Dec 2018, 05:01
"subtract advertising expenses from their revenues in calculating taxable income". so the tax is based on (revenue-expense), not expense. the company need to pay additional tax is because they paid less than they should( because the advertising expense should not be subtract). does this make sense? please correct my thoughts if i'm wrong
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 18 Dec 2018, 01:40
Choice A is the best additional premise because if tobacco companies offset the payment of extra taxes by reducing costs in other area. They will no longer increase the price that they offer to regular customer which in turn would not discourage tobacco use. For the plan to be a success, it is mandatory to increase the price of product. Hence, A is the answer.
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 18 Feb 2019, 01:03
I understand answer choice A. But how do we eliminate B, C, and E?

What is the conclusion? The price rise would discourage tobacco use. Or Removing Tax Rebates would compel companies to increase the price??
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Re: The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 05 Mar 2019, 05:46
DmitryFarber wrote:
(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.

This sounds nice, but we don't need this to be true for the conclusion to follow. If we negate this statement ("Tobacco companies WOULD continue to advertise"), it doesn't hurt the argument. In fact, the author's logic assumes that companies WILL keep advertising, and hence will have to increase prices.

(C) People would not continue to buy tobacco products if these products were no longer advertised.

This one doesn't matter, since there is no indication that advertising will end, nor any prediction of what would happen if it did.

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.

This also sounds very nice, but it isn't necessary to the argument. If we did NOT use the tax revenue for public health education, the author's prediction still might play out as described.

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.

We don't need the tobacco companies to keep their profit stable. As long as the companies raise their prices at all, the author's prediction is unharmed.



Thank You so much :) Nice explanation
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The government should stop permitting tobacco companies to subtract ad  [#permalink]

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New post 22 May 2019, 05:08
The government should stop permitting tobacco companies to subtract advertising expenses from their revenues in calculating taxable income. Tobacco companies would then have to pay more taxes. As a consequence, they would raise the prices of their products and this price increase would raise the prices of their products and this price increase would discourage tobacco use.

Notes
(C) gov. stop company subtract exp. in tax. income
(P) —> pay more tax —> (AP) ^ prices —> (AP) lower tobacco use

Analysis

This author claims that the government needs to prohibit tobacco companies from subtracting advertising expenses. The following statements are basically side effects of such prohibition. The author notes that disallowing the subtraction of ad expenses would increase prices and discourage tobacco use.

What the author assumes though is that companies won’t find other ways to evade taxes. I think what comes off as slightly confusing (as it did to me when I did this question the second time around) was which statement is truly the conclusion. I almost thought that the price raising section was the conclusion but it’s not.

Which of the following is an additional premise required by the argument above?

(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
Sounds similar to our pre-thinking. Let’s hold onto it.

Just to double check: If companies WERE to offset payment by reducing costs, why bother raising prices? They'll probably just keep it as is!

(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.
This answer discusses advertising (rightly so) but hinges on the idea that we might jump to the conclusion that if they stop advertising….then people would stop using tobacco. But that’s too many jumps.

(C) People would not continue to buy tobacco products if these products were no longer advertised.
Again, similar to (B). We’re looking for an answer that discusses the taxable income.

(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.
Not relevant. Trying to trick us into thinking the conclusion is really about discouraging smokers….!

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.
Hm, so this answer choice says taxes are equal to the price raise. What if the taxes were not equal? Let’s consider two scenarios:

If increase in taxes paid > additional income generated: In this case, it might be true that companies would increase their prices....

Increase in taxes paid < additional income generated: In this case, it’s not necessary that the companies would increase taxes. In fact, if this were true, I might (?) even lower prices slightly to sell more?

Since we have a half and half answer, this is incorrect. We need a negated answer choice to WEAKEN the argument for it to be correct. Generally these "equal to" phrases generate many 'could be true but not necessary' scenarios.

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The government should stop permitting tobacco companies to subtract ad   [#permalink] 22 May 2019, 05:08
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