When the government taxes the sale of a particular type of good, eithe

Question

When the government taxes the sale of a particular type of good, either the producers of the good receive less profit, or the consumers must pay a higher price for the good, or both. If the consumers must pay a higher price, then they will demand less of that good and more of all other goods.

Q:If the above statements are true, and increased demand for a good leads to a higher price for that good, which of the following statements must also be true?

A: If the price of pencils rises and the government taxes the sale of ballpoint pens, then the producers of pens do not receive less profit.

B: If the government taxes the sale of coconuts and the price of bananas remains constant, then the producers of coconuts receive less profit.

C: If the price of coffee falls and consumers demand more tea, then the government repealed a tax on the sale of tea.

D: If the government taxes the sale of cigarettes and consumers demand more bourbon, then consumers must pay a higher price for cigarettes.

E: If consumers demand more bicycles and the producers of automobiles receive less profit, then the government taxes the sale of automobiles.

chetan2u · Answer

Hi,
if one looks at the logic..
 higher price results in less demand  and increase in higher demand of other materials say A...
also higher demands of A means  higher price for A so as per above rule its demand must come down ... so it seems the logic here conveys that no one will be able to sustain more demand for a long time
but anyway my try of the Q is as under,..
B: If the government taxes the sale of coconuts and the price of bananas remains constant, then the producers of coconuts receive less profit.
this goes perfectly fine with the logic given..
since taxes are levied on coconuts, either the producer takes less profit initially itself or he passes the increase to consumers ..
now the consumers will demand less of coconut and more of bananas as its price are constant..
It is given tht incr in price means less profit so again the producers of coconut will recieve less profit

dominicraj · Answer

Yea should be B. But this is what type of CR question? Inference?

Regards,
Dom.

schazamhuzzah · Answer

The correct choice is 'E' not 'B'

B. If the government taxes the sale of coconuts and the price of bananas remains constant, then the producers of coconuts receive less profit. - Coconut is taxed so either people demand less of coconuts (or) producers of coconuts make less profit -but neither is a surety. so its not the correct choice

E. If consumers demand more bicycles and the producers of automobiles receive less profit, then the government taxes the sale of automobiles. - Producers of automobiles make less profit and since we dont have any other info. it should have been because of taxing of automobiles only.

Hope its clear!

rohit8865 · Answer

Confusing between choice "B" & "D"..
can anyone plz explain...

Mascarfi · Answer

I don't believe any of the answers will fit...

A: If the price of pencils rises and the government taxes the sale of ballpoint pens, then the producers of pens do not receive less profit.  taxes on sale of pens might go to producers or consumers, no way to be sure about the profit.

B: If the government taxes the sale of coconuts and the price of bananas remains constant, then the producers of coconuts receive less profit.  taxes on sale of coconuts might go to producers or consumers, no way to be sure about the profit. The price of bananas remain constant, but it does not say anything about the prices of "all other goods"

C: If the price of coffee falls and consumers demand more tea, then the government repealed a tax on the sale of tea.  if price of coffee falls and consumers demand more tea it does not imply that the government repealed a tax on the sale of tea

D: If the government taxes the sale of cigarettes and consumers demand more bourbon, then consumers must pay a higher price for cigarettes.  taxes on sale of cigarettes might go to producers or consumers, no way to be sure about the who pays for it. It does not say anything about the prices of "all other goods"

E: If consumers demand more bicycles and the producers of automobiles receive less profit, then the government taxes the sale of automobiles.  taxes on sale of automobiles might go to producers or consumers, no way to be sure about the who pays for it. It does not say anything about the prices of "all other goods", it might have nothing to do with the demand for bikes

If the question said "If the consumers must pay a higher price, then they will demand less of that good and more of SUBSTITUTE goods." instead of "If the consumers must pay a higher price, then they will demand less of that good and more of all other goods.", then we would be better to imply something about the answers. In this case I think E would fit in well.

Mahmud6 · Answer

When the government taxes the sale of a particular type of good, either the producers of the good receive less profit, or the consumers must pay a higher price for the good, or both. If the consumers must pay a higher price, then they will demand less of that good and more of all other goods.

Q:If the above statements are true, and increased demand for a good leads to a higher price for that good, which of the following statements must also be true?

A: If the price of pencils rises and the government taxes the sale of ballpoint pens, then the producers of pens do not receive less profit.

B: If the government taxes the sale of coconuts and the price of bananas remains constant, then the producers of coconuts receive less profit.

C: If the price of coffee falls and consumers demand more tea, then the government repealed a tax on the sale of tea.

D: If the government taxes the sale of cigarettes and consumers demand more bourbon, then consumers must pay a higher price for cigarettes.

E: If consumers demand more bicycles and the producers of automobiles receive less profit, then the government taxes the sale of automobiles.

It seems to me both B & D are correct.

B: If the government taxes the sale of coconuts and the price of bananas remains constant, then the producers of coconuts receive less profit.

The price of bananas remains constant--> Demand for bananas is constant--Since demand for other products is constant, we can assume that the demand for coconut is also constant, meaning tax has no impact on consumer price, so producer bears the tax, thus reducing profit.

D: If the government taxes the sale of cigarettes and consumers demand more bourbon, then consumers must pay a higher price for cigarettes.

Since consumer demands for bourbon has increased, demand of cigarettes has decreased. Since demand for cigarettes has decreased, we can assume that price has increased due to taxation and consumer has to bear it.

Would anyone help me to eliminate D?

goforgmat · Answer

confused between B and D ,How do we eliminate D?

mikecal · Answer

When the government taxes the sale of a particular type of good, either the producers of the good receive less profit, or the consumers must pay a higher price for the good, or both. If the consumers must pay a higher price, then they will demand less of that good and more of all other goods.

Q:If the above statements are true, and increased demand for a good leads to a higher price for that good, which of the following statements must also be true?

B: If the government taxes the sale of coconuts and the price of bananas remains constant, then the producers of coconuts receive less profit.

the tax on coconuts will result in loss of profit if demand remains the same (producers receive less money per item) or alternatively if producers increase prices to make up for the tax----->a loss of demand will result in a loss of profit.

D: If the government taxes the sale of cigarettes and consumers demand more bourbon, then consumers must pay a higher price for cigarettes.

a tax on cigarettes will not necessarily lead to higher prices for consumers unless producers raise their prices and there's no condition that forces them to do so. so this one is correct.

techspartan · Answer

I am still unable to distinguish between Option B and Option D
Both the options seems to be valid...

VachePBH · Answer

I think this is the logic behind the problem - If a certain good is taxed, then there are 2 options,

1) the consumers will be forced to pay a higher price -> if they are forced to pay a higher price, they will shift to another, substitute, product increasing the demand for it -> if the demand for the other good rises, then the price of that good also rises.

2) the producers of the taxed good would receive lower profits, we can infer that the price remained the same, the tax is levied on producers and there is no change in the demand and no shift to the substitute product.

In the option B, we have a tax on Coconut. The price for the substitute good remained the same meaning that the customers are not forced to pay a higher price for Coconuts. So the first option is not valid.
If the first option is not valid, then the second option should be true, and it is mentioned in the option B that the producers will get less profit.

sevenplusplus · Answer

It took >30 minutes for me to prepare the mathematical model and to understand the logic; pretty useless for GMAT exam. Nevertheless, here is:

Argument:

1. Tax(A) -> -Profit(A) OR (inclusive) +Price(A)
2. +Price(A) -> -Demand(A) AND +Demand(A-sub)
3. +Demand(X) -> +Price(X)

Now, as per logic, 
(i) if a statement is true, its Contrapositive is also true.
 P -> Q => ~Q -> ~P
 here ~ means negation (logical opposite)
(ii) negation rules
 ~ (A OR B) => ~A AND ~B

Key note: negation of: Demand UP is NOT Demand DOWN. It is ! (Demand UP) => Demand SAME OR DOWN.
Now let's look at arguments again followed by all options:
Given:
1. Tax(A) -> -Profit(A) OR (inclusive) +Price(A)
2. +Price(A) -> -Demand(A) AND +Demand(A-sub)
3. +Demand(X) -> +Price(X)

(A) Tax(A) AND +Price(A-sub) . => -Profit(A)
We cannot logically deduce from above. In fact, +Price(A-sub) does not convey anything.

(B) Tax(A) AND ~(+Price(A-sub)) => -Profit(A)
from (3), ~(+Price(A-sub)) => ~(+Demand(A-sub))
from (2), ~(-Demand(A)) OR ~(+Demand(A-sub)) => ~Price(A)
from (1) => Tax(A) AND ~Price(A) => -Profit(A)

(C) -Price(A-sub) AND +Demand(A) => Repealed Tax(A)
Repealed, to me, is not clear here.
Does it mean: Repealed Tax(A) = ~(Tax(A)) OR Repealed Tax(A) = !(Tax(A)).

(D) Tax(A) AND +Demand(A-sub) => +Price(A)

+Demand(A-sub) => +Price(A-sub)
Now, we cannot make a jump:
+Price(A-sub) =>...=> +Price(A)

(E) +Demand(A-sub) AND -Profit(A) => Tax(A)
again:
+Demand(A-sub) => +Price(A-sub) ...stuck..can't deduce further
combining with (1)
Tax(A) -> -Profit(A) OR (inclusive) +Price(A)
Given: -Profit(A) . ===DOES NOT ===> Tax(A)

JS1290 · Answer

I am confused between B and E. Could anyone please explain to me why B is right and not E?

kannu44 · Answer

I am more inclined toward E. Don't understand how B is the right answer.any help from experts.

Posted from my mobile device

darn · Answer

What is the source of this question? None of the options seem right to me.

RanjanSury · Answer

When the government taxes the sale of a particular type of good, either the producers of the good receive less profit, or the consumers must pay a higher price for the good, or both. If the consumers must pay a higher price, then they will demand less of that good and more of all other goods.

Let's break it down:
Govt: Taxes any particular product

Possible effects
Effect#1: Producers of the product receive less profit
Effect#2: Consumers must pay a higher price for the good(If effect #2 takes place, then the demand for the product will decline)

Q:If the above statements are true, and increased demand for a good leads to a higher price for that good, which of the following statements must also be true?

A: If the price of pencils rises and the government taxes the sale of ballpoint pens, then the producers of pens  do not receive  less profit. (From the stimulus we know that if a particular type of good is taxed then one possibility is that the producers of the good receive less profit, therefore this cannot be true) 
B: If the government taxes the sale of coconuts and the price of bananas remains constant, then the producers of coconuts receive less profit (Yes, this must be true given the facts) 
C: If the price of coffee falls and consumers demand more tea, then the government repealed a tax on the sale of tea. (This is somewhat extreme. There could be a variety of reasons for the fall in the price of coffee) 
D: If the government taxes the sale of cigarettes and consumers demand more bourbon, then consumers must  pay a higher price for cigarettes. (Notice the word 'must' in this option. This suggests that there is room for only effect#2 and effect#1 is ruled out.)   E: If consumers demand more bicycles and the producers of automobiles receive less profit, then the government taxes the sale of automobiles. (Uses Reverse logic. There could be other reasons for producers of automobiles to receive less profit)

MohdSaqib123 · Answer

I'll go for 'A'. Kindly let me know where I'm wrong in this.

It says:

1. Price(Pencil) - Incr.--> Demand(Pencil)- Decr and demand of other products will increase-->  
2. Since Demand(Pen)- Incr --> Price(Pen)-Incr (as per Q. statement)
3. Govt taxed (Pen)- Either Profit(Pen)- Decr or Price(Pen)- Incr ..... but we already know from 2. that Price(Pen) went up.. so the latter is our case

So Demand(Pen)- Incr.. Price- Incr ---> Company could'nt possibly have lower profit. It's the ideal situdation

itsarudolf · Answer

Choose the wrong answer, but I see why B is right.

Increasing demand "of all other goods" in the very end of the stem can have an impact on the banana price!

Logic here is Coco Tax --> CoCo Price higher for Cust --> Cust wants other products now, and demand for those other products such as bananas should increase, so prices will increase, BUT prices stay the same, so this did not. Hence, the only option is that producers of CoCo receive less profit.

VerbalBot · Answer

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