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sillyboy
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A "vice tax" can suppress demand for a product or service that is not Updated on: 20 Aug 2019, 00:44
Originally posted by sillyboy on 20 Jan 2017, 05:39.
Last edited by Bunuel on 20 Aug 2019, 00:44, edited 2 times in total.
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C
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!

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54% (02:09) correct 46% (02:12) wrong based on 472 sessions

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A "vice tax" can suppress demand for a product or service that is not wholly in the public's favor by making it more expensive. The country of Balbonia wished to duplicate Geraldia's success in using a vice tax to reduce the sales of nicotine products, such as cigarettes. When Balbonia introduced the same tax into its market, however, demand for nicotine products remained undiminished, even though the currency-adjusted prices of nicotine in Balbonia rose to levels equivalent to those in Geraldia.

Which of the following, if true, most helps to explain the contrasting impact of the two instances of vice tax described above?

A. Balbonia has a much greater variety of nicotine products and makers of those products than does Geraldia, including electronic cigarettes.

B. It required a different tax rate and tax structure in Balbonia to achieve the same effective nicotine product prices as were present in Geraldia.

C. Geraldia has laws restraining the marketers of nicotine products from increased advertising of their products, while Balbonia does not.

D. Smokers of cigarettes in Balbonia have more of an ingrained habit of smoking after dinner than do smokers in Geraldia.

E. Vice taxes were far more prevalent in Balbonia than in Geraldia even prior to the introduction of the nicotine vice tax in Balbonia.
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C
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A "vice tax" can suppress demand for a product or service that is not 20 Jan 2017, 05:54
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I fell for D, although wasn't convinced with it. But after seeing OA and thinking through little bit more, I think OA makes sense. Here one thing is common between two regions - "vice tax" whereas the outcome is different. That is because only "vice tax" is not enough to curb the demand. Option C introduces another regulation that, in addition to vice tax, is responsible for success of the plan

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A "vice tax" can suppress demand for a product or service that is not 20 Jan 2017, 07:27
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Basically the question is asking for an alternative explanation as to why even after increasing the tax on nicotine, the consumption has not reduced.
Option C - directly gives us an alternative reason that it is advertising that is pushing people to consume nicotine in spite of higher prices.

Thnx
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A "vice tax" can suppress demand for a product or service that is not 21 Jan 2017, 05:36
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Hello,

As per my analysis, Option D justifies and resolves the paradox.

It is clear from premise that the "vice tax" can suppress demand for a product or service that is not wholly in the public's favor by making it more expensive

If the public/people in Balbonia are favorable for nicotine products (ingrained habit i.e fixed habit) then the vice tax shall not produce the same effect similar to the effect in Geraldia where people donot smoke habitually.

Option D clearly explains the paradox.

Please advise. I cannot understand why OA is C ?

Thank you,
Srividhya
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A "vice tax" can suppress demand for a product or service that is not 23 Jan 2017, 02:09
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gsrividhya
Hello,

As per my analysis, Option D justifies and resolves the paradox.

It is clear from premise that the "vice tax" can suppress demand for a product or service that is not wholly in the public's favor by making it more expensive

If the public/people in Balbonia are favorable for nicotine products (ingrained habit i.e fixed habit) then the vice tax shall not produce the same effect similar to the effect in Geraldia where people donot smoke habitually.

Option D clearly explains the paradox.

Please advise. I cannot understand why OA is C ?

Thank you,
Srividhya
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D could explain that the number of cigarettes smoked after dinner remains undiminished. However it cannot explain why the total cigarette consumption (throughout the day) remains undiminished.

Option C may explain this discrepancy. The driving force to reduce cigarette consumption due to higher prices may be compensated by the higher advertising.
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A "vice tax" can suppress demand for a product or service that is not 23 Jan 2017, 02:18
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gsrividhya
Hello,

As per my analysis, Option D justifies and resolves the paradox.

It is clear from premise that the "vice tax" can suppress demand for a product or service that is not wholly in the public's favor by making it more expensive

If the public/people in Balbonia are favorable for nicotine products (ingrained habit i.e fixed habit) then the vice tax shall not produce the same effect similar to the effect in Geraldia where people donot smoke habitually.

Option D clearly explains the paradox.

Please advise. I cannot understand why OA is C ?

Thank you,
Srividhya

D could explain that the number of cigarettes smoked after dinner remains undiminished. However it cannot explain why the total cigarette consumption (throughout the day) remains undiminished.

Option C may explain this discrepancy. The driving force to reduce cigarette consumption due to higher prices may be compensated by the higher advertising.
Show more


Hi sayantanc2k,
What could be the basis for eliminating B?
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A "vice tax" can suppress demand for a product or service that is not 23 Jan 2017, 03:37
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adityapareshshah
sayantanc2k
gsrividhya
Hello,

As per my analysis, Option D justifies and resolves the paradox.

It is clear from premise that the "vice tax" can suppress demand for a product or service that is not wholly in the public's favor by making it more expensive

If the public/people in Balbonia are favorable for nicotine products (ingrained habit i.e fixed habit) then the vice tax shall not produce the same effect similar to the effect in Geraldia where people donot smoke habitually.

Option D clearly explains the paradox.

Please advise. I cannot understand why OA is C ?

Thank you,
Srividhya

D could explain that the number of cigarettes smoked after dinner remains undiminished. However it cannot explain why the total cigarette consumption (throughout the day) remains undiminished.

Option C may explain this discrepancy. The driving force to reduce cigarette consumption due to higher prices may be compensated by the higher advertising.


Hi sayantanc2k,
What could be the basis for eliminating B?
Show more

B would be a contender of C, if in B instead of "different tax rate", "lower tax rate" were mentioned. However "different" may imply "higher" or "lower". Therefore B could be or could not be a statement that explains the discrepancy. On the other hand, option C undoubtedly explains the discrepancy. Hence option C is better than B.
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A "vice tax" can suppress demand for a product or service that is not 20 Aug 2019, 00:44
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A "vice tax" can suppress demand for a product or service that is not wholly in the public's favor by making it more expensive. The country of Balbonia wished to duplicate Geraldia's success in using a vice tax to reduce the sales of nicotine products, such as cigarettes. When Balbonia introduced the same tax into its market, however, demand for nicotine products remained undiminished, even though the currency-adjusted prices of nicotine in Balbonia rose to levels equivalent to those in Geraldia.

Which of the following, if true, most helps to explain the contrasting impact of the two instances of vice tax described above?

A. Balbonia has a much greater variety of nicotine products and makers of those products than does Geraldia, including electronic cigarettes.

B. It required a different tax rate and tax structure in Balbonia to achieve the same effective nicotine product prices as were present in Geraldia.

C. Geraldia has laws restraining the marketers of nicotine products from increased advertising of their products, while Balbonia does not.

D. Smokers of cigarettes in Balbonia have more of an ingrained habit of smoking after dinner than do smokers in Geraldia.

E. Vice taxes were far more prevalent in Balbonia than in Geraldia even prior to the introduction of the nicotine vice tax in Balbonia.
Show more

OFFICIAL EXPLANATION:



Reading the question: We inhale the prompt. The vice tax has worked in G country, but not in B country, even though the tax did affect the price of nicotine products as planned. Why?, we are asked.

Creating a filter: the question rules out price as an explanation, so the explanation is something other than price. Maybe people in B country love their nicotine products more and are unperturbed by the new prices. Maybe people in B country are richer, although that does touch on pricing in some ways. We imagine that B country is more nicotine-demanding. We can think of our filter for the correct answer is "demand, not price."

Applying the filter: choice (A) doesn't touch on demand, and the tax effects should be unrelated to the variety of products, if they are taxed equally, which we're led to believe. So (A) is out. Choice (B) is out; the mechanism to achieve the effect is irrelevant if the price effect is equal, which we're led to believe. Choice (C) is close to our filter, since it touches on the subject of demand. Prices in B country are up, but increased advertising could help with demand. Choice (D) also concerns demand, so it passes the filter. Choice (E) is out; we don't see any reason to think other vice taxes would affect this vice tax. That leaves us with choices (C) and (D).

Logical proof: we'll find an objective difference between (C) and (D). The prompt has a dramatic phrase: demand for nicotine products remained undiminished. Abundant advertising, in (C), could explain why demand was undiminished across the board--in basically all nicotine-buying and -consuming situations. After-dinner smoking, in (D), could explain why some nicotine consumption would survive, but it doesn't explain demand going completely undiminished.

The correct answer is (C).
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A "vice tax" can suppress demand for a product or service that is not 08 Oct 2025, 03:43
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