Until this coming April, the price of all Albanian products will equal

Question

Until this coming April, the price of all Albanian products will equal their gross price plus a tax of 20 percent. By what percentage do we expect the retail price of Albanian cheese to change after April?

(1) This April, the gross price of Albanian cheese will increase by 20 percent.
(2) This April, the tax on Albanian products will change to 25 percent of the gross price.

IanStewart · Answer

We clearly need to know something about how the price will change, and also about if or how the tax will change. So the answer could only be C or E. Using both Statements, if, before the April changes, cheese costs c dollars pretax, then after the 20% tax is added, it will cost 1.2c dollars. After the April changes, we know the new pretax price of the cheese will be 20% higher, so will be 1.2c dollars, to which 25% tax will be applied. So the new retail price will be (1.25)(1.2c) = 1.5c.

So the retail price is increasing from 1.2c to 1.5c dollars, an increase of 0.3c dollars. Dividing by the initial price, 1.2c, we find that the percent increase is 25%. So C is the answer.

So the retail price is increasing from 1.2c to 1.5c dollars, an increase of 0.3c dollars. Dividing by the initial price, 1.2c, we find that the percent increase is 25%. So C is the answer.

manish8242 · Answer

It is not said that 20% tax was on the gross price. We cant assume so unless it is given explicitly. We can make many mistakes if we follow this approach on harder questions.

My approach was Intial the price was GP+20%Tax(on what basis is not known)
Combining A and B will give us new GP = 1.2GP + 25% of new GP (25% of 1.2GP) still we dont know the original basis of taxation so we cant decide the change in pricing

Correct answer should be E.

IanStewart · Answer

This is a question from a prep company, not from the actual test, so it is not careful with its wording, but I think you might be looking for "traps" that will never exist on the actual GMAT. There is really only one natural interpretation of the phrase " gross price plus a tax of 20 percent" -- the tax applies to the gross price. That is the interpretation the GMAT would intend if it used phrasing like this. In any case, it is clearly the intention of the question writer that the tax apply to the gross price (as you can tell by the OA, which is C, not E).

Until this coming April, the price of all Albanian products will equal

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Until this coming April, the price of all Albanian products will equal

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