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federal tax

Expert replies
by mgmt_gmat » Fri Feb 12, 2010 1:28 am
In the year following an eight-cent increase in the federal tax on a pack of cigarettes,
sales of cigarettes fell ten percent. In contrast, in the year prior to the tax increase, sales
had fallen one percent. The volume of cigarette sales is therefore strongly related to the
after-tax price of a pack of cigarettes.
The argument above requires which of following assumptions?
A. During the year following the tax increase, the pretax price of a pack of cigarettes
did not increase by as much as it had during the year prior to the tax increase.
B. The one percent fall in cigarette sales in the year prior to tax increase was due to a
smaller tax increase.
C. The pretax price of a pack of cigarettes gradually decreased throughout the year
before and the year after the tax increase.
D. For the year following the tax increase, the pretax price of a pack of cigarettes
was not eight or more cents lower than it had been the previous year.
E. As the after-tax price of a pack of cigarettes rises, the pretax price also rises.
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Source: — Critical Reasoning |

by komal » Fri Feb 12, 2010 1:40 am
During the year following the tax increase, the pretax price of a pack of cigarettes did not increase by as much as it had during the year prior to the tax increase.
Incorrect : It is not the pretax price that has affected sales. Eliminated.

B. The one percent fall in cigarette sales in the year prior to tax increase was due to a smaller tax increase.
Incorrect : The fall in cigarette sale could not have been due to smaller tax increase but it could have been due to pre-tax price. Eliminated

C. The pretax price of a pack of cigarettes gradually decreased throughout the year before and the year after the tax increase.
Incorrect : Gradual decrease or increase in price is irrelevant to the scope of the argument.

D. For the year following the tax increase, the pretax price of a pack of cigarettes was not eight or more cents lower than it had been the previous year.
Correct : If the pretax price of a pack of cigarettes was eight or more cents lower than it had been in the previous year, it would mean that after tax price would remain same or it would be lower and thus there would not be decrease in sales.

E. As the after-tax price of a pack of cigarettes rises, the pretax price also rises.
Incorrect : We cannot assume this from what is stated in the premises above.

Hope this helps : )
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