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Cigarettes

by Juggernaut_86 » Mon Sep 05, 2011 7:26 pm
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.

Which of the following, if true, would most strengthen the argument?

A. During the second year after the tax increase, the cigarette sales increased by a significant amount.

B. The information available to consumers on the health risks of smoking remained largely unchanged before and after the tax increase.

C. Most of the consumers were unaware that the tax on cigarettes was going to increase.

D. During the year following the cigarette tax increase, many consumers had less income, in inflation-adjusted dollars, than they had had in the previous year.

E. During the year after the tax increase, there was a greater variety of cigarettes on the market than there had been during the previous year.



[spoiler]OA - B. I am confused b/w B & D
[/spoiler]
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by badpoem » Mon Sep 05, 2011 7:48 pm
A. During the second year after the tax increase, the cigarette sales increased by a significant amount. --> irrelevant. We are concerned about the period before and after the tax increase, i.e an year only. The second year is irrelevant.

B. The information available to consumers on the health risks of smoking remained largely unchanged before and after the tax increase. --> This adds a premise to the ones already stated. There was no change in the environment before and after the tax increase.

C. Most of the consumers were unaware that the tax on cigarettes was going to increase. --> We need to strengthen the relation between tax and sales. Any other factor like customers being unaware can weaken the reasoning.

D. During the year following the cigarette tax increase, many consumers had less income, in inflation-adjusted dollars, than they had had in the previous year. --> weakener. Why? Consumers had less income. So that could have been responsible for the less sales. We need to establish the connection between tax increase and sales only.

E. During the year after the tax increase, there was a greater variety of cigarettes on the market than there had been during the previous year. --> weakens. Greater variety leads to greater choice and perhaps a possible distribution of consumers' money.

Hope that helps! :)
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by Juggernaut_86 » Mon Sep 05, 2011 8:06 pm
Hi badpoem,

Thanks for the response. I still have a slight doubt in my mind regarding D -

Option D - Since the consumers had less income than the previous year and since the tax on cigarettes increased this year, the consumers had less money to buy cigarettes this year than they had the year before.
Since the consumers' purchasing power can reflect the sales of a product, the decline in sales could be attributed to the consumers' decreasing purchase power due to -

1) the tax increase AND
2) less income than previous year.

??
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by badpoem » Mon Sep 05, 2011 8:25 pm
Yes true. But IMO, we need to establish the connection between the sales drop and tax increase only. No other factor should come into the picture.

The extra factor of less income dilutes the effect of the tax increase. A refuter could claim that the tax increase had no effect at all. It was all because of that less income. Why give a chance to the refuter? Get it? ;)
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by Geva@EconomistGMAT » Tue Sep 06, 2011 12:09 am
Juggernaut_86 wrote:Hi badpoem,

Thanks for the response. I still have a slight doubt in my mind regarding D -

Option D - Since the consumers had less income than the previous year and since the tax on cigarettes increased this year, the consumers had less money to buy cigarettes this year than they had the year before.
Since the consumers' purchasing power can reflect the sales of a product, the decline in sales could be attributed to the consumers' decreasing purchase power due to -

1) the tax increase AND
2) less income than previous year.

??
Your claim shows why D actually weakens the argument instead of strengthening: the sales volume of cigarettes is not related to the price of the pack, but to the available income of the consumers. It's the reduced income that was the cause behind the drop in sales, and not the price - if consumers had more income, it is possible that they would buy the pack, tax or no tax.

In a sense, D provides an alternative explanation for the drop in sales, and thus weakens the argument. B eliminates a potential weakening point, and thus strengthens the argument indirectly.
D
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by M09 » Tue Sep 06, 2011 6:33 am
Juggernaut_86 wrote:Hi badpoem,

Thanks for the response. I still have a slight doubt in my mind regarding D -

Option D - Since the consumers had less income than the previous year and since the tax on cigarettes increased this year, the consumers had less money to buy cigarettes this year than they had the year before.
Since the consumers' purchasing power can reflect the sales of a product, the decline in sales could be attributed to the consumers' decreasing purchase power due to -

1) the tax increase AND
2) less income than previous year.

??
IMO B pretty straightforward
In D
During the year following the cigarette tax increase, many consumers had less income, in inflation-adjusted dollars, than they had had in the previous year

You're assuming that many customer includes cig smokers. What if it doesn't?
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by navami » Wed Sep 07, 2011 11:59 am
B provides valuable primises. Hence this is the rite choice.

D is also very close. But earning less does not necessarily mean that the consumers have no money to spare. There is a possibility that all other day to day goods got cheap hence they have more buying power. So D is out.
This time no looking back!!!
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