FEDERAL TAX ON A PACK OF CIGARETTES... Assumption Question

[annakool1009]

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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Please provide insights on this question.

[NSNguyen]

B is my choice

[raunekk]

in my opinion..

It has to be inbetween A and D...


is it D??

[kshin78]

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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Please provide insights on this question.

IMO D. If the cig price dropped by more than $.08 cents, it would offsett the increase due to tax. Let's just say if it dropped by $.50 which would make the new cig price $.42 cents cheaper. if cigs are cheaper and the sales are going down, tax increase has no effect on the demand.
thus, D is needed to make the conclusion.

[ska7945]

I am in between b & d.
so what's OA?
anybody?

[Vignesh.4384]

I feel A & D are the strong contenders.

I choose D .

[NSNguyen]

Hi annakool1009,
Could you post OA?

[niraj_a]

A or D, and I choose D. OA?

[Jason11]

D.

Let's talk about the two-year period between 2007 and 2008.
Actually, the pretax of the following year is the value added tax price of the prior year. Look at the chart below:

I negate the choice D,

.........Years......2007......2008

..........Pretax.......90...........100
....Added Tax.....100...........108
Tax Increase...10 cent.......8 cent

So If the choice D is wrong or you negate it, then the sales of cigarette wouldn't be related to the tax price. Because the tax increase of the prior year would be higher than that of the following year as it is chart above.

[kris77]

Looking at it now, D makes sense