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Bad Bad Tobacco!

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Bad Bad Tobacco!

by rohangupta83 » Wed Nov 19, 2008 3:34 pm
The government should stop permitting tobacco companies to subtract advertising expenses from their revenues in calculating taxable income. Tobacco companies would then have to pay more taxes. As a consequence, they would raise the prices of their products and this price increase would raise the prices of their products and this price increase would discourage tobacco use.
Which of the following is an additional premise required by the argument above?
(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.
(C) People would not continue to buy tobacco products if these products were no longer advertised.
(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.
(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.
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by amitabhprasad » Wed Nov 19, 2008 4:40 pm
Between "A" and "E".
I will go for "E"
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by niraj_a » Wed Nov 19, 2008 5:39 pm
hmmmm hard choice between A and C. i choose A.

A seems wierd because if they reduce costs, then their income increases which means higher taxes

C seems wierd because the stem does not mention stopping advertising.

E is out for sure.
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by raajan_p » Wed Nov 19, 2008 6:23 pm
IMO A.

A is the only choice that substantiates the conlusion that "this price increase would discourage tobacco use."
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by slash » Wed Nov 19, 2008 9:53 pm
Even I had dilemma between A and E. But I finally choose E

(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.

Tobbaco companies would not compensate the payment of extra taxes by reducing cost other than advertising areas. This premise will not fit into the argument. So this option is ruled out.

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.

The increase in tax paid by the companies will be equal to the income generated by the new price. This will compensate the tax paid by the company. This is the right one
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Re: Bad Bad Tobacco!

by iamcste » Wed Nov 19, 2008 11:14 pm
rohangupta83 wrote:The government should stop permitting tobacco companies to subtract advertising expenses from their revenues in calculating taxable income. Tobacco companies would then have to pay more taxes. As a consequence, they would raise the prices of their products and this price increase would raise the prices of their products and this price increase would discourage tobacco use.
Which of the following is an additional premise required by the argument above?
(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
(B) Tobacco companies would not continue to advertise if they were forced to pay higher taxes.
(C) People would not continue to buy tobacco products if these products were no longer advertised.
(D) The money the government would gain as a result of the increase in tobacco companies’ taxable income would be used to educate the public about the dangers of tobacco use.
(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.
my take would be

A and E

(A) Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.

Offset means "incease in taxes =additional income generated"

lets reframe the sentence

The increase in taxes paid by tobacco companies would be equal to the additonal income generated by reducing cost in other areas

(E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices

Now, you can see "Effect " of both A and E are same, however the methods are different

Take a step further..

we have no clue on "other methods" in the qtn but we do have an argument saying that "Increase in prices would discourage usage of tobacco" hence E complements the argument stated in the qtn

E
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Re: Bad Bad Tobacco!

by rohangupta83 » Thu Nov 20, 2008 1:17 am
iamcste wrote: (E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices

Now, you can see "Effect " of both A and E are same, however the methods are different

Take a step further..

we have no clue on "other methods" in the qtn but we do have an argument saying that "Increase in prices would discourage usage of tobacco" hence E complements the argument stated in the qtn

E[/b]
and this is why I picked E - It seems naturally correct because it complements the conclusion of the argument. I don't see anything wrong with it, but OA does :(
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Re: Bad Bad Tobacco!

by iamcste » Thu Nov 20, 2008 2:42 am
rohangupta83 wrote:
iamcste wrote: (E) The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices

Now, you can see "Effect " of both A and E are same, however the methods are different

Take a step further..

we have no clue on "other methods" in the qtn but we do have an argument saying that "Increase in prices would discourage usage of tobacco" hence E complements the argument stated in the qtn

E[/b]
and this is why I picked E - It seems naturally correct because it complements the conclusion of the argument. I don't see anything wrong with it, but OA does :(
I cant believe this. You mean OA is A
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by mals24 » Thu Nov 20, 2008 3:35 am
Ok A and E are seriously confusing.
But between the two I'd go for A.

Lets see whats happening:

The government has decided that tobacco companies should not deduct ad expenses from taxable revenue. Hence the taxable income will increase because of which the tobacco companies will have to increase their prices.

A. Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas

Well makes sense because if they could offset the payment of extra taxes by reducing costs in other areas then there is no need to increase the prices of their products. But if they don't reduce their costs in other areas the only option they have is to increase their prices.
Its a simple logic either you reduce costs or increase your prices.

E. The increase in taxes paid by tobacco companies would be equal to the additional income generated by raising prices.

This is more like an assumption than a premise. The company would have assumed that the increase in taxes would be compensated by the additional income generated. Thats why they increased prices.

Interesting question whats the source and OA?
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by rohangupta83 » Thu Nov 20, 2008 3:45 am
Source 1000 CR

OA - A - using the spoiler function in case other people want to give this one a shot.

I see what you are saying mals24. It is assumed that the price increase would offset the additional taxes the Tobacco Company would pay and choice E states that assumption.

But we need a premise and if choice A is the added premise it would do 2 things.

1. Lead us to the conclusion as stated by you.
2. Re-emphasize the assumption that the only way for the Tobacco company to offset additional taxes is by raising prices.

In two minutes, this one is a handful :P
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by slash » Thu Nov 20, 2008 3:49 am
rohangupta83 or mals24...anyone can explain it more clear. Im still confused :?
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by mals24 » Thu Nov 20, 2008 3:53 am
@rohangupta
You bet this question is quite time consuming...it barely takes time to get the options down to A & E, but if this was a question in the gmat exam i would have never picked the OA. It took around 5-7 mins to get the logic straight.
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by moneyman » Thu Nov 20, 2008 4:05 am
I will go with A ..To test the answer choice, imagine that choice"A" were not true and see if the argument is still valid..It will be invalid and hence Choice A is the answer
Maxx
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by rohangupta83 » Thu Nov 20, 2008 4:13 am
slash wrote:rohangupta83 or mals24...anyone can explain it more clear. Im still confused :?
@Slash

the confusion arises from the fact that choice E is the implied assumption. I'll be a little more specific.

Conclusion states: As a consequence, they would raise the prices of their products and this price increase would raise the prices of their products and this price increase would discourage tobacco use.

Which basically means that to offset additional taxes the TC's will have to raise the prices of their products. This rise in prices will discourage T users.

Now, the TC will raise prices under only 1 assumption, which is that the price increase WILL offset the additional taxes the TC will be entitled to pay. Which is choice E.

Choice A provides another reason why the premise/evidence which states that the governments decision to stop allowing TC's to deduct advertisement expenses WILL FORCE TC's to raise prices. i.e. Because TC's are unable to cut corners at other places, they have no choice but to raise prices of their products.

Let me know if things are still hazy :)
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by rohangupta83 » Thu Nov 20, 2008 4:17 am
moneyman wrote:I will go with A ..To test the answer choice, imagine that choice"A" were not true and see if the argument is still valid..It will be invalid and hence Choice A is the answer
I am not sure whether you could use the negative test to introduce a Premise/evidence. I think its only for assumptions... isn't it?
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