Directions: The critical reasoning question is based on a short passage, an argument, a set of statements, or a plan of action. For each question, select the best answer of the choices given and explain why the chosen answer is the right fit.
Passage: While it is true that taxes on Tobacco products are already high, it must not stop the Government from taxing them higher. Also, the government should stop permitting tobacco companies from subtracting advertising expenses from their revenues in calculating taxable income. Tobacco companies would then have to pay more taxes. Therefore, they would raise the prices of their products and this price increase would discourage tobacco use.
Which of the following assumptions hold?
1
Tobacco companies would not offset the payment of extra taxes by reducing costs in other areas.
2
Tobacco Companies would stop advertising their products.
3
People would not continue to buy tobacco products if these products were no longer advertised.
4
The higher income gained through taxes could be deployed on social welfare activities.
5
Tobacco should be considered an addictive good and hence does not necessarily comply to law of demand.