CR: prohibitionland

[VivekjhaMBA]

The people of Prohibitionland are considering banning the service of alcoholic beverages in restaurants to curb unruly behavior on the part of its residents. Proprietors of restaurants in Prohibitionland are protesting the ban on the grounds that it will reduce their revenues and profits. However, several provinces in Prohibitionland enacted restrictions on alcoholic beverages last year, and the sales taxes paid by the restaurants in those provinces rose by an average of 50 percent. In contrast, the sales taxes paid by restaurants located in areas of Prohibitionland that did not have any restrictions rose by an average of 30 percent.

Which of the following, if true, supports the restaurant proprietors’ economic stance against the ban?
A In the provinces that restricted alcoholic beverages, there was a short-term negative impact on restaurant visitation in the beginning of last year.

B The sales tax in Prohibitionland is lower on food and beverages than it is on other consumer goods, such as clothing.

C The consumption of alcoholic beverages in Prohibitionland has been on a gradual decline the last 20 years.

D The restrictions on alcoholic beverages enacted last year allowed for the service of drinks beginning around dinnertime each evening.

E Overall sales tax revenue did not increase at a substantially higher rate in the provinces that enacted the restrictions on alcoholic beverages than in the rest of Prohibitionland last year.

I saw this question in one of the tests of manhattan..i am not able to follow the explanation..can anyone please explain?

thanks

[StaceyKoprince]

consider ban serving alcohol in restaurants
b/c want to stop bad behavior
restaurant owners don't want to
b/c they say it will reduce revenues and profits
BUT last year some provinces did enact restrictions (just restrictions though - maybe not an outright ban, as is being considered above?)
result: those restaurants that did have the restrictions paid 50% more in sales tax after the restrictions were put in place (implication: so they were selling a lot anyway?)
restaurants that didn't have restrictions only had sales tax increase of 30% (implication: so their business didn't grow as much as the ones that did have the restriction? So the restaurant owners who don't want the ban should actually want it b/c somehow it will help business? By the way, maybe the reason the other group pulled in more sales taxes was because the tax rate went up, not because they sold more.)

The stuff in parentheses above = my own thoughts as I read the argument, based on what the author is saying. That stuff is not stated in the argument.

What supports the people who don't want the alcohol ban?
- Right now, the author is claiming that the areas with restrictions (last year) actually did better than the areas without restrictions; by that reasoning, the restaurant owners should want the ban. So somehow we have to tear down the idea that the ban would be better for the restaurants, not worse.

(A) at the beginning of the year, there was a negative impact based on the restrictions, but it was only short-term.
- this doesn't help the restaurant owners to make the case that there shouldn't be a ban - the negative effects were only short-term

(B) Sales tax on other consumer goods = out of scope. We're trying to figure out whether an alcohol ban will hurt business for restaurants.

(C) fewer people are drinking alcohol
- If not many people drink it, then the restaurant owners wouldn't care as much about banning it.

(D) restrictions last year still allowed alcohol to be served at dinner and at night
- oh, so the restrictions last year weren't an outright ban? Then dismissing the problem by saying the restrictions didn't hurt business means nothing - a ban is a much more extreme situation. Maybe most people drink at night and that's why last year's restrictions didn't hurt business, but it would hurt business greatly from now on if people can't drink at night.

(E) the restriction areas didn't suddenly have the sales tax rate increase a lot last year compared to the non-restriction areas.
- so the discrepancy in sales tax revenues wasn't due to any disparity in sales tax rates in the region. It was about equal for both. That still leaves the author's claim that the restricted areas did better than the non-restricted areas, so why are the restaurant owners complaining about a ban?

[Guest]

Stacey,
I agree with your thought process on this question. However, I believe something is wrong with choice E and your interpretation of it.

E Overall sales tax revenue did not increase at a substantially higher rate in the provinces that enacted the restrictions on alcoholic beverages than in the rest of Prohibitionland last year.

To me this choice seems to introduce the idea that Total sales tax revenue (dollar figure) did not increase at a higher rate (% change year over year) versus the rate change in the rest of the Prohibitionland. However your reasoning above seems to interpret the choice as saying that the flat tax rate was not substantially different in any of the provinces. Is something wrong with the answer choice? I agree that E is incorrect if your interpretation is correct but personally, I don't read it like that.

[JonathanSchneider]

Yeah, I agree with you, Guest. E talks about the rate of overall revenue, not the specific tax rate. Here's how I read E: if tax revenue from restaurants in provinces that had the restrictions increased more than tax revenue from restaurants in provinces that did not have the restrictions, then it would seem that the restrictions helped restaurants. HOWEVER, we were not told in the original argument what the restrictions on alcohol were; nor were we told that they even applied to restaurants! They may have applied to liquor stores. If that were the case, then perhaps people would have gone to restaurants to get the alcohol that they could not get elsewhere. As a result, the revenue from those restaurants would have increased, but the revenue from liquor stores would have dropped. E supports this idea: sales must have dropped somewhere else while they went up in restaurants. But here's the thing: we still don't know what those earlier restrictions were! D tells us that the restrictions allowed restaurants to serve alcohol during their peak hours. As a result, the earlier data does not support an outright ban.

[malikrulzz]

Even I will go with D. Can you please let me know the OA and paste the OE as well

[StaceyKoprince]

Ah, guest, yes I see what you're saying. I did interpret it to be about the tax rate, not the revenue generated (which may or may not have been about a tax rate change).

So E says that sales tax revenue, in general (from ALL businesses) did not increase at a higher rate in restricted provinces than in the others. So either the rate of change in sales tax revenues was about the same or was lower for restricted provinces.

If we're trying to support the business who want the ban, we might say "sales tax revenues increased at a substantially LOWER rate in the restricted provinces" - see, it's a problem! We shouldn't have the ban! But to say that the sales tax revenues in the restricted provinces didn't grow more than in the others... well, that doesn't mean there's a problem or a decrease in profits.

[cmtorres]

Another explanation for D as the correct answer is that this answer choice identifies the distinction between a ban on the service of alcoholic beverages vs. restrictions on alcoholic beverages. Because the restrictions enacted last year allowed for the service of drinks beginning around dinnertime, which is when most people order alcoholic beverages out at restaurants, then the restrictions did not negatively impact customers' willingness to dine at restaurants. Therefore the restaurant proprietors wouldn't be worried about falling revenues and profits. Because the evidence cited in the explanation of the question relates to the restrictions, it seems to be irrelevant to the consideration of the effects of the ban as it may be completely different from the effects of the restrictions.
So they would still stand against the ban because it would completely eliminate the service of alcoholic beverages and is distinct from the restrictions enacted last year.

[naveensomani]

what is OA?

[mschwrtz]

OA is A

[mschwrtz]

Oops, meant D.

DDDD

An Office Hours student asked me about this question, he and I looked at this forum thread together, then I typed in his answer rather than the OA. D'oh.

[rajapalaniappan.23.12.1984]

Thanks for the Explanation !

[ChrisB]

You're welcome!

-Chris

[rte.sushil]

I have doubt out of the lines :-
I understood after reading the explanation but still i have one question

If restaurants are earning X dollar without ban then on restricted ban, how can this amount be increased? So it means if there is a ban on alcoholic beverages and only it is allowed during dinner time , then more people turned up to these restaurants.(since comparison with non restricted restaurants is given so it is right to assume that more people turned up to restricted restaurants).
But this doesn't seem logical to me:(. what could be the factor for increase of sales.


2.) If i think of this logic, i can say that there may be another factor which increased the revenue not because that alchoal was banned. This means that there is no surity that the same factor may be repeated next year also. So its not right to assume this option as the base of reasoning

SO i didn't select option D but end up in marking A as there is some relative percentages are given. But mentioning "short term" in explanation makes sense not to select this answer.

Please help me in clarify this doubt.

Thanks!!

[tim]

when you say "doubt", that means you think something is wrong. remember, officially correct answers are always correct! can you make it more clear what you think is wrong with the official answer so we can help you? i have to admit i was unable to follow your post because there were too many grammar errors..

[rte.sushil]

when you say "doubt", that means you think something is wrong. remember, officially correct answers are always correct! can you make it more clear what you think is wrong with the official answer so we can help you? i have to admit i was unable to follow your post because there were too many grammar errors..

Sorry for errors.
I meant that how can i say that because the dinner was served at restricted timing so the sale was increased?

As in example, A restaurant earns 100$ in a day when there is no restriction. But now if there is restriction and alochoal can only be served at dinner time, so the sales should should be equal or less than 100$. (but as per example, the sales went up, so i was wondering how can this happen? )