You are an assistant to a senator who chairs an ad hoc committee on reforming taxes on telecommunication services. Based on your research, AT&T has spent over $15 million on related paperwork and compliance costs. Moreover, depending on the locale, telecom taxes can amount to as much as 25 percent of a consumer’s phone bill. These high tax rates on telecom services have become quite controversial, due to the fact that the deregulation of the telecom industry has led to a highly competitive market. Your best estimates indicate that, based on current tax rates, the monthly market demand for telecommunication services is given by Qd = 250 – 5P and the market supply (including taxes) is QS = 3P – 130 (both in millions), where P is the monthly price of the telecommunication services. The senator is considering tax reform that would dramatically cut tax rates, leading to a supply function under the new tax policy of QS = 3.4P – 130. How much money per unit would a typical consumer save each month as a result of the proposed legislation? Instruction: Round your answer to the nearest penny (2 decimal places). $_______

You are an assistant to a senator who chairs an ad hoc committee on reforming taxes on telecommunication services. Based on your research, AT&T has spent over $15 million on related paperwork and compliance costs. Moreover, depending on the locale, telecom taxes can amount to as much as 25 percent of a consumer’s phone bill. These high tax rates on telecom services have become quite controversial, due to the fact that the deregulation of the telecom industry has led to a highly competitive market. Your best estimates indicate that, based on current tax rates, the monthly market demand for telecommunication services is given by Qd = 250 – 5P and the market supply (including taxes) is QS = 3P – 130 (both in millions), where P is the monthly price of the telecommunication services.

The senator is considering tax reform that would dramatically cut tax rates, leading to a supply function under the new tax policy of QS = 3.4P – 130. How much money per unit would a typical consumer save each month as a result of the proposed legislation?

Instruction: Round your answer to the nearest penny (2 decimal places).
$_______

 

 

 

Answer:

The monthly market demand = Qd = 250 – 5P

The monthly market supply = QS = 3P – 130

For equilibrium point

Qd = QS

250 – 5P =3P – 130

8P = 380

P = $ 47.5

When the tax rates are reduced, then

250 – 5P = 3.4P – 130

8.4P = 380

P = $45.24

So saving of the subscriber = $ 47.5 – $45.24

saving of the subscriber = $2.26

Asked on February 14, 2018 in economics.
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