# 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?

\$_______

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
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