Answer to Question #305198 in Microeconomics for mamalee

Question

Problem three: E-levy and elasticity of demand for electronic transaction

services

Consider the following facts about mobile money transactions. Currently, MTN and

AirtelTigo charge 1% on mobile money transactions up to a total charge of GHS 10

per transaction while Vodafone charges 0%. The E-levy which is currently being

discussed is intending to impose an additional 1.5% charge on most electronic

transactions.

c) What does your answer in part (b) imply about the likely amount the government can

realize about the E-levy? (Hint: calculations are not needed here. Just explain whether

the government will raise a lot of revenue or not much revenue).

Answer 1

c)

The 1.5% tax increase will only be more effective in reducing the demand, but less effective in raising the government revenue. In this case, the government will not raise a lot of revenue since consumers will reduce their demand for the service by 24% as suggested by a deputy minister of finance.