Answer to Question #306121 in Microeconomics for kobby

Question

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.

a) In ordinary language, explain what it means to say the demand for mobile money transactions is price elastic.

b) A deputy minister of finance has suggested that the introduction of the E-levy will reduce mobile money transactions by 24%.1 Based on this and information in the preamble to this question, is the demand for mobile price elastic or price inelastic? Does your answer depend on which mobile network one is using?

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

(a).To suggest that mobile money transactions are price elastic indicates that variations in price have a significant impact on the amount required of this particular service. The change in quantity demanded as a result of a price shift is significant.

(b).As explained below, the demand for mobile phones is price elastic.

Imposing a 1.5 percent surcharge on most electronic transactions will raise the price level, resulting in a greater percentage drop in demand for MTN, AirtelTigo, and Vodafone mobile money transactions. The change in quantity demanded as a result of price adjustments following the 1.5 percent tax hike is significant, indicating that demand is elastic.

And to make this demand elastic it will not consider the network in which the customers will be using.

(c).The government will raise a lot of revenue because many consumers will be using this mobile networks.