Answer to Question #307768 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.

                                

“The research we did also told us that there will be about 24 per cent attrition rate in the three months to six months that we will introduce it. The same research told us what should be done to bring back these people after a while, and we have all these things in place”

 

Suppose that the 3-6 months constitute short-run and any period after that constitutes long-run. Based on the minister’s statement, is the demand for mobile money services more or less elastic in the short-run compared to the long-run? Is this consistent with whatwelearnedaboutelasticity in thisclass? Explain

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Answer 1

The demand for mobile money services will be more elastic in the short run than in the long run.

Yes, it is consistent with what we learned in class.

The introduction of an additional 1.5% of E-levy charges on the electronic transaction will definitely lead to an increase in the price levels which in turn leads to a bigger percentage fall in the demand of both Vodafone and MTN and AirtelTigo mobile transactions. The tax plan to be imposed of 1.5% is great and therefore the demand becomes more elastic.