How much does the consumer save?

Refer to the fact pattern in the Text for Question No. 16 in Problems and Application of Chapter 2: Show more Refer to the fact pattern in the Text for Question No. 16 in Problems and Application of Chapter 2: Market Forces: Supply and Demand 1. Calculate the equilibrium price of telecommunications services prior to the tax reduction 2. Calculate the equilibrium price of telecommunications services after the tax reduction. How much does the consumer save? (Hint you will want to set QDX = QSX) 3. After the tax reduction which way will the Supply schedule shift? Hint refer to Chapter 2 Demo Problem 7 (a tax increase problem) 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 consumers 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 = 300 4P and the market supply (including taxes) is Qs = 3P 120 (both in millions) where P is the monthly price of 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 = 3.2P 120. How much money per unit would a typical consumer save each month as a result of the proposed legislation? Show less

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