You Are Assistant To A Senator Who Chairs An As Hoc Committee On Reforming Taxes

You are assistant to a senator who chairs an as hoc committee on reforming taxes on telecommunication services. Based on your research, AT&T has spent over$15 million on related paperwork and compliance cost. Moreover, depending on the locale, telecom taxes can amount to as much as 25% 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 telecom industry has led to a highly competitive market. Your best estimeate indicates 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 = 4P -110 (both in millions), where P is the montly price of telecommunication service. The senator is considering tax reform that would dramatically cut tax rates, leading to a supply function under the new tax policy of Qs =4.171P- 110. How much money would a typical consumer save each month as a result of the proposed legislation?

Leave a Reply

Your email address will not be published. Required fields are marked *