Question: you are an assistant to a senator who chairs an...
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 consumer’s 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
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 +190 (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 = 4P +120. How much money per unit would a typical consumer save each month as a result of the proposed legislation?