E-levy and elasticity of demand for electronic transaction services. 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%. 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).

d) The same deputy minister of finance indicated that based on their research, after a while mobile

money customers will return to their respective service:

"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 what we learned about elasticity in this class?

Explain.

Answer rating: 100% (QA)

a Price elasticity means a large decline in consumer demand for certain goods and services when the ... View the full answer