Problem three: 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 GHS10

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 ordinarylanguage, 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%.1 Based on this and information in the

preamble tothisquestion,isthedemand formobileprice elasticorprice inelastic?Does

your answer depend on whichmobile network one is using?

c) What does your answerin part(b)imply aboutthe likely amountthe government can

realize about the E-levy? (Hint: calculations are not needed here.Just explain whether

the government will raise a lot ofrevenue or not much revenue).

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

whilemobilemoneycustomerswillreturntotheirrespectiveservice: