Question. No 1

In the recent budget announcement, federal minister announced the federal excise duty on mobile phone calls that are longer than three minutes has been set at Rs1 per call, Rs0.1 on every SMS and Rs5 on every GB of internet data. However, the proposed tax was not approved in the cabinet meeting later on. Now suppose if the following tax would have been approved.

(a)Use supply-and-demand framework/diagram of the market for internet and voice call packages without the tax.Assume hypothetical values and show the price paid by consumers, the price received by producers, and the quantity of such bundles. What is the difference between the price paid by consumers and the price received by producers?

(b)Now draw a supply-and-demand diagram for the internet and voice bundles market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of bundles sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of bundles sold increased or decreased?