Suppose the government levies a $6 per month tax on cell phone usage. If the demand for cell phone service is relatively (but not perfectly) inelastic, and the supply is relatively (but not perfectly) elastic, then the price of cell phone usage will:

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When demand for a product is relatively inelastic, consumers are not very responsive to changes in price. Therefore, a tax will result in a smaller decrease in the quantity demanded compared to the increase in price. On the other hand, when supply is relatively elastic, producers are more responsive to changes in price. Therefore, the increase in price will result in a larger increase in quantity supplied. As a result, the burden of the tax will be shifted more towards consumers than producers, and the price of cell phone usage will increase by less than $6.

Suppose the Government Levies a $6 Per Month Tax on Cell