Refer to the Information Provided in Scenario 22

Refer to the information provided in Scenario 22.5 below to answer the question(s) that follow.
SCENARIO 22.5: The tiny nation of Bugaboo consists of two virtually identical islands, Achoo and Zoink, separated by the Strait of Dingo. The islands are similar in geography and population. The only telephone service on the islands is cellular, and the only cellular provider on the islands is the government-owned Bugaboo Communications Company, which charges a standardized rate of 20 Bugabucks per minute. Both islands add on an additional $5 Bugabucks-per-minute usage tax. As a way to increase revenue, the island governor of Zoink decided to increase the usage tax to $10 per minute, effective January 1, 2017. The average monthly cellphone usage per month is listed in the table below.

-Related to the Economics in Practice on p. 727: Refer to Scenario 22.5. Using the difference-in-differences method, what is the estimated effect of the increase in the usage tax on the average number of minutes used monthly per resident in Zoink?

A) -225
B) -425
C) -650
D) -1,075

Correct Answer:

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