From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on noncustomers, who make $12 million in withdrawals from other banks’ ATM machines. On average, noncustomers earn a wage of $26 per hour and pay ATM fees of $3.25 per transaction. It is estimated that banks would be willing to maintain services for 6 million transactions at $1.25 per transaction, while noncustomers would attempt to conduct 22 million transactions at that price. Estimates suggest that, for every 1 million gap between the desired and available transactions, a typical consumer will have to spend an extra minute traveling to another machine to withdraw cash. Based on this information, what would be the nonpecuniary cost of legislation that would place a $1.25 cap on the fees banks can charge for noncustomer transactions? Instructions: Round your answer to the nearest penny (2 decimal places). $________ What would be the full economic price of this legislation? $_________

From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on noncustomers, who make $12 million in withdrawals from other banks’ ATM machines. On average, noncustomers earn a wage of $26 per hour and pay ATM fees of $3.25 per transaction. It is estimated that banks would be willing to maintain services for 6 million transactions at $1.25 per transaction, while noncustomers would attempt to conduct 22 million transactions at that price. Estimates suggest that, for every 1 million gap between the desired and available transactions, a typical consumer will have to spend an extra minute traveling to another machine to withdraw cash.

Based on this information, what would be the nonpecuniary cost of legislation that would place a $1.25 cap on the fees banks can charge for noncustomer transactions?

Instructions: Round your answer to the nearest penny (2 decimal places).

$________

What would be the full economic price of this legislation?

$_________

 

 

 

Answer:

The equilibrium price = $3.25

Ceiling Price = $1.25

Shortage caused by ceiling price= ( 22 – 6 )million = 16 million transaction

the average consumer spends an extra 16 minutes traveling to another ATM machine.

Opportunity cost of looking for other ATM = $26 per hour

the non- pecuniary price of an ATM transaction = Opportunity cost * fractional hour spent in looking for ATM

the non- pecuniary price of an ATM transaction = 26 * 16/60

the non- pecuniary price of an ATM transaction = $6.93

full economic price = 6.93 + 1.25 = $8.18

Asked on February 14, 2018 in economics.
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