Question

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 $14 million in withdrawals from other banks' ATM machines. On average, noncustomers earn a wage of $24 per hour and pay ATM fees of $3.00 per transaction. It is estimated that banks would be willing to maintain services for 6 million transactions at $1.00 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.
1. Based on this information, what would be the nonpecuniary cost of legislation that would place a $1.00 cap on the fees banks can charge for noncustomer transactions?
Instructions: Round your answer to the nearest penny (2 decimal places).$
2. What would be the full economic price of this legislation?
$

Answer 1

a.  Nonpecuniary cost of legislation that would place a $1.00 cap on the fees banks can charge for noncustomer transactions is: $6.40.

b. The full economic price of this legislation is: $7.40 per transaction.

Equilibrium price, Pe = $3.00 per transaction

Opportunity cost = $24 per hour

Ceiling price, C = $1.00 per transaction

First step is to calculate the Shortage in transaction volumes

Shortage in transaction volumes =22million - 6million

Shortage in transaction volumes =16million

Second step is to calculate the time lost in 16million of shortage transaction

Time lost= (16mn x 1 minute)/60

Time lost= 16 minutes /60

Third step is to calculate  opportunity cost of 16 minutes which is the non pecuniary cost of legislation

Opportunity cost = $24 per hour x 16 / 60

Opportunity cost = $6.40

b. Full economic price of this legislation:

Full economic price of this legislation= Ceiling price + Opportunity cost

Full economic price of this legislation = $ 1.00+$6.40

Full economic price of this legislation = $7.40 per transaction

Inconclusion the  Nonpecuniary cost of legislation  is $6.40 and the full economic price of this legislation is $7.40 per transaction.

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