Explore BrainMass

Price Ceiling Effects

From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on non-customers, who make $10 million in withdrawals from other banks' ATM machines. On average, non-customers earn a wage of $20 per hour and pay ATM fees of $2.75 per transaction. It is estimated that banks would be willing to maintain services for 4 million transactions at $0.75 per transaction, while non-customers would attempt to conduct 16 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 non-pecuniary cost of legislation that would place a $0.75 cap on the fees banks can charge for non-customer transactions?

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


What would be the full economic price of this legislation?


Solution Preview

See the attached file. Note that equilibrium is where supply and demand curves intersect, without market interference. With the price ceiling, a shortage is created.

Non-pecuniary prices are based on non-monetary value to consumers of having to look for another machine. This is the value ...

Solution Summary

Graphing to determine the the economic and non-pecuniary cost of a price ceiling on the price of ATM transactions.