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In: Finance

From California to New York, legislative bodies across the United States are considering eliminating or reducing...

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 $3.50 per transaction. It is estimated that banks would be willing to maintain services for 4 million transactions at $1.50 per transaction, while noncustomers would attempt to conduct 19 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 $1.50 cap on the fees banks can charge for noncustomer transactions?

Instructions: Enter your responses rounded to the nearest penny (two decimal places).

$ 0

What would be the full economic price of this legislation?

$ 0

Solutions

Expert Solution

Ans:- Nonprecuniary cost is nothing but it is a type of cost that cannot be quantifiable or measured in terms of monetary benefits. It can also be considered an opportunity cost in this case for traveling to ATM to withdraw cash

In this question, it is given that from California to Newyork, legislative bodies are considering of reducing or eliminating surcharges that bank impose on non-costumers. Average noncustomers earn $26 per hour and pay ATM fees of $3.50 per transaction. Here equilibrium price is given $3.50 per transaction and opportunity cost is $26.

It is estimated that the bank is willing to maintain services for 4 million transactions at $1.50 per transaction but noncustomer would conduct 19 million transactions. Therefore the gap between the available and desired transaction as per this question will be (19 million - 4 million = 15 million ). Here the cap price is given $1.50.

Therefore there is a shortage of 15 million which means it will take an extra 15 minutes for traveling to another machine to withdraw cash because it is given in the question for every 1 million gap customer will have to spend an extra minute traveling to withdraw cash, therefore for 15 million, it will be 15 minutes.

Ans:- (a)As per this question, the wage rate or opportunity cost is given $26 per hour, therefore the nonpecuniary price will be ($26/60)*15 = $6.5.

Ans-(b) The full economic price of this legislation will be (cap price + nonpecuniary price)

$1.50 + $6.5 = $8 is the required answer.

jeff jeffy answered 2 months ago
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