Which of the following conclusions is implied by the fact that banks charge for wire transfers...

Which of the following conclusions is implied by the fact that banks charge for wire transfers but not for funds deposited by check?

a) banks are not perfectly competitive

b) banks face a perfectly elastic demand curve for each of their services

c) Wire Transfer fees are mandated by banking regulations

d) customers who use checks shop more carefully than those who transfer funds by wire.

Expert Solution

b) Banks face a perfectly elastic demand curve for each of their services.

Perfectly elasticity demand is that an increase in price of its goods or service shall result is quantity demanded to be zero , and the decrease in price shall not affect the sales.

Since Banks works on Perfectly competitive market, there are several Banks who offer the similar services in the market and price is determined by the market forces alone. The Banks are the Price Takers and not price deciders.

If one Bank decides to increase its price for a particular service , it would result in fall of its quantity demanded to zero. This is because there are many other Banks who offers the same service at a lower price, customer would move to the other Banks immediately.

Therefore, Banks charges for wire transfers and not for Check deposit because the market forces decides so.i.e) they are in Perfectly competitive market.

Rahul Sunny answered 1 year ago

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