Change in order to change the consumption of good

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Reference no: EM131236874

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 $3.25 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.

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

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?

2. What would be the full economic price of this legislation?

3. Suppose the cross-price elasticity of demand between goods X and Y is 4. How much would the price of good Y have to change in order to change the consumption of good X by 20 percent?

Reference no: EM131236874

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