Question

You are an aide for the Senate Banking Committee Chairman. He comes to you with a bill that proposes setting limits on what ATM owners can charge nonaccount holders, over and above what banks charge their own customers. Currently, large banks charge noncustomers an average fee of $1.35 per transaction in addition to the fees the customer’s own bank imposes. The Senator asks you to look at a proposal that would place a $0.50 cap on the fees ATM owners can charge noncustomer for accessing their money. If this legislation were enacted, what would be the likely effects?

Answer 1

The proposal is, in essence, an effective price ceiling of $.50. As a result, this will create a shortage of ATMs. The amount of the shortage will be equal the difference between the quantity demanded and the quantity supplied at the price ceiling. Longer queues are expected to develop at ATM machines as more customers might be inclined to make these transactions now that fees are lower. Including the value of lost time, the full economic price paid for ATM usage will exceed the current price of $1.35 per transaction. The full economic price is that the actual magnitude of the shortage and full economic price will depend on the relative slopes of the demand and supply curves.