Tuesday, February 19, 2013

Price Ceilings on Debit Card Fees

In the Prin. of Microeconomics course I teach at the University of Iowa I talk about the impact that price ceilings (legal restrictions from raising a price above a certain amount) have on the market and on economic well being.  As I show in class, price ceilings tend to be inefficient (consumers gain and producers lose) since producers lose more than consumers gain.  The New York Times reported that the Federal Reserve System has capped the fee that banks can charge for debit card purchases.

Here is an example of a price ceiling and let's see if we can see this in action.  Consumers will gain through either lower retail prices or slower price increases in retail prices.  Banks will lose revenue from those higher fees.  In an effort to offset this loss, banks will likely raise fees elsewhere which will impact more individuals than just those using debit cards.

1 comment:

Anonymous said...

such a great post at least we would be aware also..our id cards is very important and we should take this with us..

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