Eco_561_Week_1

ECO 561 December 6, 2010 Jack Karczewski Market Equilibrating Process In these tough economic times every consumer and business is feeling the crunch. Consumers are not spending as much and companies are either laying-off workers or going out of business altogether. Partly because of these tough times, the Federal Government has adopted a bill called the Credit Card Bill, aimed at helping consumers pay less banking fees. In this paper we will look at how this bill has put a price ceiling on fees that banks collect and see if this has created a market equilibration. The card bill has many parts to it however there is one part that has effects on everybody that has a checking account. The bill states that banks can only charge overdraft fees to customers who give the bank permission; this is called opting in or out. The bill also limits the amount of fees that a bank can charge in a day. This means that is a person has five items that go through his or her account on the same day he or she will only pay an overdraft fee for three of the items. This would be considered a price ceiling. “A price ceiling sets the maximum legal price a seller may charge for a product or service” (Brue, Flynn & McConnell, 2009). So even though a customer uses a service of the bank it is limited on how much it can charge a customer. It’s hard to say what the effect this new bill will have on the equilibrium between consumer spending and not spending however it does have a direct effect on how banks will generate revenue. Because of this bill free checking will be going away. Some of the major banks have already changed and by the end of 2011 the rest of the banks I am sure will follow. This bill only affects about 20% of the customer base because that is the amount of habitual overdraftor’s now all customers will have to pay for their checking accounts. This bill in theory makes sense however a government enforced price ceiling can have a very negative long-term affect. Does this mean that the government needs to step in and control what a hotel chain can charge for a soft drink or what the NFL can charge for a ticket' This price ceiling is protecting consumers from themselves because the banks do not force the consumers to spend more money than what they have. In some cases price ceilings can have a negative effect. In this case it is costing every checking account holder rather than just the customers who use this service. Reference Brue, S. L., & Flynn, S. M., McConnell, C. R. (2009). Economics: Principles, Problems, Policies (18th ed.). Saddleback, NJ: McGraw-Hill Company.