Question: In the late 1990s, the town of Santa Monica, California, made it illegal for banks to charge people ATM fees. As you probably know, it's almost always free to use your own bank's ATMs, but there's usually a fee charged when you use another bank's ATM. (Source: The war on ATM fees, Time, November 29, 1999.) As soon as Santa Monica passed this law, Bank of America stopped allowing customers from other banks to use their ATMs: In bank jargon, B of A banned "out-of-network" ATM usage. In fact, this ban lasted for only a few days, after which a judge allowed banks to continue to charge fees while awaiting a full court hearing on the issue. Eventually, the court declared the fee ban illegal under federal law. But let's imagine the effect of a full ban on outof-network fees.
a. In the figure, indicate the new price per out-of-network ATM transaction after the fee ban. Also clearly label the shortage.
b. Calculate the exact amount of producer and consumer surplus in the out-of-network ATM market in Santa Monica after the ban. How large is producer surplus? How large is consumer surplus?