Credit Card Companies Require Low Minimum Payments That Impose Significant

question 183

Multiple Choice

Credit card companies require low minimum payments that impose significant interest costs on consumers choosing to pay the minimum. Recent legislation has required credit card companies to show on customer billing statements how much interest would be paid and how long it would take to repay the current balance if only the minimum is paid. Behavioral economists would expect this legislation to

• A)substantially increase monthly payments, as consumers make better decisions when they have more information.
• B)overcome the status quo bias that keeps people paying the minimum.
• C)cause credit card companies to increase the minimum payments.
• D)have little effect, as anchoring would keep many people paying the minimum.

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Definitions:

Excess Burden

The cost to society created by market inefficiency, mainly due to taxes or government policies, that causes a deviation from an optimal allocation of resources.

Mutually Beneficial Exchanges

Transactions that provide benefits to all parties involved, ensuring a win-win situation.

Excise Tax

A tax levied on specific goods, services, or transactions, often aimed at discouraging their use or raising revenue.

Relative Burden

A measure of the comparative impact or weight of a specific demand, typically financial, on different entities or groups.