An Annoying Penny

Jan 16, 2012 • Behavioral Economics, Businesses, Money and Monetary Policy, Thinking Economically • 306 Views    2 Comments

People do not want to pay $2.01 for a tall coffee at Starbucks. No, the problem is not the $2.00.

The problem is the penny.

Starbucks recently raised the price of a tall coffee to $1.85 in NYC. With tax, the total is $2.01. As a result, baristas are dipping into their tips. Rather than giving 99 cents back for an extra dollar, they are pulling the penny from their tips jar.

Or, as one person said, “I can’t believe it. Now I need to walk around with pennies?”

Penny facts:

  • Worth 2 cents, a penny minted before 1982 is 95% copper.
  • Worth .005 cents, a 2011 minted penny is 2.5% copper.
  • Selling its pennies for a penny each to the Federal Reserve, the U.S. Mint loses .7 cents for each one. The yearly loss (called negative seignorage) is $50 million.
  • 11 pounds of pennies pay for $20 of groceries.

Watch a “snappy” video, “Death to Pennies,” here.

Our bottom line: Should we eliminate the penny?

The Economic Lesson

Perhaps, though, the biggest cost of the penny is its opportunity cost. How much time is lost cumulatively, across the U.S., from standing behind someone counting pennies at the cash register?

An Economic Question: How might the elimination of the penny affect our economy?

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