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?”
- 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?
How do you feel about the penny and the nickel? If you care about the federal budget, you might want to mint them more inexpensively. But, if you own a laundromat, you disagree.
Pennies are actually copper coated pieces of zinc while nickels are nickel (but mostly copper). It costs close to two cents to mint a penny and sometmes as much as nine cents for a nickel. Making them more cheaply could mean replacing the copper in a penny with an aluminum alloy. The nickel and the penny could both be made of plastic.
However, just switching from copper to zinc in the penny was controversial when President Reagan proposed it in 1981. A recent WSJ article described the uproar. Some said we should not become dependent on foreign zinc suppliers (Canadian). Others said tradition was crucial. Vendors wanted to avoid retooling their coin machines. Plastic coins stir up even more emotion.
Do care if your penny is plastic?
The Economic Lesson
Anything can be money, a piece of paper, a circle of zinc, or a seashell, if it has three basic attributes:
- It is accepted as a medium of exchange. For example, you and I are willing to use the commodity in a supermarket. A peso or a tie is not a medium of exchange in the United States. The nickel is a medium of exchange.
- It is a unit of value. We all know how much purchasing power a nickel represents but not necessarily the yen.
- It is a store of value. We all like our money to retain its purchasing power if we do not spend it immediately.
Posted by: adminEcon
Tags: coin, deficit, nickel, penny