What would be the change in quantity demanded from the 20 percent increase in the price of American Express Cards?
Was the increase a good move on the part of American Express? Should American Express increase its price more, or decrease the price of cards? Explain. From our data, revenues for American Express increased by about $65 million dollars, which is 5.9 percent. The 10 dollar change is 20 percent of a price of 50 (weighted average price of Gold and Green cards) so we need to divide 5.9 by 20. Thus 5.9/20 = .295 = 1 + ep or ep= -.705. We find that a 20 percent increase in the price of American Express Cards lowers quantity demanded by 14.1%, or by about 2.81 million cards. We know total revenue went up, and since quantity went down, the firm likely increased profits (total cost should fall if quantity falls). In fact, since elasticity is still below 1 in magnitude, AMEX should increase price again. 2. Question. If you were in charge of the budget for New York City in 1990, would you lower the tipping fee? Explain. (HINT: What would happen to revenue collected?) First, think about the demand
