A state automobile registration authority considers a price hike in personalize "vanity" license plates. The current annual price is the $35.00 and the registration office is considering increasing the price to $40.00 p/year in an effort to increase revenues. Last year the registration office sold 5,000 vanity license plates, they expect to sale 3,500 vanity license plates with the price of $40.00
a) Calculate the price elasticity of personalize "vanity" license plates; what this coefficient means?
b) Calculate the total revenue for each price.
c) Should the registration office increase the price of the vanity plate? yes/no, why?
d) Assume the income of the population increases from $48,000 to $52,000 annually; the quantity demanded for vanity plates rise to 5,500 from the initial 5,000 units. Obtain the income elasticity for the vanity plates.
e) According to these estimates, is the vanity plates a normal or inferior product? What the coefficient of income elasticity obtained in D means?