Q. A researcher predictable that cost elasticity of demand for automobiles in the United States (US) is -1.2, while the income elasticity of demand is 3.0. As in the subsequent year, U.S. automakers propose to increase average value of automobiles by 5%, as well as they expect consumers' disposable income to rise by 3%.
(a) If sales of nationally produced automobiles are 8 million this year, clarify how many automobiles do you expect U.S. automakers to wholesale in subsequent year?
(b) By how much should domestic auto-makers increase the cost of automobiles if they wish to increase sales by 5 percent next year?