Demand for Vanity Plates

Mini Case Analysis for the Application

Of the Concept of Elasticity
Submitted by: Marigold Z. Juan
September 10, 2016
Analysis:
1. Prove that demand is inelastic by calculating the price elasticity of demand for vanity license
plates.

If price elasticity (Ep) is greater than 1, it is said to be elastic. Since the price elasticity is
less than 1, this proves that demand for vanity license plates is inelastic. This means that for every
percentage increase in price there is a corresponding 0.3% decrease in the quantity demanded of
vanity plates.
2. Prove that the Assistant Director is wrong by computing:
a. The quantity demanded if price is set to $40 using the elasticity you derived in (1):

The quantity demanded is 123,000 plates if the price is set to $40.

b. The corresponding revenue if price is set to $40:

The price elasticity if price is set to $40 is:

This tells us that the price is still inelastic at $40. If the objective of the state is to make
money from these plates, this proves that the assistant director is wrong. The state should
determine the maximum price to charge. In getting the maximum price, they should set the price
elasticity equal to 1. In doing so, the state will have an optimum output that will generate a
maximum total revenue.
3. Bring the case to the Philippine setting.
There are two types of vanity plates in the Philippines, the Premium (3 alpha, 2 numeric)
and Select (3 alpha and 3 numeric). According to LTO website, vanity plate can only be issued to
a motorist with a registered motor vehicle already issued to a regular LTO license plate (private
AUV, SUV, cars). To make it realistic, I get my quantity demanded from the total number of
registered plates based on the most recent data available and that is in the year 2013. Out of the
2,722,231 qualified registered plates, I only get 2% as quantity demanded (Q1) and a decrease of
60% based on the Texas case for Q2. I only focus my analysis on the Select edition. The
published rates before and after September 2013 is Php 10,000 and Php 15,000 respectively. The
following are my computations:

Based on the computations, the price of vanity plates in the Philippines is already elastic.
That for every percentage increase in price corresponds to 1.2% decrease in demand of vanity
plates. Also, the elasticity is greater than 1 which indicates that this is already considered a luxury
good.
If the Philippine government wants to generate income from vanity plates, it should not
be issued on top of the regular license plate; and it should also consider looking at the price
elasticity and demand of vanity plates in the country.