Question

If a $100 drop in the price of a $10,000 car resulted in an increase in the quantity of cars purchased from 100 to 110 and a $100 drop in the price of a $1000 vacation rental resulted in an increase in the quantity of weekly vacation homes rented from 100 to 110, the price elasticity of demand is:

Answer 1

Answer:

Price elasticity of demand is greater for the Car

Explanation:

Price elasticity of Demand = (Q2 - Q1/Q1) ÷ (P2 - P1/P1)

For the car,

PED = (110 - 100/100) ÷ (10000-9900/10000)

= 0.1 ÷ 0.01

= 10

PED = (110 - 100/100) ÷ (1000-900/1000)

= 0.1 ÷ 0.1

= 1

Since 10 > 1, hence the PED of the Car is greater than that of vacation homes.