Question

Last month, Your hotel sold 2000 rooms at $90 per room

This month, you sold 1900 rooms at $100 each

PED?

.45

.55

1.45

1.55

Answer 1

0.45 is correct answer  

Explanation.

1)PED refers Price Elasticity of Demand.

2) It is the degree of response in quantity demanded of a product is caused by a change In price of that product.

3) Elastisity of demand calculation is always based on law of demand. Law of demand tells that if price of product goes up , demand for the product falls down and vice versa.  

Calculation of PED

PED = percentage change in demand of X product / percentage change in price of a X product

Or

PED =((q2-q1)/q1) / ((p2-p1)/p1)

In a given formula q1= old demand

q2=new demand

p1=old price

p2= new price

So that in a given problem

q1=2000

q2=1900

p1=$90

p2=$100

PED =((1900-2000)/2000) / ((100-90)/90)

=(-100/2000) / (10/90)

= -0.05 /0.111111

= 0.45  

Price elastisity of demand is always negative because if price increases demand decreases and vice versa.

Thank you