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11 July, 14:16

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:

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  1. 11 July, 14:40
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    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.
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